Bank of China denies violations of capital rules

Media reports 'inconsistent with facts' about its services, bank says

Bank of China Ltd has denied media reports alleging it violated the nation's capital controls by providing services that help clients convert unlimited amounts of yuan into other currencies and transfer those funds abroad.

The reports "contain discrepancies with and misunderstanding of the facts ... References to an 'underground bank' and 'money laundering' are inconsistent with the facts," the bank said in a statement on its website on Wednesday.

The cross-border yuan transfer service, introduced by Bank of China in 2011, allows money to be moved for emigration and overseas property investment purposes.

It is available at several of the bank's outlets in Guangdong province and targets investment migrants headed to North America, Australia and Europe, China Central Television reported in a 20-minute broadcast on Wednesday.

The report included interviews with several unidentified employees of the bank. Bank of China helps clients transfer unlimited sums in yuan to their accounts in another country using the exchange rate offered by its overseas branches, a customer manager of the bank told CCTV.

The overseas account will receive the funds in a foreign currency. In this way, the bank and its clients bypass the nation's capital controls, the report claimed.

Chinese regulations limit yuan conversions by individuals to the equivalent of $50,000 each year. Individuals or institutions that violate these rules can be fined up to 30 percent of the amount involved. In "serious" cases, they face fines of at least 30 percent and as much as 100 percent of the amount involved, and they can even face criminal charges.

The report sparkled discussions about China's strict currency controls and prompted calls for the government to relax its controls on capital account transactions.

Li Youhuan, an economist at the Guangdong Academy of Social Sciences, said Bank of China is not alone as many commercial banks also provide such services.

"Commercial banks have long been converting large amounts of yuan into other currencies overseas for investment migration or other purposes. Some banks have even developed a large amount of cross-border transactions in this way. Such behavior is no different from that of underground banks," Li said.

Quite a few underground banks actually use this banking service in Guangdong to do business by relying on their connections with the commercial banks, he said.

Yang Tao, a researcher at the Institute of Finance and Banking at the Chinese Academy of Social Sciences, said Chinese people have a huge demand for global asset allocation, which has given rise to gray areas to bypass strict capital controls. Therefore, capital account liberalization should be a major goal for China's foreign exchange reforms.

The banking regulator has already discovered these gray areas, but it won't change the pace of its relaxation of capital controls out of concern over volatile short-term capital flows, Yang said.

In recent years, policymakers have taken steps including allowing freer movements of capital into and out of the country as they seek to boost the global stature of the yuan.