Bank of China denies state TV allegations of money laundering

SHANGHAI, July 9 Wed Jul 9, 2014 6:47am EDT

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SHANGHAI, July 9 (Reuters) - 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 the exceed the current $50,000 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.

Shares in Bank of China closed down nearly 3 percent in Hong Kong on Wednesday, lagging the main index ended down 1.6 percent lower. In Shanghai, the shares closed 0.8 percent down.

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 $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.

($1 = 6.1994 Chinese Yuan Renminbi) (Reporting by Pete Sweeney, Xie Heng in BEIJING and the Shanghai Newsroom; Editing by Miral Fahmy)

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