China confirms bank fraud probe


China says the capital is now under control at the Bank of China and the appropriate authorities are investigating

By Alex Frew McMillan
CNN

HONG KONG, China (CNN) -- China's foreign ministry has confirmed that the Bank of China is investigating fraud in its Guangdong operations.

But authorities sought to play down the amount of money involved.

A report this weekend in the state-backed 21st Century Business Herald said that 6 billion yuan ($725 million) has gone missing, which would rank as modern China's greatest embezzlement if proven.

When asked about the case, a spokesman for the Ministry of Foreign Affairs said it was an old issue.

"As far as I know, the fund capital involved is not as large as you just mentioned," Kong Quan told reporters in Beijing on Tuesday. "And this capital is now under control."

He said the Bank of China discovered the case during an overhaul of its operations. The bank has passed details to China's department of justice, and both institutions are investigating.

"The case was discovered by the Bank of China in improving its management and undertaking reform," the spokesman said.

Amount unconfirmed

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The National Audit Office was cited as the source of the Business Herald story.

The audit office has reportedly launched an internal investigation into whether the story was leaked.

The office says it has been unable to confirm the amount involved, which would surpass the official losses at the bank's Chinese branches.

Calls made by CNN to the NAO and the Bank of China on Tuesday were not returned.

According to Reuters news agency, a Bank of China spokesman has said an investigation is under way into its branch in the city of Kaiping, in Guangdong province.


The investigations at the BOC come as it overhauls operations and readies a stock sale of its Hong Kong subsidiary

But the spokesman, who was unnamed, did not give any details.

China's banks have been overhauling their operations, as they prepare to face overseas competition.

On January 18, Chinese authorities matched a $10 million fine for misconduct at the Bank of China's New York office.

Kong said that separate case was also dated.

"This is not a case that has occurred in recent years but a case that is already old," he said.

"It was discovered by the Bank of China when it improved its management and undertook reforms."

'Progress made'

The bank's former president and head of its New York operations, Wang Xuebing, has been stripped of his positions in Chinese banking. He was moved from the Bank of China at the start of 2000.

"Progress has been made and the control has been exercised on the funds that were involved in the case," Kong said.

The Bank of China is one of the country's four big state-owned banks and its main foreign-currency bank. It is widely regarded by analysts as its best run.

But the latest revelations threaten to disrupt a proposed offering of stock in its Hong Kong and Macau subsidiary.