Sat, Mar 15, 2014 - Page 9 News List

China’s official UnionPay bankcard used to flout official capital controls

UnionPay cashback payments in Taiwan doubled from 2011 to 2012, reaching US$1.59 billion. A number of abnormal transactions discovered by a government report have raised fears of illegal money laundering

By James Pompfret  /  Reuters, Macau

Illustration: Tania Chou

Growing numbers of Chinese are using the country’s state-backed bankcards to illegally spirit billions of dollars abroad, an examination has found.

This underground money is flowing across the border into the gambling hub of Macau, that like Hong Kong is a semi-autonomous region of China, and the conduit for the cash is the Chinese government-supported bankcard payment network, China UnionPay.

In a warren of gritty streets around Macau’s ritzy casino resorts, hundreds of neon-lit jewelry, watch and pawn shops are doing a brisk business giving mainland Chinese customers cash by allowing them to use UnionPay cards to make fake purchases — a way of evading China’s strict currency-export controls.

On a recent day at the Choi Seng Jewellery and Watches company, a middle-aged woman strode to the counter past dusty shelves of watches. She handed the clerk her UnionPay card and received HK$300,000 (US$50,000) in cash. She signed a credit card receipt describing the transaction as a “general sale,” stuffed the cash into her handbag and strolled over to the Ponte 16 casino next door.

The withdrawal far exceeded the daily limit of 20,000 yuan, or US$3,200, in cash that individual Chinese can legally move out of the mainland.

“Don’t worry,” a store clerk said when asked about the legality of the transaction. “Everyone does this.”

Internal discussion documents prepared by UnionPay and by financial authorities in Macau and China show these fake sale cash-backs are widespread in such retail stores. The practice violates China’s anti-money-laundering regulations as well as restrictions on currency exports, according to Chinese central bank documents. Chinese authorities also fear the UnionPay conduit is being used by corrupt officials and business people to send money out of the country.

It is unclear why the central bank, the People’s Bank of China, has not cracked down harder on the practice, although documents reviewed show the bank was aware it had become a growing problem.

Industry experts point to a weak enforcement culture in China, a reluctance to hurt Macau financially with 80 percent of the city’s revenues drawn from gambling, and a willingness to tolerate some capital flight — especially if it can be tracked through names on bank cards. Moreover, the rapid growth of UnionPay, including the spread of its terminals at retail stores across the world, is playing a key role in China’s strategy for making the yuan a global currency.

It is not known how much Chinese money is being channeled illegally into Macau. Tam Chi Keong (譚振強), an assistant professor at the Macau University of Science and Technology, puts the total at HK$1.57 trillion (US$202 billion) a year through various channels. Tam says his estimate is based on his analysis of Macau’s finances and interviews with gambling industry participants.

A senior UnionPay executive said the Shanghai-based company has long been aware of the payment card abuse in Macau and elsewhere, but was limited in its ability to act. That’s because the primary responsibility lies with authorities in Macau or any other country where the fraud is taking place, he said.

“The problem you are talking about has existed for several years,” said the executive, who spoke on condition of anonymity. “We have continuously taken measures.”

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