At their annual meeting in February, People's Bank of China officials pledged a tougher fight against money laundering.
A few days later, the China Banking Regulatory Commission complemented that pledge by urging Chinese banks with overseas operations to intensify the battle against money laundering and terrorism financing.
Behind this clarion call by Beijing's bank supervisors was an unnerving realization that some of the nation's biggest banks had left themselves vulnerable to anti-money-laundering sweeps by regulators abroad.
This vulnerability stems from ambitious overseas expansions in recent years by the Bank of China (BOC), the Industrial and Commercial Bank of China (ICBC) and other powerful, state-owned lenders. As of June, according to official data, China's biggest bank, the ICBC, was operating 412 branches in 42 countries, while the BOC had 564 branches in 46 countries. China Construction Bank (CCB) counted 140 overseas branches, and Agricultural Bank of China (ABC) had 17.
At home, according to banking experts, Chinese banks have been operating in a regulatory environment that's generally soft on money laundering rules for financial institutions. Some of these banks have thus learned the hard way that many regulators outside China not only diligently enforce rules designed to prevent dirty transactions, but are also eager to slap violators with heavy fines and even imprisonment.
The BOC, the nation's fourth-largest lender, reportedly agreed on Feb. 17 to pay 600,000 euros ($634,000) to settle a money laundering case involving its branch in Milan, Italy. The branch had been targeted by Italian investigators since June 2015 who had looked into whether ABC helped clients transfer to China about 2 million euros linked to criminal activity.
In addition, a judge in the Italian city of Florence on the same day handed four BOC-Milan branch employees two-year suspended prison sentences after they were convicted of breaking Italy's anti-money-laundering laws.
A Hong Kong-based expert on money laundering who declined to be named said while the fine against BOC-Milan was comparatively "moderate," the criminal convictions were "surprising."
The decisions in Italy followed a November decision in the United States by New York state's Department of Financial Services, which fined a local ABC branch $215 million for illicit money transfers.
The case took a toll on ABC officials in China. The matter that the Communist Party expelled a former ABC-New York general manager, Yu Ming, in connection with the scandal.
Yu also lost his job after the New York decision and is now being investigated by Chinese regulators, the sources said. In addition, the source said, two other senior branch executives have been punished.
In a separate case, CCB was targeted in 2015 by U.S. officials fighting money laundering. And in 2016, officials in Spain took aim at the ICBC.
At their annual meeting in February, People's Bank of China officials pledged a tougher fight against money laundering.
