Central bank examines Bank of China money-laundering allegations

Bank of China

Mark Ralston/AFP--Getty Images

China’s central bank is investigating one the country’s–and the world’s– largest commercial banks after allegations that it has been helping clients to get round local capital controls, according to media reports.

The China Central Television network had alleged earlier in the week that Bank of China, the country’s fourth-largest bank and one of 28 institutions considered by the Financial Stability Board to be “Global Systemically Important Financial Institutions”, was offering clients a service allowing them to move more money offshore than allowed by annual caps.

The report said Bank of China kept the program secret because they knew it was illegal. Reuters said Bank of China has denied the allegations.

In a statement late Thursday, the People’s Bank of China, which polices the country’s restrictions on moving capital in and out of the country, said it “noticed a media report about a commercial bank’s cross-border renminbi busiess, and are verifying related facts.”

The allegations come against a background of increasing evidence that China’s middle class and entrepreneurs are looking abroad not just for their future investments, but also with a view to possible emigration owing to the country’s failure to deliver a quality of life that meets their aspirations, due to factors such as pollution or corruption.

Tens of thousands of Communist Party officials have left China since the mid-1990s, taking over $130 billion with them, according to a 2008 report compiled by the PBoC.

China is trying to stop a trend in which local citizens gain residency in or citizenship of another country in return for big investments there. Such schemes are actively marketed in Hong Kong, which has an autonomous financial system outside of mainland China’s capital controls.

In May, a senior  Communist Party official in the southern city of Guangzhou was forced to take early retirement after being labeled a “naked official”, that is, one whose wife and children have emigrated.

It isn’t just poor countries in Asia and Africa that are trying to attract Chinese money that way. The U.K., for instance, offers residency to anyone willing to invest over keep one million pounds ($1.7 million) in the country and invest 750,000 pounds, even if only in the form of government bonds.

But even while it tries to crack down on illicit capital flight, China is trying to encourage more international use of the renminbi, as a prelude to loosening controls in future. It has recently signed agreements for banks in London, Frankfurt and Luxembourg to clear transactions in renminbi, setting up the makings of an international capital market for its currency.


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