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Bank fraud reveals true face of China

Bank of China (BoC) is not the biggest of that country's Big Four banks -- the institutions groomed by Beijing as the global representatives of the new Chinese financial system -- but it can claim to be the most prestigious.

It bears the country's name, it's the main sponsor of the 2008 Beijing Olympics, and is being prepared for a multibillion-dollar flotation on international capital markets this year. It also has a set of blue-chip international investors, including the Royal Bank of Scotland.

But BoC appears to be at least as vulnerable to fraud as any of the other three, and has caught the headlines -- for all the wrong reasons -- in China and abroad with worrying regularity over recent years, even before the stunning allegations emerging from Las Vegas.

Earlier this month Caijing, the Beijing-published magazine regarded as China's version of The Economist for its impartiality and exposes of financial crime, reported a "new scandal" at the bank.

Several managers of a local sub-branch in the northeastern town of Shuangyashan colluded with a local businessman to defraud the bank of US$54 million in acceptance notes.

The case once again exposed the bank's vulnerability to insider crime, despite attempts to reform and tighten regulation in the wake of a series of similar cases across the country." It is unbelievable that such a small sub-branch can have issued so many bankers' acceptance bills without arousing attention from higher banking authorities," Caijing reported.

Last year, former BoC vice chairman Liu Jinbao (劉金寶) was sentenced to death (later commuted) after stealing US$3 million from one of its Hong Kong branches, and before that former vice president Zhao Ange (趙安歌) got life imprisonment for accepting multimillion-dollar bribes.

Another local manager, Gao Shan (高山), has not been traced after he disappeared with more than US$100 million from a branch in Harbin, Heilongjiang Province.

Beijing's Banking Regulatory Commission ordered BoC to improve its internal risk controls to deal with fraud. The authorities argue that the cases coming before the courts in the US and China show that they are coming to grips with the problem.

Royal Bank of Scotland -- whose chief executive Sir Fred Goodwin sits on BoC's board -- took a 5 percent stake in the bank last year for around ?900 million (US$1.6 billion), and speaks for another 5 percent as part of a consortium of Western investors including US investment bank Merrill Lynch.

A spokesman said: "We are well aware of the press reports regarding the fraud case at the bank and the forthcoming trial in Las Vegas. Clearly it is a matter for BoC. It is well worth remembering that BoC has total assets of US$560 billion."

When Royal Bank negotiated its holding, it insisted on warranties and assurances from the Chinese about any unforeseen financial liabilities. BoC hoped to float on the Hong Kong bourse and possibly a non-Chinese exchange in the first half of this year, but this may be delayed until the fall, banking sources said.
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