Banks 'added fuel to the fire' in Qingdao Port financing fraud

Banks were responsible for helping escalate Qingdao Port's commodity financing fraud, an official at the State Administration of Foreign Exchange (SAFE) said on Thursday.

"Some banks facilitated the abnormal increase in transit trade financing and fake trade deals by failing to fulfill the responsibility of authenticity checks and offering services of transit trade financing and receipt and payment," said Wu Ruilin, deputy head of the Supervision and Inspection Department of SAFE, at a press conference.

He said in doing so they "added fuel to the fire."

According to earlier media reports, Decheng Mining had fabricated seals and warehouse receipts for a branch of the Qingdao Port to obtain multiple loans from banks, and the Chinese authorities had launched a probe into it.

The major fraud investigation has reportedly pushed global banks including HSBC and Standard Chartered to launch legal action over their estimated 900 million U.S. dollar exposure.

SAFE launched special campaign to fight commodity financing fraud in April last year. This year increased the targeted provinces and cities from last year's 13 to 24, which exposed the Qingdao Port case.

Investigations found many companies used fake receipts or other documents to make up fraudulent trade deals to facilitate the use of transit trade as a tool for speculating and making illegal gains, Wu added.

Fake transit trade deals are detrimental to a country's balance of foreign exchange and even the whole economy, increasing the inflow of hot money and providing a channel for a variety of criminal acts concerning illegal trans-border capital transfer.

SAFE has found fake transit trade cases worth nearly 10 billion U.S. dollars. Fifteen such fraud cases had been handed over to the public security authorities for criminal liability prosecution.