Australia's SIV scheme a target for money laundering

[greengiraffe]

Australia's SIV scheme a target for money laundering
PETER CAI AND FERGUS RYAN JULY 09, 2014 7:00PM

China’s state broadcaster CCTV has launched an extraordinary attack on one of the country’s most powerful government controlled financial institutions – the Bank of China, accusing it of money laundering in Australia, via the country’s Significant Investor Visa Program.

“We don’t care where your money is from or how you earn it, we can help you get it out of the country,” a Bank of China employee told CCTV. “We don’t care how black your money is or how dirty it is, we will find ways to launder it and shift it overseas for you,” according to a detailed CCTV investigative report.

Australia is a centrepiece of the investigation due to the country’s Significant Investor Visa program, which offers an accelerated pathway for wealthy investors to gain permanent residency by investing $5 million in Australian bonds, funds or a small business. Chinese nationals account for nine out of 10 applicants since the program was introduced under the former Labor government.

The Bank of China did not respond to requests for comment from Business Spectator about the CCTV report into the Bank of China’s involvement in money laundering.

Under China’s stringent foreign exchange law, citizens are only allowed to send $US50,000 or $A53,000 abroad per year. Australia has been repeatedly been mentioned as the destination of “grey money” coming out of China in relation to Australia’s significant investor visa program.

CCTV undercover footage clearly shows the Australian national flag on a Bank of China stand at a busy immigration show, advertising Australia as an important destination for investors. Social media posts from major media outlets about the story prominently feature a picture of a map of Australia.

Business Spectator understands that the China Banking Regulatory Commission has intensified its investigation into money laundering and has recently signed an agreement with US authorities that allows greater information sharing about bank account details.

The CCTV report accuses the Bank of China of money laundering via a scheme called ‘You Huitong’, translated as You Uncapped, which allows wealthy Chinese to circumvent Beijing’s strict currency controls. “You Huitong is a shadowy business,” CCTV says. “It is unbelievable that such a big bank is violating the law to fill its own pockets.”

Business Spectator understands that some private bankers from Australia’s big four banks have been aware of the ‘You Huitong’ service for a year.

An investigation by Fairfax Media last November reported allegations that a prominent Chinese businessman used his private jet to ferry suitcases of cash and deposited them at a local Bank of China branch in Melbourne.

“[He] telephoned me and said that he had just arrived in Australia with cash and that I should immediately meet him at the Bank of China at Melbourne to collect the $800,000 which he had changed from US dollars at the bank,” the businessman said in an affidavit to the Supreme Court, as reported in Fairfax Media.

A senior manager with one of the big four Australian banks told the CCTV reporters that the Bank of China was crucial to the bank’s migration business.

“The money is very safe and will leave the country in a very grey channel. The Bank of China is the same as an underground bank [a Chinese term for black market operators that launder money],” he told CCTV.

He said the Bank of China has a huge business network abroad and only the Bank of China could carry out operations on such a large scale.

“Because of the country’s foreign exchange controls, they are doing it very discreetly.”

The Bank of China does not officially advertise its uncapped foreign exchange transaction services, but it is widely known amongst immigration agents and private bankers. Chinese experts and commentators have slammed the Bank of China’s alleged illegal activities and the story has caused waves on Chinese social media.

[greengiraffe]

http://www.todayonline.com/business/bank...laundering

Bank of China denies state TV allegations of money laundering
PUBLISHED: 10:02 PM, JULY 9, 2014
SHANGHAI – State-owned Bank of China (BOC) denied on Wednesday a TV report alleging some branches had helped clients launder money to take out of China, saying these branches were involved in a legitimate programme to move capital offshore.

The report, aired by China Central Television (CCTV), was an undercover investigation that focused on a programme offered by BOC called “You Hui Tong”. The programme is designed to help Chinese individuals taking part in investment emigration programmes in other countries to move cash offshore in amounts that exceed the current US$50,000(S$62,000) annual cap.

The report featured what CCTV said were BOC employees explaining the programme, which they said routed funds through BOC branches in Guangdong province. The employees also said they were not allowed to openly promote the scheme to customers. The state broadcaster, quoting unnamed BOC sources, said the bank kept the programme secret because it knew it was illegal.

In a statement, BOC said You Hui Tong was a legal investment programme permitted under a wider pilot project testing the opening of China’s tightly managed capital account.

“Reports of ‘underground money farms’ and ‘money laundering’ have no basis in fact,” it said.

The bank said the project was part of the government’s efforts to open the capital account and increase the international popularity of the yuan, and that branches of other banks in Guangdong province offered similar services.

The foreign currency regulator, the State Administration of Foreign Exchange (SAFE), which oversees the movement of money across the China’s borders, did not respond to faxed requests for comment on the report.

The ongoing anti-corruption campaign in Beijing has triggered concerns that officials fearful of being targeted are proactively smuggling assets outside of the country, but not all money moved offshore is linked to graft.

