Fears of tough action by Beijing following allegation BOC launders money

The Bank of China cash-transfer service at the centre of money laundering allegations could escalate the sabre-rattling between the mainland's liberal-minded bankers and conservative regulators. That would add to fears of a heavy hand on the financial system as Beijing tries to stem massive capital outflows.

On Wednesday, state broadcaster China Central Television accused BOC of offering illegal money laundering services to rich clients via the Youhuitong platform. BOC denied the allegation, insisting the service was part of a pilot programme aimed at internationalising the yuan.

"It is a wake-up call to all commercial banks, prompting them to plug the loopholes in their innovative products," Guo Tianyong , a professor at the Central University of Finance and Economics, said.

Technically, Youhuitong enables mainlanders to transfer unlimited amounts overseas, despite the annual cap equivalent to US$50,000 set by the central bank.

Rich mainlanders have increasingly been seeking to migrate, baulking at the deteriorating business climate and worsening pollution problem at home. According to the Hurun Report's survey of China's richest people, the percentage of super-rich individuals wanting to emigrate, or who had already done so, hit 64 per cent this year, up from 60 per cent last year.

Under existing laws and regulations, mainlanders cannot transfer the required amount abroad to qualify for business migration schemes unless they pass through the foreign exchange regulator's applications procedures and pay the relevant taxes.

Li Youhuan, a researcher at the Guangdong Academy of Social Sciences who is the mainland's best known economist focusing on fund flows, said the BOC service posed a serious threat to the mainland's foreign exchange policies, since it could help rich people direct huge capital outflows in a legal manner.