China’s regulator slaps nation’s biggest fine on Guangfa Bank for fraud, and for covering it up
Branch staff had created fraudulent letters of guarantee for two bonds that later went into default
China’s bank regulator has slapped the home-grown lender in the country’s southern powerhouse province of Guangdong with the industry’s largest penalty, in a sign that monetary authorities are not letting up on their campaign to crack down on financial malpractice and malfeasance.
Guangfa Bank, the dominant lender based in Guangzhou city, was fined 722 million yuan (US$109 million) by the China Banking Regulatory Commission for issuing fraudulent guarantees for loans, and seeking to cover up the scale of its bad debts.
The case was one of the most blatant examples of “criminal collusion” between a bank’s employees with outsiders, cutting across different companies, industries and markets, the regulator said in a Friday statement on its website.
Guangfa’s misdemeanour revolved around two bonds worth a combined 1 billion yuan that went into default on December 20 last year. The bonds were issued by two units of the phone maker Cosun Group, and sold on Ant Financial Holdings’ Zhaocaibao online wealth management platform.
Ant Financial and 10 other banks sought compensation for investors from Zheshang Property and Casualty Insurance, which had provided insurance coverage on the debt, only to discover that the insurer had been issued fake letters of guarantee by Guangfa’s branch in Huizhou city. The fraudulent documents were created using counterfeit corporate seals made by branch staff. The case involved as much as 12 billion yuan, as the bank tried to channel money to cover its mounting bad loans and operational losses.
Ant Financial is an affiliate of Alibaba Group Holdings, owner of the South China Morning Post.