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Bank of China

Bank of China is one of the big four state-owned commercial banks of the People's Republic of China – the other three are Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China. Bank of China was founded in 1912 to replace the Government Bank of Imperial China, and is the oldest bank in China. From its establishment until 1942, it issued banknotes on behalf of the Government of the Republic of China along with the "Big Four" banks of the period: the Central Bank of China, Farmers Bank of China and Bank of Communications. Although it initially functioned as the Chinese central bank, in 1928 the Central Bank of China replaced it in that role. Subsequently, BOC became a purely commercial bank.

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Like Bank of China, Citic Bank also offers service branded 'money laundering' by CCTV

CCTV accuses Bank of China of providing money laundering service

PUBLISHED : Wednesday, 09 July, 2014, 3:58pm
UPDATED : Sunday, 13 July, 2014, 1:23pm

A day after Bank of China (BOC) was accused by the state broadcaster of breaking foreign exchange rules by helping people take money out of the country, it has emerged a second state bank has also been offering the service.

Industry sources told the South China Morning Post yesterday that China Citic Bank - controlled by the Citic Group, which in turn is directly controlled by the State Council, China's cabinet - also facilitated the movement of currency overseas, including Hong Knog.

"It is definitely not an illegal business," said one source.

"Both BOC and Citic Bank have been able to do this business only after they got approval from the Guangzhou branch of the People's Bank of China. So the PBOC definitely knows what the business is about," said the source, who declined to be named as he was not authorised to speak to the media.

"If there is any problem, it should not be a problem about whether this business is legal or illegal but more about how exactly the business is done, especially about internal risk controls and customer background checks at those banks."

Repeated phone calls by the Post to Citic Bank went unanswered.

Another source said Hong Kong regulators were unlikely to get involved because the issue did not violate local laws against money laundering.

"The case is not about money laundering but more about whether the mainland banks have got the authorisation to transfer money out of the country," the source said.

A Hong Kong Monetary Authority spokeswoman said: "The mainland authorities and banks should be responsible for verifying whether the transactions undertaken are in compliance with the relevant rules and requirements on the mainland."

On Wednesday, CCTV aired footage showing an employee of a BOC branch in Guangdong coaching an undercover journalist on how to channel large sums of money overseas.

Under Chinese law, citizens are allowed take only the equivalent of US$50,000 out of the country each year.

CCTV accused the bank of "blatantly offering money laundering services" and fabricating information through its money transfer platform Youhuitong.

Watch: China's state-run CCTV accuses Bank of China of money laundering

BOC said the Youhuitong service was part of a legal pilot scheme launched in 2011. It said the CCTV report "deviated from the facts" and had a "biased understanding" of Youhuitong.

On the sidelines of the Sino-US strategic and economic dialogue in Beijing yesterday, PBOC Governor Zhou Xiaochuan said the central bank would need more time to investigate the situation.

Analysts cast doubt on whether such a scheme that allowed for free currency exchange could exist. "The government is very concerned about hot money flows," said Teo Weechoon, a forex analyst at Nomura in Singapore. "If there was a pilot programme like this, I don't think the limit would be much higher than it already is."

Industry sources said BOC and Citic Bank were chosen by the Guangzhou branch of the central bank in late 2011 and late 2012 respectively to join the pilot programme, which was part of Beijing's efforts to better manage its huge foreign exchange reserves - the world's largest at over US$4 trillion.

A report by the official Shanghai Securities News yesterday said China Construction Bank also offered similar services.

Shares in BOC have fallen 3.6 per cent in Hong Kong since CCTV aired the report. Citic Bank shares closed down 0.42 per cent yesterday. The Hang Seng Index rose 0.27 per cent.

Additional reporting by Keira Lu Huang and Enoch Yiu

Follow the reporters on Twitter: @donweinland@keiralulu and @george_chen

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This article is now closed to comments

ssslmcs01
Hong Kong still plays a major role for many mainlanders laundering there money on its way overseas.
caractacus
Not just the wealthy, but all the officials in the ruling gang.
cleareye
SCMP reporters should do some homework before making an article. Money laundering is used now loosely but the actual definition is converting unreported, hidden, or illegal income into ordinary income. When money is already deposited in the bank, it is no longer hidden and most likely not illegal. What BOC had allegedly done was violating State Administration of Foreign Exchange (SAFE) rules by swapping currency between China and the outside world. That is what the Chinese media was alleging - 銀行違法換滙 not 洗黑錢. It is a profitable business as on the other side many Chinese companies want to repatriate their foreign currency back to China to gain from the higher interest returns but not wanting to pay the taxes on external windfalls.
horacejeffry
Tell me something that is new. So many Chinese have a company in Hong Kong. Officially their "customer" is the company in Hong Kong who in return invoice the real customer. The difference between what is invoiced by the mainland company to their Hong Kong company and the HK company and the real customers remains behind in HKG as it is taxed at a lower rate and they can keep the foreign currency. Then we have of course the possibility as a "foreign investor" to get some tax incentives so now the Mainlands HKG company becomes the "foreign investor" so they get lucrative tax deals and cheap land. Come on guys and you tell me nobody knows? Even the big state corporations work this way, they were most likely the first mainland companies to do so followed by the smaller guys. Maybe CCTV should look into that and also the mainland may want to have a look at all bank accounts in Hong Kong held by mainland Chinese and mainland Chinese companies. Once that happens the money will flow out of Hong Kong with the speed of light, so bring it on!!
daily
Ahhhh............so that's how those Chinese emigrants get their dirty-money out of the country..........using their own.
meoii
BOC is just the tip of the iceberg...how do think mainlanders have been paying in [suit cases of] cash for property/cars overseas since 10 years ago?
420mao
If I am correct, these companies in HK are not taxed on the profits they make here as the actual business is not done by them but in another jurisdiction i.e. China. So they can apply for Tax Exemption from the HK IRD and then get away without paying any tax either in HK or in China.
lamlm38
Now I know why BOC is such a preferred choice on the mainland even tough the service is just unbelievably backward or primitive even as compared to the rest of the Banks!!!
tkruemmer
If you look at Chinese import statistics, there is a large chunk of imports from the origin "China." Hong Kong does not tax profits from off-shore business. In China corporate income tax is very high.

So, what happens is, a Chinese manufacturer exports half-finished components or finished products to a Chinese export processing zone and invoices its Hong Kong affiliate at cost. The Hong Kong subsidiary adds whatever added value can be achieved to the received invoice and exports the goods from the export processing zone back to the Chinese mother company or a third party customer in China.

The added value remains as off-shore generated profit at the Hong Kong affiliate, non-taxable, while at the same time the taxable profit at the Chinese mother company is being reduced.

Just visualize high profit consumer products like mobile phones that sell at, say, USD 650/piece, but only take about USD 200/piece to produce. You export at USD 200+/piece abroad, and bring it back in at, say, USD 500/piece. The difference of USD 300/piece remains as non-taxable profit in Hong Kong, while the corporate tax burden of the entity in China might be reduced by at least USD 100/piece.

The beauty is, you can play that with the whole phone and/or only parts of it, several times.
lucifer
Yes and the source of those funds is usually unknown. If the Monetary Authority gets tough on this, perhaps you may see some positive effects on the over inflated property market.

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