15 June 2019
A Bank of China advertisement pitches an overseas financial product tailor-made for clients wishing to transfer wealth overseas. Photo: Bank of China
A Bank of China advertisement pitches an overseas financial product tailor-made for clients wishing to transfer wealth overseas. Photo: Bank of China

BOC fund transfer scheme: Is it something for the graft-busters?

Bank of China (BOC) (03988.HK, 601988.CN) was forced to defend itself after a report by state broadcaster CCTV accused it of money laundering.

The hook of the story is that the banking giant is helping its top clients skirt restrictions on cross-border fund transfers with an illegal scheme.

BOC’s Guangzhou sub-branch is said to have conducted such transactions worth 6 billion yuan (US$970 million) in the first half alone. 

The bank denied the story, but instead of dying down, it has taken a life of its own — it has become a political hot potato. 

China’s foreign exchange regime is regulated by the State Administration of Foreign Exchange (SAFE) which caps outward remittances by China’s citizens at US$50,000 a year. 

But at a news conference on Wednesday, Guan Tao, a senior SAFE official, refused to answer questions about the BOC’s renminbi overseas remittance business, saying it is outside its scope. That’s an indication the story runs deeper. 

The CCTV expose may be the result of political infighting in the Communist Party, pitting allies of graft-busting President Xi Jinping against those of former President Jiang Zemin.

BOC is supervised by the China Banking Regulatory Commission under the State Council and thus falls under the turf of Xi Jinping and Premier Li Keqiang. 

CCTV is controlled by the party’s publicity department under Liu Yunshan, a politburo standing committee member closely allied to Jiang Zemin, according to Lian Yi-zheng, the Hong Kong Economic Journal’s former chief editor and a well-known commentator.

The People’s Bank of China, the country’s central bank, is caught in the middle, accused of being lax in its oversight of state lenders. A small number of financial analysts think it’s all a matter of policy differences.

Lost in the political undercurrents is the real story behind the BOC saga.

It came about in the wake of a buying spree by Chinese investors overseas. Given the rigid cap on overseas fund transfers, the BOC scheme offered a way for these investors to pay for the assets.

A client can deposit money into his BOC account in renminbi as collateral and a BOC overseas branch will lend the equivalent amount in foreign currency at an agreed rate. The client then repays the loan in US$50,000 annual payments, according to an investigation by HKEJ. 

The process is risk-free being a loan transaction, not a cross-border fund transfer, strictly speaking.

Which brings us back to CCTV’s assertion that it’s a form of money laundering.

There may yet be more to come in this continuing saga. We wonder how this will play to the graft-busters who have already brought down key Jiang allies.  

– Contact the writer at [email protected]


EJ Insight writer

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