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China Cracks $64 Billion Underground Bank

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China said it cracked the nation’s biggest “underground bank,” which handled 410 billion yuan ($64 billion) of illegal foreign-exchange transactions, as the authorities try to combat corruption and rein in capital outflows that have hit records this year.

More than 370 people have been arrested or face lawsuits or other punishment in the case centered in eastern Zhejiang province, the official People’s Daily reported on Friday, citing police officials. The case brought the total for underground banking and money-laundering activities to 800 billion yuan since April, the newspaper said.

The probe began in September last year and the police took almost a year to sort through more than 1.3 million suspicious transactions, the state-run Xinhua News Agency reported separately. The authorities froze more than 3,000 bank accounts, Xinhua said.

Global Flows

The case highlights the nation’s struggle to control capital outflows that have helped to send real-estate prices soaring from Vancouver to Sydney — even when Chinese citizens are officially limited to converting $50,000 of yuan per year. Some people may be moving the proceeds of corruption, while others may be concerned about the outlook for the economy and the potential for the yuan to weaken.

“The government wants to stem outflows and stabilize the yuan’s exchange rate, but the outflows cannot be stopped unless people change their expectation on yuan depreciation,” said Xi Junyang, a finance professor at Shanghai University of Finance & Economics. Besides illegal banking operations, “a lot of money is leaving the country by legal means,” Xi said.

China’s capital outflows may have climbed to a record $194 billion in September before cooling to $62 billion in October, according to a Bloomberg gauge which also takes into account decisions by exporters and direct investment recipients to hold funds in dollars.

‘Smurfing’

The tactics used by Chinese citizens to defeat the controls include so-called smurfing, where large sums are moved by breaking them down into a series of smaller transfers using the bank accounts and foreign-exchange quotas of a range of individuals.

In the Zhejiang case, a suspect identified as Zhao Mouyi used a different method, setting up more than 10 companies in Hong Kong from 2013 and transferring more than 100 billion yuan through so-called non-resident accounts, which are used by offshore companies in China when they are transferring money abroad, according to the newspaper’s report.

Taking advantage of a “loophole” relating to non-resident accounts — which has since been filled by banks — Zhao circumvented the capital controls by directly transferring yuan overseas and then exchanged the money into foreign currencies at banks including HSBC Holdings Plc in Hong Kong, the People’s Daily said. Zhao then allegedly transferred it to his clients’ accounts, the report said, citing the local police.

Suspicious Transactions

HSBC declined to comment on the report. The Hong Kong Monetary Authority also declined to comment on the specifics of the case, while saying that banks in the city have “stepped up their internal controls to report suspicious transactions.”

  • Methods of bypassing China’s currency controls include:
  • making transfers using Hong Kong money changers
  • carrying checks from underground banks across the border to Hong Kong
  • smuggling cash through customs
  • making payments abroad using credit or debit cards and then returning merchandise for cash
  • getting an overseas mortgage based on savings held within China

The underground banking crackdown is “an attempt to reduce the capital outflow pressure,” said Hou Wei, a banking analyst at Sanford C. Bernstein & Co. in Hong Kong. The government is “determined and very serious” about defending its currency reserves and the exchange rate, the analyst said.

Taiwan, Australia

In another case highlighted by the People’s Daily on Friday, an investigation of an underground bank in Fujian this year uncovered a network spanning Hong Kong, Taiwan, Australia and Saudi Arabia — and a senior executive at a state-owned enterprise who allegedly tried to move 18 million yuan abroad, the newspaper said.

The authorities have made a series of moves to control legal and illegal capital flows, including capping withdrawals at overseas automated teller machines.

The People’s Bank of China has given verbal guidance to onshore lenders to stop offering cross-border financing to offshore banks, people familiar with the matter said this week. The monetary authority has also told overseas banks to halt onshore bond repurchases, two of the people said.

Bloomberg

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Boeing to Deliver 50 737 MAX Planes to British Airways

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American Airlines Boeing

International Airlines Group (IAG), the owner of British Airways, on Thursday said it has agreed to purchase 50 Boeing 737 MAX planes. The transaction estimated at $6.25 billion includes a substantial discount and is expected to be delivered between 2023 and 2027, according to a statement issued by the company.

In the statement seen by Investors King, Luis Gallego, the Chief Executive of IAG, said “The addition of new Boeing 737s is an important part of IAG’s short-haul fleet renewal.”  

“The deal falls short of a blockbuster non-binding commitment for 200 737 MAX jets placed under former chief executive Willie Walsh at the Paris Airshow 2019 that was a welcome lifeline to Boeing when the model was grounded after two fatal crashes.

