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How China’s biggest bank became ensnared in a sprawling money laundering probe

ICBC, at the direction of the Chinese Communist Party, is a flagship in China’s quest to become a global banking giant. However, an investigation into money laundering has led to diplomatic complications

By Angus Berwick and David Lague  /  Reuters, MADRID

Illustration: Constance Chou

A few minutes before 8pm on Aug. 8, 2012, two Chinese living in Spain — a banker and her client — held a blunt telephone conversation.

Wang Jing was a senior officer at the Madrid branch of the state-controlled Industrial and Commercial Bank of China (ICBC). The client, Xu Kai, was an alleged top figure in an international money laundering group that was suspected of using the bank to transfer illegal income to China. The network was allegedly using multiple accounts in the name of Chinese residents of Spain, in some cases without their permission, to make the transfers, but there had been a hitch.

Earlier that day, Wang said a woman had come to the branch to complain that transfers were being made from her account without her knowledge.

Wang chided Xu, telling her to make sure that account holders used in the scheme were on board.

“You have to look out for yourself and make sure these people are obedient,” Wang said.

More complaints would lead to “problems” for the bank, Wang added.

The bank already had problems. Big problems. Spanish police were listening.

Wang’s warning to Xu is documented in confidential court filings that include wiretap transcripts from a series of police investigations starting in 2009 into Chinese organized crime in Spain.

The Spanish authorities have said publicly they suspect these groups siphoned up to 1.2 billion euros (US$1.4 billion at the current exchange rate) out of Spain to China between 2009 and the end of 2012.

The wiretaps and findings from police investigations ultimately led Spanish investigators to the front door of ICBC — the world’s biggest bank by assets. On the morning of Feb. 17 last year, dozens of police officers burst into the bank’s Madrid branch and arrested Wang and four other senior managers. Two more executives were arrested after the raid.

In a statement released in May last year, Spanish prosecutors said the giant Chinese state-run lender was a conduit for laundering tens of millions of euros in illegal funds from tax fraud and smuggling by “Chinese criminal organizations.”

The sums laundered were so large, the prosecutors said, that “the damage to the socio-economic order and the national economy is clear.”

However, beyond news of the arrests and a summary of allegations in the statement, little information has been revealed about the case.

Now, thousands of pages of confidential case submissions reviewed by reporters, and interviews with investigators and former ICBC employees, provide the first detailed account of the alleged racket and show that the probe reaches high into the state-run bank’s European operation.

The investigation has so alarmed Beijing that China’s top official in Madrid has publicly pressured Spanish officials to conclude the inquiry, warning that failure to do so would harm economic relations.

FORGED DOCUMENTS

At the core of the ICBC case is the relationship between the bank and a group of clients from Spain’s thriving Chinese business community.

These clients are alleged to have accumulated mountains of cash, much of it from avoiding duty and tax on the sale of consumer goods imported from China. They could not spend it or bank it in Spain without raising suspicion, so they opted to send it to bank accounts in their homeland.

The wiretap transcripts show how ICBC allegedly helped them do it: Bankers accepted forged documents to conceal the source of the funds, failed to report suspicious transactions and even tipped off the smuggling groups ahead of inspections at the bank, police said in the court filings.

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