New account checks to start

By Xie Jun Source:Global Times Published: 2017/6/29 22:43:39

System aims to prevent illegal capital flows

A Chinese clerk counts US dollar banknotes next to yuan bills at a bank in Huaibei city, East China's Anhui Province. File photo: IC

Starting from Saturday, domestic financial institutions will screen all the financial accounts of non-residents and exchange the checked information with financial institutions in overseas countries.

Notice of the check-up was issued jointly by several government departments, including the State Administration of Taxation and the Ministry of Finance, on May 21.

The move marks the launch in China of the Common Reporting Standard (CRS). CRS, a standard that has been adopted by 101 jurisdictions around the world, requests exchange of financial account information of foreign individuals and foreign enterprises between governments, so as to make cross-border financial information more transparent.

According to the check-up notice, domestic financial institutions will gather information on non-residents' financial accounts, including deposit accounts, escrow accounts, and stock or bond interests.

Non-financial assets such as houses and jewelry are not within the check-up parameters.

China will start by checking high net worth accounts, or those worth more than $1 million by the end of 2016, and plans to finish the investigation by the end of this year.

As part of the exchange, China will also get reports from other countries as to how much money domestic residents have deposited there.

Greater capital flows

The check-up has come at a time when cross-border capital flows between China and other countries are on the rise, partly as a result of the country's increasing opening-up.

Capital that flowed from China to overseas countries surpassed $300 billion in 2016, according to domestic media reports.

A Shanghai resident who has deposited money in a US account told the Global Times on Thursday that the primary reason for the deposit was because she wanted to prepare money for her daughter who wished to study in the US in the future.

"With the stronger dollar and the depreciating yuan, we got some yields on the interest rate margin, but that's more like a windfall," she said.

She also said that she had no problem with her deposits being checked and reported to China.

"The money is from a legal source, so there's nothing wrong with the government knowing about it," she noted.

Who will be nervous? 

But there will be people who are concerned about the information exchange, such as those who use overseas accounts to launder money from illegal sources.

Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, said that in the past it was very difficult, although not impossible, for the Chinese government to track illegal money in overseas accounts, particularly in countries where banks insist on protecting their clients' privacy like Switzerland.

According to a report by China Central Television, by the end of September 2016, the Chinese government had recovered illicit funds totaling 7.99 billion yuan from overseas accounts in a campaign to crack down on cross-border economic crimes.

"In the past, when the Chinese government didn't have enough information about residents' overseas accounts, it was hard for them to detect illegal cross-border economic activities unless they were investigating someone suspected of other crimes, such as a sacked official who had few assets in the country. But if the government has overseas account information, it will help them find people whose crimes have not come to light, or prevent such crimes from happening at all," Yu Fenghui, a financial commentator, told the Global Times on Thursday.

Xi also noted that international cooperation on financial account information sharing has been insufficient in the past, which has allowed crimes to go unpunished.

"This might have been of less importance in the past when cross-border economic activities were infrequent, but now it's time for countries to build a proper information-sharing system to standardize international economic order."

But Xi stressed it's unlikely that non-residents will conduct economic crimes in China, as the government has very strict restrictions on non-residents' economic activities, particularly financial ones.

Posted in: ECONOMY

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