Caixin
Aug 23, 2016 05:00 PM

Banks Step Up Bill Oversight After Major Thefts, Fraud

(Beijing) – Major Chinese commercial banks have taken steps to improve oversight of their bills of exchange business, following a string of thefts and unauthorized printing of the short-term financing instruments often used to guarantee payments by small businesses to their creditors.

Bills of exchange are certificates showing a bank has promised to make a payment on behalf of a client in the future. In addition to their use as short-term financing instruments, such bills are also a financial product that can be traded among banks.

In the largest recent theft case, two employees at the Beijing branch of the Agricultural Bank of China, the nation's third largest lender, stole 3.9 billion yuan (US$585.6 million) worth of bills from a safe and replaced them with a stack of paper wrapped in newspaper in January.

A police investigation found the employees had sold the bills and used most of the cash to buy stocks. Following the theft, several banks have begun putting their bills of exchange in plastic bags instead of the older practice of wrapping them in newspapers, Caixin has learned.

In another major case in January, nearly 1 billion yuan in bills disappeared from the branch of China Citic Bank in Lanzhou, in northwestern Gansu province. Investigators later discovered those bills were also stolen by bank employees.

Earlier this month, a group of former employees from regional lender Bank of CTS in central Henan province allegedly used stolen official seals and forged documents to open an account at Industrial and Commercial Bank of China, the nation's largest bank. They then used that account to issue fraudulent electronic bills of exchange.

Following the earlier thefts, China's five biggest banks temporarily suspended all bill-related transactions and launched internal reviews, said an executive who manages the bills of exchange department at a state-run bank.

China Merchants Bank and China Minsheng Bank, China's largest private lender, have also stopped accepting new applications to issue bills of exchange for smaller banks, according to people with knowledge of the matter. Smaller banks need to open an account with a larger lender to access the central bank's system needed to issue such bills.

Contact reporter Chen Na (nachen@caixin.com); editor Doug Young (dougyoung@caixin.com)

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