Hong Kong is conducting a multi-pronged customs, shipping and financial-sector crackdown against fake trade invoicing that allows billions of dollars of capital to leave mainland China illegally.
The Hong Kong Monetary Authority told Reuters it has beefed up its scrutiny of banks’ trade financing operations.
Customs officials are doing more random checks on shipments crossing border posts and conducting raids on warehouses to ensure the authenticity of goods, senior officials working in shipping, logistics and banking said.
The head of a logistics company said surprise customs inspections at Hong Kong border posts have doubled.
The increased efforts began this year and reflected concerns about billions of dollars in illicit cash authorities suspect are being channeled through Hong Kong following a stock market crash in the mainland last year.
“Examinations and investigations reflect one of the strongest trends we are seeing now in the financial sector,” said Urszula McCormack, a partner at law firm King & Wood Mallesons, which helped co-author a report published by the Hong Kong Association of Banks in February that highlighted shipping as a sector where fake invoicing can thrive.
China has become increasingly concerned about capital outflows since the middle of last year, when mainlanders rushed to get money offshore for safekeeping or to invest following the stock market slump and unexpected yuan devaluation.
Hong Kong is the most popular route, analysts say, because of its proximity to China.
Chinese authorities have tried to stanch the outflows by tightening cross-border investment quotas, stepping up enforcement action of existing rules and restricting residents from buying financial products, such as insurance policies, offered in Hong Kong.
A record net US$674 billion left mainland China last year, the International Institute of Finance estimates.
A further US$175 billion left the mainland in this year’s first quarter.
While capital flows reflect legitimate business, analysts say the gap between trade figures reported by the mainland and by Hong Kong for the same goods shows how imports and exports are being used to spirit cash offshore.
In December, for example, the gap between mainland imports from Hong Kong and Hong Kong’s exports to the mainland — a rough indicator of capital flowing through trade — surged to a record US$1.9 billion, which many economists attributed to falsifying trade invoices.
The December figures show that one dollar in every 10 of exports from Hong Kong to China may have been falsified to skirt China’s capital controls, Thomson Reuters calculations show.
By March, the gap was still a relatively large US$1.4 billion.
The Hong Kong Customs and Excise Department said it was looking into the disparity between the trade figures in coordination with local and Chinese authorities.
It said it would “continue to maintain vigilance over the latest trends of money laundering”.
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