China Releases List of Violators of Forex Rules

China’s State Administration of Foreign Exchange (SAFE) has released a list of 10 major foreign exchange control violators, highlighting typical methods used by individuals and companies to evade restrictions on the buying and selling of foreign currency.

The list of offenders comprised five individuals and five companies. A person surnamed Che from Guandong province was fined 1 million yuan, the largest sum among the five individuals highlighted by SAFE.

Between December 2015 and January 2017, Che used bank accounts registered under 84 individuals’ names to convert yuan into a total of more than $4.3 million in foreign currency, which was then transferred into personal accounts registered under Che’s name in Australia and Hong Kong.

China’s foreign exchange controls limit Chinese citizens to purchasing no more than $50,000 in foreign currency each calendar year. Individuals are also required to report their reasons for purchasing foreign currency, and Che used false reasons, including travel and alimony payments.

The other four individual cases described by SAFE involved using similar methods to split personal assets. According to SAFE, signs of illegal forex control violations include instances of five or more individuals purchasing foreign currency on the same day or over the course of a few days and then making transfers to the same account overseas, including transactions made by individuals belonging to the same family.

In early 2017, SAFE stepped up scrutiny of personal foreign exchange purchases, as part of broader restrictions on capital outflows.

Of the five companies mentioned by SAFE in its recent announcement, Ningbo Dacheng International Trade Co. Ltd. was required to pay the largest fine, 22.81 million yuan, for using fictitious entrepot trade agreements to disguise transfers of more than $100 million into foreign bank accounts.

Ningbo Dacheng took advantage of how goods imported for re-exporting are subject to different laws than regular imports to commit foreign exchange violations, SAFE said. Ningbo Dacheng was not required to provide customs declaration forms to its bank to prove the authenticity of its transactions, and only had to show bills of lading or warehouse receipts.

Ningbo Dacheng used other companies’ voided lading bills to support false entrepot trade agreements, in which it declared transaction amounts of up to 20 times the market price for the goods it claimed to be re-exporting.

In recent months, China’s central bank has required financial institutions, including banks and fund management firms, to provide more detailed reports on cross-border transfers and foreign-currency transactions above specified amounts.