Investment programmes that grant Chinese passport holders citizenship or residency in exchange for substantial investment have become popular with wealthy citizens. Many Chinese also move money abroad to buy property in cities such as London, Hong Kong and Vancouver.

A network of gray-area offshore mortgage companies in has sprung up to circumvent the US$50,000 annual cap on offshore transfers. Investors have found other loopholes as well, including using Chinese bank cards in Macau to buy non-existent products in exchange for hard currency.

The introduction of multiple pilot programmes testing the limited opening of China’s capital account has complicated the matter, with different regional regulators implementing various schemes.

Economists have warned that such regional programmes, like those in Shanghai’s free trade zone and in Guangdong’s Qianhai free trade zone, will be difficult for regulators to “ring fence” from the rest of the country. REUTERS

[greengiraffe]

Banks halt yuan swap scheme
THE AUSTRALIAN JULY 16, 2014 12:00AM

Scott Murdoch

China Correspondent
Beijing



A NUMBER of large Chinese banks have temporarily closed a scheme that allowed wealthy residents to park cash overseas in locations such as Australia to skirt Beijing’s tough capital control rules.

The Bank of China was last week accused of running a yuan remission program that covertly sent money overseas in defiance of restrictions that permit only $US50,000 ($53,380) a year be transferred by citizens outside of China.

It was claimed the scheme could potentially allow money laundering but the allegations were fiercely denied by the Bank of China, which is the nation’s largest lender.

An investigation by China Central Television, the national broadcaster, said Australia had been a major beneficiary of the “You Hai Tong” schemes operated by several major commercial Chinese banks.

It was alleged that wealthy mainland China residents were channelling cash into Australia by applying for a Significant Investor Visa, which fast-tracks permanent residency and allows capital to be transferred offshore.

Under Australian regulations, investors must place at least ­$5 million in Australian bonds, funds or a small business, and government figures show 90 per cent of SIV applicants are based in China.

It was reported yesterday that the remittance schemes operated by Bank of China, the Industrial and Commercial Bank of China, and China Citic banks had been temporarily closed.

The scheme was approved by Chinese regulators two years ago but have not been commonly promoted by the banks until recently. The People’s Bank of China, the central bank, is reportedly investigating whether the scheme is being wrongly used to aid money laundering.

The scheme was launched only in Guangdong province to allow Chinese individuals to carry out cross-border yuan remittance through branches located in the region. A trial program was reportedly kept quiet by the PBOC because no decision had been made to roll it out nationwide.

The CCTV investigation has proved damaging to Bank of China, which has been forced to defend its reputation.

The Wall Street Journal last night reported that the scheme allegedly allowed citizens to transfer unlimited amounts of yuan overseas which was then exchanged into foreign currencies. Under Chinese rules, yuan usually has to be converted before it is moved offshore and transactions are capped.

The Bank of China has argued the scheme was not illegal because the service was limited to wealthy clients who were participating in emigration investment programs.

“The program itself is neither illegal nor improper as it’s been approved by the central bank but the question is if any particular bank has gone too far by offering clients services they are not supposed to,” a senior banker told the WSJ.

[greengiraffe]

Secret path for Chinese on property buying spree
Date
July 16, 2014 - 12:50PM
Read later
Email articlePrint
A previously unannounced government program is helping individuals to transfer their yuan and convert it into dollars or other currencies overseas.
A previously unannounced government program is helping individuals to transfer their yuan and convert it into dollars or other currencies overseas.
For years, wealthy Chinese have been transferring billions worth of their money overseas, snapping up pricey real estate in markets including Australia, the US and Canada despite their country's currency restrictions.

Now, one way they could be doing it is clearer. Last week, when China Central Television leveled money-laundering allegations against Bank of China, the state-run broadcaster's report prompted the revelation of a previously unannounced government program that enables individuals to transfer their yuan and convert it into dollars or other currencies overseas.

Offered by some banks in the southern province of Guangdong, across the border from Hong Kong, the trial program was introduced in 2011 for overseas property purchases and emigration and doesn't constitute money laundering, Bank of China said in a July 9 statement. The transfers were allowed by regulators and reported to them, the bank said.

"What it shows is the government has been trying to internationalise the renminbi for a lot longer than we thought," Jim Antos, a Hong Kong-based analyst at Mizuho Securities said, using the official name for China's currency and referring to policy makers' long-stated goal of allowing the yuan to become freely convertible with other currencies. "I'm rather encouraged by this news because this is the way they need to go."

Currency Controls

China's foreign-exchange rules cap the maximum amount of yuan that individuals are allowed to convert at $50,000 ($53,400) each year and ban them from transferring the currency abroad directly. Policy makers have taken steps in recent years, including allowing freer movements of capital in and out of China, as they seek to boost the global stature of the not-yet-fully convertible yuan.

"There's a silver lining in this incident as it may force the regulators to address the issue in a more open and transparent way," said Zhou Hao, a Shanghai-based economist at ANZ. "This is an irreversible trend."

The issue came to light after CCTV said Bank of China helped customers transfer unlimited amounts of yuan abroad through a product called Youhuitong, which means "superior foreign-exchange channel."

