Hong Kong cracks down on illegal money flows from mainland China trade

Hong Kong is conducting a multipronged customs, shipping and financial sector crackdown on so-called fake trade invoicing that allows billions of dollars of capital to flow illegally into the city from the mainland.

The recent move against this long-standing problem might, however, be a sign that yuan depreciation was not really “out of the cards”, according to economist Alicia Garcia Herrero of Natixis.

“Trade mis-invoicing has become the most convenient channel of fund flows across the border ... They [regulators on both sides] want to be ready for it by closing the loopholes to outflows from the mainland,” she said.

The Hong Kong Monetary Authority said it had beefed up its scrutiny of banks’ trade financing operations, while customs officials were conducting more random checks on shipments crossing border posts and raids on warehouses to ensure the authenticity of goods, senior officials working in shipping, logistics and banking said.

They said the increased efforts began this year and reflected concerns about billions of dollars in illicit cash authorities suspected were being channelled through Hong Kong following last year’s mainland stock market crash and unexpected yuan devaluation.

“The HKMA has over the past years taken steps to require banks to implement better systems and controls to deter and detect suspicious transactions,”said Stewart McGlynn, the HKMA’s head of anti-money laundering and financial crime risk, referring to a surge in suspicious transactions reported by banks.