China’s central bank and currency regulator are investigating a state media report that Bank of China Ltd (中國銀行) allegedly broke rules on transferring money overseas, two government officials familiar with the matter said.
The probe focuses on whether Bank of China violated regulations in its operations or aided money laundering, the officials said, asking not to be named as they are not authorized to speak publicly on the matter. Starting an investigation does not mean the Beijing-based bank has done anything wrong, they said.
Bank of China, the nation’s largest foreign-exchange lender, on Wednesday denied a report by China Central Television (CCTV) claiming that it circumvented the rules by helping customers transfer unlimited amounts of yuan overseas and convert it into other currencies through a product called Youhuitong (優匯通). The bank said it introduced a cross-border yuan transfer service in 2011 with the knowledge of authorities.
Chinese foreign-exchange rules cap the maximum amount of yuan that individuals are allowed to convert into other currencies at US$50,000 a year and ban them from transferring yuan 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 yuan.
“China’s foreign-exchange restriction is no longer compatible with the growing economy and the drive to make the yuan a global currency,” Chen Xingyu (陳星宇), a Shanghai-based analyst at Phillip Securities Research, said by phone yesterday. “Loopholes and irregularities may occur during the deregulation process, but that doesn’t mean the direction is wrong.”
The People’s Bank of China Governor Zhou Xiaochuan (周小川) said it was too early to comment on the state television report.
“First of all, we need to know what’s really going on,” he said at a briefing in Beijing during the US-China Strategic and Economic Dialogue yesterday.
Shares of Bank of China in Hong Kong yesterday fell 0.9 percent to HK$3.46 at 3:23pm. The stock slid 2.8 percent on Wednesday, the biggest drop on the Hang Seng China Enterprises Index of Chinese stocks, following the CCTV report.
Media reports referring to “an ‘underground bank’ and ‘money laundering’ are inconsistent with the facts,” Bank of China said in a statement on its Web site on Wednesday. The cross-border yuan transfer service only allows money to be moved for emigration and overseas property investment, it said.
Youhuitong targets customers who wish to invest in or migrate to North America, Australia and some European countries, CCTV reported, referring to documents shown by unidentified Bank of China employees.
Bank of China’s service complies with regulatory principles and was started after notifying relevant authorities, the lender said in the statement. Many commercial banks in Guangdong Province offered similar services under a trial program, it said.
The currency regulator’s Guangdong branch in 2012 picked Bank of China, China Citic Bank Corp (中信銀行) and a foreign lender to allow individuals to transfer yuan abroad as part of efforts to promote global use of the currency, Time Weekly reported in April last year. Banks were told not to promote the trial, which took place at a few branches in Guangdong, the report showed.
“The relevant branches of the bank have put in place robust business operation procedures in compliance with the relevant regulatory and anti-money laundering requirements,” Bank of China said. With more Chinese companies and people going global, use of the yuan across borders is an “irreversible trend,” it said.
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