Banking & Finance

Agricultural Bank of China employees devised ‘scam’ which caused 3.9billion yuan loss

Two employees allegedly invested funds from illegal sale of bills of exchange, which were lost following the mainland’s stock market crash last summer

PUBLISHED : Friday, 22 January, 2016, 9:10pm
UPDATED : Monday, 25 January, 2016, 9:33am

Two employees at the Agricultural Bank of China, one of the nation’s four biggest state-owned commercial banks, allegedly carried out a scam that led to it losing 3.9 billion yuan (HK$4.6 billion), mainland media reports.

The loss, confirmed by the bank in a filing to investors last night, involved the use of bills of exchange, which work in a similar way to post-dated cheques, and bind one party to pay a fixed sum to another by a certain time, the mainland financial magazine Caixin reported yesterday.

The bills can be issued by a bank and payees rely on the credibility of the issuers to ensure the bills are paid on time. But the bills are also transferable, which means a payee can sell a bill to another party at a discounted price for a fee before its due date.

Caixin alleged the two employees, based in the bank’s Beijing branch, illegally sold the bills of exchange worth 3.9 billion yuan to an agent in Chongqing, which sold them to another bank.

The employees allegedly used a large sum from the sale of the bills to invest in the Chinese stock market, which has suffered frequent turbulence since last June.

The bank said in its filing that police were now investigating.

Caixin, citing anonymous sources, said the employees had been placed under investigation and, because of the large losses, the Ministry of Public Security and China Banking Regulatory Commission had reported the matter to the State Council.

“The scam from Agricultural Bank of China is just the tip of the iceberg,” an unnamed banking risk control analyst was quoted as saying by Caixin.

The analyst also claimed such scams were common in China’s southeastern provinces such as Zhejiang, and that a large amount of capital, financed through bills of exchange, had been lost after being invested in mainland stocks before the crash.

A recent crackdown on alleged bribery by senior executives in the financial industry has put China’s banking industry in the spotlight.

Last December, mainland media reported that Zhang Yun, the former president of Agricultural Bank of China, had been removed from his position for suspected corruption. But the bank said in a filing that Zhang had stepped down for “personal reasons”.

Yesterday Zhang was officially replaced at the bank by Zhao Huan, the former president of China Everbright Bank, it said.

Agricultural Bank of China, China’s third largest lender in terms of assets, reported in its last annual report that it had total assets of more than 15 trillion yuan and deposits of about 12.5 trillion yuan at the end of 2014.

It is listed in Hong Kong and on the mainland. Yesterday its shares closed up 1.1 per cent on the Hong Kong Stock Exchange and up 0.65 per cent on the Shanghai Stock Exchange.