How China’s Biggest Bank Got Caught Up In A Money Laundering Scandal

Two years ago Spanish police raided the Madrid branch of China’s biggest Bank ICBC on allegations of a major money laundering operation taking place there. Spain’s anti-corruption prosecutor claimed that criminals repeatedly carried thousands of Euros in cash stuffed in bags into the Madrid branch, funds which were then laundered by willing bank staff.

Euros totalling tens of millions of Euros were divided into multiple transfers to avoid the EUR 50,000 limit which would trigger an alert to the authorities. But police suspicions mounted and soon strategically placed wiretaps uncovered the scheme, which eventually led to the police raid.

Chinese Traders in Spain

The saga all began when certain Chinese traders operating in Spain only declared a fraction of the value of their imported containers, well aware that customs officials cannot search every shipment properly. But once the goods were sold and profits made, the traders were keen to hide the proceeds from the Spanish tax authorities, which was what led to the huge cash transfers through the ICBC branch. In some ways it is was unusual that the money launderers were trying to get their funds into China, as many are doing their best to get money out of the country.

Chinese firms have conquered the globe setting up shop in every place imaginable, from conflict afflicted African nations like the DRC and Sudan to safe havens like Germany and Switzerland. Thanks to this success Chinese ventures have seen incomes and profit soar which in turn has fuelled the ambitions and demands of ever more powerful and wealthy owners who are often keen to hide the origin of their wealth.

Hidden Wealth

Some Chinese business people want to hide wealth from the state either as a hedge against government expropriation (those who fall foul of the Communist Party can see their assets seized) while others are concerned the economy or property market in China could crash and want to diversify.

Other Chinese business people have got their funds illegally and just like any other big time criminal wants to legitimize their earnings by “cleaning” them. Others are keen to avoid tax or the capital restrictions imposed by Chinese state designed to help control the economy and value of the RMB.

Chinese money launderers currently favour the British Virgin Islands, the BVI have become a byword for money laundering in China – its strict secrecy laws make it an ideal spot to recycle and hide money. Often this is the point where Chinese business people need help from westerners, which is where the term “white gloves” comes from. White gloves are westerners who have the connections and experience required to help launder funds, setting up fake rental properties and other schemes to help clean money (and naturally pocket a cut for themselves). The BVI might be a resting place but dirty money often wants a real investment to fully legitimise itself and well placed lawyers, bankers and accountants can smooth that process.

Real Estate Hotspots

Chinese laundered money has flowed into real estate hot spots with large Chinese populations such as Vancouver, New York and Sydney and Singapore. Some of these cities have tried to restrict foreign buyers as they distort the market for property and make housing unaffordable for locals. Property is a strong magnet for dirty money, another classic time honoured method is casinos.

Macao’s casinos are the biggest in the world thanks to huge numbers of tourists from mainland China who flock to the city to enjoy legal gambling, something strictly forbidden at home. But these inflows are bolstered by criminals seeking to clean their funds in casinos, arriving with suitcases of cash and leaving after cashing their chips ready to be reconverted into clean funds.

Other avenues involve smurfing which involves small amounts of illegal funds deposited into banks by different people or by the same person over time to avoid the suspicions that one large deposit would attract.

Football Clubs

Rumours have also circulated that Chinese companies have purchased European football clubs with the intention of laundering funds. Suning Holding Group brought Inter Milan despite it operating in the electrical appliance sector and with no obvious previous connections to football. Even the Chinese State broadcaster casted doubt on the deal – questioning its commercial rationale.

The football sector’s renowned ability to inflate prices for agents, players and club valuations makes it the ideal sector to hide inflows of dodgy money through shady deals. However other commentators believe that buying high profile football clubs is an ideal entree into elite politics and business in Italy and of course the marketing rights for a football hungry populace can also be extremely valuable.

Beijing Crackdown

Beijing has now cracked down on Chinese ventures buying clubs overseas recognising the problems they pose. Suspected tax evaders have also been targeted in China, the mysterious, ominous disappearance of A list actress Fang Bing was linked to a tax case.

Chinese authorities are also active abroad, spearheaded by Operation Fox Hunt, a scheme designed to identify and repatriate corrupt officials and businessmen. In one landmark case the Chinese police caught Zheng Ning a businessman who had been on the run in France for five years on allegations of “Economic Crime”.

But any law enforcement officials face an uphill battle, only a tiny fraction of money launders are ever caught and the entry of Chinese businesses and criminals into this huge global industry adds another level of complexity and ever greater volume to a sector which already represents 10 percent of the global economy.

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