“But the firm 737 MAX 10 order from a top-tier customer is an important signal to the market at a time when Boeing faces an increasingly high-stakes battle to win certification of the largest MAX variant before a new safety standard on cockpit alerts takes effect at year-end.”

Boeing’s financial health rests on the resumption of deliveries of 787 Dreamliners and clearing MAX inventories, company executives and analysts have said.

Former IAG’s Chief Financial Officer, Steve Gunning revealed to analysts in November that the airline group would need some additional short-haul aircraft towards 2024 or 2025 and hinted that any order would include the 737 MAX.

IAG, owner of Ireland’s Aer Lingus and Spain’s Iberia and Vueling in addition to British Airways, also has a further 100 purchase options as part of the deal, which is subject to shareholder approval.

IAG is one of the world’s largest airline groups, with a fleet of 531 aircraft. Before the impact of the COVID-19 pandemic it operated to 279 destinations and carried around 118 million passengers each year.

It is a Spanish registered company with shares traded on the London Stock Exchange and Spanish Stock Exchanges.

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CISLAC Campaigns For Tobacco Tax Hike

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British American Tobacco

The Federal Ministry of Health, Civil Society Legislative Advocacy Centre (CISLAC) has called for a campaign to raise tobacco tax. The aim of this advocacy is to generate income for the health sector and save the lives of Nigerians.

Executive Director, CISLAC, Mr Auwal Rafsanjani said the measure would provide Nigeria with a win-win situation by lowering tobacco product affordability while generating income for development funds. He said that the detrimental effects of tobacco usage had prompted countries such as Nigeria to enact tobacco control measures to reduce tobacco consumption and cost.

“Excise taxes are the most effective tax measure for promoting health because they change the price of a harmful product relative to other goods and can be easily increased over time. Consumption is reduced best with taxes based on specific taxes on unhealthy products such as sticks and packs of cigarettes.

“Closely linked to the issue of tobacco taxation as a control tool, is the issue of safeguarding population health. It is not news, however, that the state of health care delivery in Nigeria remained very abysmal while the world intensified efforts to attain the Sustainable Development Goals,” he said.

Recall that Investors King had earlier reported the World Bank’s call to the Federal Government of Nigeria, urging the government to impose special taxes on alcohol, cigarettes and beverages that are highly sweetened in order to improve primary healthcare conditions in the country.

Investors King gathered that, Shubham Chaudhuri, the Country Director for Nigeria in the World Bank Group, said that an improvement in healthcare in Nigeria will come by taxing the things that are “killing us.” He said that the economic rationale for the action is quite strong if lives are to be saved and a healthier Nigeria achieved.

According to Rafsanjani, African nations convened in April 2001 to address health-care finance issues, which are one of the primary determinants of Universal Health Coverage (UHC), and decided to set aside 15% of their budget for health.

“As the country defaults on budgeting effectively for health, countries of the world are adopting innovative approach to mobilise resources for health financing which is adopting tobacco taxes as an alternative strategy”, he noted.

The study, according to Rafsanjani, was commissioned to investigate the potential of tobacco taxation as a form of income for Nigerian health financing.

He explained that the study’s goal was to give scientific information to help policymakers formulate better policies as Nigeria battled to close the gap in health funding.

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Merger and Acquisition

Access Holdings Plc to Acquire Majority Stake in First Guarantee Pension Limited

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Herbert Wigwe - Investors King

Access Holdings Plc has agreed with First Guarantee Pension Limited to acquire a majority stake in the company in its drive to transform from a narrow banking business into a financial service company.

The leading financial institution stated in a press release obtained by Investors King on Thursday.

According to Access Bank, the transaction is in line with its strategy to evolve into a full-blown financial services company and gain relevant market share across Africa, global monetary centres and beyond banking verticals.

Speaking on the firm’s push to change the banking landscape, Dr. Herbert Wigwe, Group Chief Executive Officer, Access Corporation said “This transaction is a natural evolution for us. Over the last 20 years, we set our sights on and delivered ambitious plans to transform the African financial services landscape focusing on banking and have created the African leading Bank and largest bank by customer base.

“This large customer base both on the wholesale and retail segments makes the pension business a natural fit for the Corporation given its objective of ecosystem optimisation. We will leverage our well-established culture of strong corporate governance, risk management, cutting-edge technology, and digital capabilities to deliver high standards of professionalism in the management of pension assets to the benefit of our stakeholders.”

The firm added that the National Pension Commission and the Central Bank of Nigeria have given their no objection to the transaction.

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