Positives, Negatives

The program is another sign that China is testing methods to allow outward yuan flows before full convertibility, May Yan, a Hong Kong-based analyst at Barclays Plc, said by phone. The goal has been announced by policy makers since the 1990s, and is a step toward stated plans to make Shanghai a global financial capital by 2020.

"For an experiment, you want to see if there's any positives or negatives," Yan said. "When the bank or the regulators can accumulate that experience, then they will decide if they want to move forward, or broaden it or shut it down."

The central bank in February unveiled rules to make it easier for companies with operations in Shanghai's free-trade zone to move yuan in and out of the country, a further loosening of controls on currency flows. The yuan surpassed the euro as the world's second most-popular currency in trade finance in 2013, according to the Society for Worldwide Interbank Financial Telecommunication.

The Guangdong branch of China's currency regulator, the State Administration of Foreign Exchange, picked Bank of China, China Citic Bank and a foreign lender to let individuals transfer yuan abroad in a trial the banks were told not to promote, Time Weekly reported in April 2013. A Beijing-based Citic Bank press officer declined to comment on the program.

$3.4 Billion Estimate

While Bank of China didn't provide figures, the 21st Century Business Herald estimated the lender has moved about 20 billion yuan ($3.4 billion) abroad through Youhuitong, citing people with knowledge of the trial program. "Many commercial banks" in Guangdong offer a similar service, Bank of China said in its statement, without naming them.

Today, a link on CCTV's website for the report on Bank of China led only to advertisements. A spokeswoman for CCTV's international relations department, which handles foreign media inquiries, didn't immediately respond to an e-mailed request for comment on why the story appeared to no longer be available.

The People's Bank of China and SAFE didn't reply to requests for comment. The central bank is "verifying" facts related to media reports of bank money-laundering, the official Xinhua News Agency reported July 10, citing a PBOC spokesman.

Youhuitong Suspended

Youhuitong has been suspended while the PBOC and its anti-money laundering bureau request records of all previous transactions, according to a person familiar with the product, who asked not to be identified because he wasn't authorised to speak publicly.

Transfer approval for Youhuitong customers usually takes several weeks to a month, the person said. They need to provide documents showing how the money to be transferred was obtained, such as tax-payment receipts and proof of income, as well as a property-purchase agreement or proof of emigration, he said.

Youhuitong customers would typically deposit yuan with Bank of China at least two weeks before the transfer, the person said. Once approved, the customer and the bank agree on an exchange rate before the funds are moved to an overseas account designated by the customer, he said. Money destined for real estate would go directly to the property seller's account to ensure the cash won't be misused, he said.

A Beijing-based press officer for Bank of China declined to comment. Industrial & Commercial Bank of China and China Construction Bank, the nation's two largest banks, declined to comment on whether they offer similar products.

Another Way

HSBC, which runs the largest branch network among foreign banks in China, offers its Chinese clients another way to access offshore mortgages while avoiding the cap on foreign-exchange conversion, according to a person familiar with the mechanism, who asked not to be identified without having authorisation to speak publicly.

Customers deposit yuan with HSBC's mainland unit or purchase its wealth-management products, and the bank's overseas branch then issues a foreign-currency denominated mortgage using the China deposits as collateral, the person said.

"We seek to abide by the rules and laws of the jurisdictions and geographies in which we operate," said Gareth Hewett, a Hong Kong-based HSBC spokesman.

Affluent Chinese have been moving money overseas in search of greater investment returns. China's benchmark stock index has tumbled 66 per cent from its 2007 record, while the government has clamped down on property lending to rein in rising prices.

Spending up in Australia

Chinese buyers, including people from Hong Kong and Taiwan, spent $US22 billion on homes in the States in the year through March, up 72 per cent from the same period in 2013 and more than any other nationality, the National Association of Realtors said in its annual report on foreign home purchases.

"Clearly the property market wouldn't nearly be so robust as it is today without mainland money," Mizuho's Antos said. "How did they do it? With Bank of China's help. There has been a tremendous amount of mainland money flowing offshore and it couldn't have happened without" official approval.

And Chinese have become the biggest investors in Australia's commercial and residential property, with purchases surging 42 per cent to $5.9 billion in the year to June 2013, according to the Foreign Investment Review Board.

Vancouver's real estate market has also seen the impact, having been "fueled tremendously in the last couple of years by high-end wealthy Chinese and Hong Kong buyers," according to real estate agent Malcolm Hasman.

China needed to improve its oversight of capital flows after $US2.7 trillion in unexplained funds moved overseas in the decade prior to 2012, Anthony Neoh, a former government adviser who helped the country open up to foreign money managers, said last year, citing data from Integrity International. Those funds fueled property bubbles in cities such as Hong Kong instead of being invested in domestic assets, he said.

"We know the demand to move abroad is there," said ANZ's Zhou. "Even if you impose various restrictions, the money will find its way out of the country, via underground banks and other means."

Bloomberg