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BCCI Reportedly Moved Millions of Dollars Out of China

August 8, 1991 GMT

HONG KONG (AP) _ The Bank of Credit and Commerce International helped Communist Chinese companies and officials avoid strict foreign currency controls to siphon millions of dollars out of China, banking sources say.

The Communist officials and businessmen used BCCI’s Chinese subsidiary to move millions of dollars in foreign exchange out of the country, according to the sources in Hong Kong.

Hong Kong-based Chinese companies and officials also took advantage of the bank’s loose restrictions and high interest rates to invest between $280 million and $400 million in BCCI’s Hong Kong subsidiary, the sources said.

Now they can expect to receive only about 25 cents on every dollar they invested, according to the Hong Kong government, which closed the Hong Kong branch on July 8.

In all, $1.4 billion in deposits have been frozen in the Bank of Credit and Commerce Hong Kong Ltd.

The People’s Bank of China, the Communist government’s central bank, closed BCCI’s Chinese branch in Shenzhen, a special economic zone bordering Hong Kong, on July 6. It has not revealed the bank’s holdings.

While some analysts say China’s dealings with BCCI indicate the Communists’ naivete in international finance, others argue that Chinese companies and individuals used the bank for a service other institutions could not provide - getting foreign exchange out of China and, in some cases, hiding it.

A banker at Banker’s Trust who follows Chinese finances said the Chinese goal in using BCCI was to expatriate capital. Like others interviewed by The Associated Press, she spoke on condition of anonymity.

BCCI was well placed to be a conduit for foreign exchange out of China, which generally prohibits such transfers unless authorized by the People’s Bank of China, according to bankers and businessmen.

The bank’s Pakistani founder, Agha Husan Abedi, had close relations with Chinese officials, and a former Pakistani ambassador to China was the bank’s first representative in Beijing.

According to bankers and Western diplomats, some Chinese state-owned companies used BCCI to move cash abroad to set up foreign companies and then reinvested the money in China as a joint venture.

The reason was that in China joint ventures have better access to raw materials, electricity and motivated workers, and are permited to move foreign exchange abroad.

Bankers and businessmen involved in efforts to buy BCCI’s Hong Kong subsidiary say it has numerous numbered accounts they believe belong to Chinese officials who siphoned the money from Communist state-run companies.

Communist Chinese bank regulators are probing BCCI’s activities in China to try to determine ″the sources and destinations of the money″ that fled China, the Chinese-language Hong Kong Daily News reported Tuesday.

The report said investigators had discovered that ″some Communist Party cadres used the bank to move foreign exchange for private purposes, violating Chinese regulations.″

In addition, it quoted an unidentified Chinese banker, trained by BCC Hong Kong, as saying $66.6 million from three Chinese trading companies was moved from BCCI’s branch in Shenzhen to the Hong Kong subsidiary in recent years.

This included $40 million from China’s largest state-owned investment company, the China International Trust and Investment Corp.; $20 million from the Shenye Co., and $6.6 million from the Shenzhen Development Bank, the report said. Both the Shenye Co. and the Shenzhen Development Bank belong to the Shenzhen local government.

A Western diplomat and several bankers familiar with the report said it appeared accurate, but it would be difficult to obtain details on the relationship between BCCI’s branches in China and Hong Kong without an investigation in Hong Kong. No such inquiry is planned.