In order to ensure the economic and financial security of the state and to severely crack down on hot money, since February 2010, the State Administration of Foreign Exchange (SAFE) has launched a series of special campaigns to combat hot money in provinces and cities with large amounts of foreign exchange businesses. With intensified efforts to crack down on cross-border fund flows with no verifiable trade/investment background, by the end of October 2010, 197 cases in violation of the foreign exchange regulations were discovered and disclosed, involving a total sum of USD7.34 billion. Among these cases, 178 were filed and penalties were imposed. For the purpose of raising the awareness of banks and enterprises in handling the foreign exchange business in compliance with the regulations, warning and instructing entities involved in the violation of the regulations and of creating a social synergy for cracking down on the hot money,the SAFE has decided to circulate the non-compliance cases in stages, based on the types of entities involved.
During implementation of the special campaigns, priority was given to inspections of banks handling the settlement and sales of foreign exchange, short-term external debts, offshore financing, as well as to the sources and utilization of foreign exchange funds and so forth. Inspections show that with constant efforts to improve financial services, all the designated foreign exchange banks have enhanced their awareness of the compliance risks, with further improvements achieved on the overall condition of compliance operations. However, there are still some banks that put a priority on business expansion and ignore compliance operations. Their inadequate fulfillment of the verification of authenticity has given rise to the inflow of hot money, producing a negative impact on the equilibrium in the balance of payments as well as on the healthy and stable development of the national economy and finance. Cases of bank violations of the foreign exchange regulations that have been penalized are hereby circulated as follows:
On November 22, 2007, China Construction Bank Limited, Jiangmen Branch, handled settlement of foreign exchange in the amount of HKD31.5 million for capital of a foreign-funded enterprise. These funds were subsequently used to extend loans to the administration committee of a high-tech industrial development zone, but the purpose of the funds as declared by the enterprise was a security deposit for land purchases This violates the relevant regulations on the administration of exchange settlement for capital. In accordance with the Regulations of the People's Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines.
During the period from January 20 to May 22, 2009, the Agricultural Bank of China Limited, Guanghua Sub-Branch in Chengdu City, handled the cross-border collection of foreign exchange for 28 individuals within the territory of China. Among the individuals, 20 collected funds from a payer who was outside the territory of China, with and 8 collecting from the same payer, after which the funds were settled and transferred immediately to an individual within the territory of China. Such acts violate the relevant regulations on the administration of individual foreign exchange due to the fact that large sums of money were split into smaller amounts for the settlement and sales of foreign exchange. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the sub-branch in the form of fines.
On November 21, 2007 and March 27, 2008, the Bank of China, Zhenhai Sub-Branch in Ningbo City, handled the settlement of foreign exchange for the external debts of a company in the amount of USD13.58 million. It was verified that the purpose of the settlement failed to conform to the purpose ratified by the SAFE; meanwhile, the bank failed to pay the settled funds directly to the payee within the prescribed time limit. This violated the relevant regulations on the administration of foreign exchange settlement for external debts. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE imposed fines on the sub-branch and ordered that it correct its behavior.
On May 7 and 8, 2009, the Bank of China, Guchengtai Sub-Branch in Xining City, handled the settlement of foreign exchange for the capital fund of a foreign-funded enterprise in the amount of HKD85.3 million and HKD28.2 million respectively. The funds were subsequently used for capital investments, which exceeds the business scope of the enterprise and violates the relevant regulations on the administration of foreign exchange settlement for capital funds. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the sub-branch in the form of a 3-month suspension of involvement in foreign exchange settlement and sales.
During the period from October 2006 to July 2007, German-based NORD/LB, Shanghai Branch, handled 12 agency import deals with a letter of credit for a number of Chinese-funded banks, involving a total sum of USD26.98 million. With no prior notice delivered to the Chinese-funded issuing bank, the branch transferred all the financial claims to the aforesaid Chinese-funded bank to its overseas branches. This violated the regulations of the state on the administration of external debts. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines.
On February 1, 2008, the Bank of East Asia (China) Limited, Guangzhou Branch, handled the settlement of foreign exchange for a Hong Kong resident in the amount of HKD11 million to be used for the purchase of non-residential housing. This violated the relevant state regulations allowing overseas individuals to purchase commercial residential housing for their own use within the territory of China for the purpose of satisfying their basic living needs. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines.
During the period from September 1, 2008 to June 30, 2010, the Agricultural Bank of China Limited, Yichun Branch, handled 35 foreign exchange settlements of capital for a number of foreign-funded enterprises, involving a total amount of over RMB100 million. The branch failed to carefully examine the relevant funds and to preserve the vouchers for the settlement in accordance with the law. This violated the relevant regulations on the administration of foreign exchange settlements of capital. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines.
In 2009, a number of institutions, including Taijiang Sub-Branch within the jurisdiction of the Business Department of the Industrial and Commercial Bank of China Limited, Fujian Branch, failed to handle the settlement and sales of foreign exchange for individuals through the information system for the administration of settlement and sales of foreign exchange for individuals in 42 deals involving a total amount equivalent to USD265,000. These institutions, including the Gulou Sub-Branch within the same jurisdiction, failed to handle the deferred payments of foreign exchange for enterprises in accordance with the regulations in three deals involving a total amount equivalent to USD2.94 million. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the aforesaid sub-branches in the form of fines.
As the main channel for handling foreign exchange business, all designated foreign exchange banks should further consolidate the concept of scientific development, earnestly fulfill their social responsibilities, and strictly comply with the policies for the administration of foreign exchange business. The involved banks referred to in this Circular should pay great attention to their violations of the relevant regulations, examine their handling of the business using the regulations as a benchmark, and conscientiously correct their non-compliance in their handling of the business. Banks and relevant institutions should draw lessons from the above cases, strengthen their internal management, and handle their businesses in compliance with the laws and regulations. The SAFE will, in addition to performing its role to further improve financial services and facilitate the business operations of market entities, strengthen supervision over the foreign exchange business of banks, improve constantly the effectiveness of foreign exchange inspections, increase the efficiency of supervision and inspection, crack down severely on cross-border flows of hot money in accordance with the law, and continue to promote the healthy development of the foreign-related economy and finance.
October 28, 2010
