In the noon of January 27, CBRC has issued a heavy punishment for major and serious bill fraud case after heavy fines were imposed on the illegal issues such as "Qiaoxing Bound" of Guangdong Development Bank and Shanghai Pudong Development Bank, Chengdu Branch.

CBRC official news said, after a series of legal procedure such as registration, investigation, trial, review, information, review of defense state,etc, CBRC had made overall plans and coordination with the related China?Banking?Regulatory?Bureaus to investigate and deal with a bill fraud case involved by PSBC sub-branch in the Wuwei city of Gansu according to law, and fined 12 banking financial institutions involved in the case of totally 295 million yuan, among them, including 90.50 million yuan charged from PSBC sub-branch in the Wuwei city of Gansu as penalty.

The $7.9 billion worth of bill fraud case broke out. 

 At the end of December 2016, during verification on PSBC sub-branch on Wenchang Road, Wuwei city, PSBC sub-branch of Gansu province found that the fund paid by Rural Commercial Bank of Jiaohe city, Jinlin Province to buy financial products from this bank was misused, since then, in addition to another 3 billion yuan of wealth management funds illegally drawn or embezzled, the case that its former president has violated laws and rules to draw paper money involving with bills worth of 7.9 billion yuan, has been exposed to public.

"It is a major case that bank staff colluded with outsiders to carve official seals without permission, used fake papers and contracts, illicitly conducted inter-bank wealth management business and bill discounting, and illegally drew and embezzled funds. It was a severe case involving multiple agencies and seriously damaged market order,” In summarizing the case, CBRC noted that the outbreak of the case indicated a number of problems with the banks involved, i.e., the first is lack of internal control management. The post restriction mechanism of the agency involved in this criminal case lost balance, whose management on seals, contracts, account and business place, etc., are chaotic, and supervision on large abnormal transactions lost efficacy, which provided an opportunity with criminals. Secondly, compliance awareness is weak. Some employees of the relevant institutions involved in this case have illegally participated in transaction of paper intermediary or money broker, and some individuals have even broken legal baseline to collude with the criminals for personal gain. The third is seriously illegal operation. the relevant institutions involved in this case, recklessly and unruly, who had not qualifications to carry out non-standard products investment, illegally accepted credit guarantee by third-party financial institutions, illegally signed a dominant or recessive buy-back clause to carry out bill?business by "money flow reverse", even "without bank bills" or "without endorsement", in addition to due diligence investigation failure before project investment and investigation failure after project investment, losing baseline of compliance.

Severer and Heavier Punishment

On specific punishment,CBRC has fined PSBC sub-branch in the Wuwei city of Gansu 90.50 million yuan, respectively canceled senior management qualification of former deputy president originally in charge of work as well as other three team members for 2 to 5 years, and the former head of PSBC sub-branch on Wenchang Road was barred from banking for life and transferred to judicial agencies according to law; A warning was respectively given to the former governor and a deputy governor of PSBC sub-branch of Gansu Province.

At the same time, CBRC has fined Jiaohe Rural?Commercial?Bank of Jilin Province, the financial institution who has bought financial?products from PSBC sub-branch on Wenchang Road, 77.44 million yuan, respectively, canceled senior management qualification of its chairman and president for 2 years, given a warning to its head of directors, and respectively prohibited capital operating officer, general manager of financial department to work in the banking sector for 2 years. 

In addition, CBRC also has fined 10 improper trading institutions totally 127.5 million yuan, such as Shaoxing Bank, Nanjing Bank, Zhenjiang Branch, Xiamen Bank, Hebei Bank, GW Bank, Hunan Hengyang Hengzhou Rural Commercial Bank, Hebei Dingzhou Rural Commercial Bank, Guangdong Nanyue Bank, Handan Bank, Qianan County Rural Credit Cooperatives, administratively punished about 33 relevant persons in charge, including canceling 3 persons’ senior management qualifications, prohibiting 1 person working in the banking sector. The crimes in this case include unreal transfer of paper assets, illegal resales of trade acceptance, forward repurchase agreements accepted by transfer of bill financing, inter-bank investment accepting credit guarantee by the third-party financial institutions, discount by transfer without signature interview and seals, etc.

 "Give?a?heavier and severer?punishment?to the criminal agencies according to regulations to punish top major and serious criminal cases". As to the principle of the punishment at present, relevant person in charge said that the compliance management on bank employees should be strengthened, illegal behavior should be strictly supervised and heavily punished, and bank should set up the idea of "compliance creates benefit". The next step is to continue to guide banks to strengthen internal controls while cracking down on market chaos and effectively "punish one to deter others".

Supervise and regulate the development of commercial paper field. 

"Bill case is an area where many long-standing major problems exist in inter-bank business." The director of the National Banking Research Center of the National Financial and Development Research Office has recently stated that "domestic bills are mainly acceptance bills, which is a business based on inter-bank credit, with lower risks. Other crime agencies involved in the postal savings bank note are based on credit of PSBC as well. Of course, these banks failed to carry out wind control, and lacked of verification during transaction.”

In fact, the previous two-year bill cases were frequent, exposing various problems in this field. Previously, CBRC has found in the "three-violation" inspection that the bill business involved in up to 1.98 trillion yuan. The main performance is illegal regulatory arbitrage through bill forwarding and discounting business; illegal cooperation with the bill broker and the fund broker to carry out the bill business or transaction; bank acceptance business without real trade background, etc, of which, bills involved in funds self-circulation is amounted to 636,145 million yuan. In addition, "three-arbitrage" inspection is mainly summarized to discover that the business cost to sell discount by transfer or outright sell bills with right of recourse were not withdrawn according to the provisions; and the third-party institution helped to convert the bill assets into a fund management plan so as to substitute investment for discount, adjust accounting statements and reduce capital withdrawal. During inspection on “ten chaotic?phenomenas”, CBRC has also pointed out the problem that some banks irregularly offered bill statement business in order to exaggerate the scale of assets and liabilities.

The bill issue is also included in the key points of regulation on the chaotic?phenomenas of banking market in 2018 published by CBRC. This document details the types of irregular bill businesses, such as the transaction of banker's acceptance bill without real trade background; rolling cycle to issue bank acceptance bills to deposit and increase the balance sheet scale; "list transaction" business for discount by transfer absent with signature interview by the counter parties, bill, endorsement ;

Irregularly, "outright?sale at sight + resales after purchase + forward outright purchase", false outright?sale or outright purchases, repurchase commitment attached, reverse procedure operation, etc., were used to avoid regulatory requirements; irregularly conducted mercantile bill business; In case of violation, irregularly bill assets shall be converted into fund management plan to substitute investment for discount, so as to reduce the provision of capital; irregular cooperation with bill brokers or fund brokers to carry out bill business or bill transaction, etc.

But in terms of data, violations of bill business are declining since last year. In addition, Zeng Gang has pointed out that along with improvement of regulatory standardizing system, and the establishment of clearing house in 2016, such cases are not likely to brake out. At the same time, he has also stressed that banks had to learn lessons, carry out comprehensive norms and enhance business management and corporate governance.