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. Those reports rose to 35,000 last year, double the number in 2011. A record net US$674 billion (HK$5.2 trillion) left China last year, the International Institute of Finance estimated, followed by a further US$175 billion in the first quarter of this year. Analysts say the gap between trade figures reported by mainland China and by Hong Kong for the same goods show how imports and exports are being used to spirit cash offshore. There was a record gap of US$1.9 billion in December, and US$1.4 billion in March, which many economists attributed to the falsifying of trade invoices. The Hong Kong Customs and Excise Department said it was looking into the disparity between the trade figures in coordination with local and mainland authorities. It said it would “continue to maintain vigilance over the latest trends of money laundering”. But Garcia Herrero warned cracking down on mis-invoicing would not be easy as it would be difficult for customs officers to verify the genuine value of the goods, and that illicit traders could channel funds through round-tripping of trade documents. “They simply cannot rely on Hong Kong authorities to solve the problem,” she said.