Chinese Authorities Attempt To Plug Flow Of Illegal Funds Offshore

by Mary Swire, Tax-News.com, Hong Kong

10 August 2004

Regional media reports have revealed that Chinese state financial regulators have joined forces in an attempt to stem the illegal flow of capital to offshore destinations.

The central bank, the State Administration of Foreign Exchange, the China Banking Regulatory Commission and the China Securities Regulatory Commission are reportedly cooperating in a bid to crackdown on corrupt government officials and businesses who channel illegally obtained monies into offshore accounts.

The Chinese state news agency Xinhua has claimed that around 4,000 corrupt officials have fled the country after embezzling more than $5 billion, although some news reports place the monetary loss to the state at nearer $50 billion.

China’s Ministry of Commerce has also apparently expressed concern at the number of Chinese firms that are registering in offshore jurisdictions.

Government insiders have suggested that more than 10,000 Chinese firms are registered in the Caribbean region, a statistic experts believe is linked to the strict and complicated rules in China surrounding listings on foreign stock exchanges. However, these experts also suggest that offshore structures could be being used by Chinese state officials to illegally dispose of state assets.

To prevent this phenomenon, some have argued that the central government should lift controls on the foreign investment activities of domestic firms, and narrow the distinction between foreign and local companies.

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