B2B Payments

China Tackles Trade Invoice Fraud To Stunt Capital Outflow

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Hong Kong is looking to curb the illegal outflow of capital from China, the apparent result of fake trade invoices, reports said on Thursday (May 5).

Hong Kong’s central bank told reporters that it is ramping up efforts to monitor bank trade finance and increasing random checks on cross-border shipments and warehouses to ensure the trade being conducted is legitimate.

Reuters cited senior officials in the shipping, logistics and banking sectors of the central bank.

According to those sources, billions of dollars have been funneled through Hong Kong from China following economic slowdowns. China has initiated its own efforts to stint the outflow of funds as people look to safeguard their cash offshore or invest overseas.

Reports said $674 billion left China last year, a record-setting figure, according to the International Institute of Finance.

Not all of that is from legitimate trade, analysts said. Reports said there is a gap between trade figures reported from China and Hong Kong, suggesting that overseas trade is being used to also help funnel funds away from China — or keep funds from coming back in.

Economics, said reports, say this gap is likely due to fraudulent trade invoices.

Most common is a tactic that overstates the value of goods imported to China so more money gets sent out; or, according to analysts, exports are undervalued on these invoices when goods are sent to Hong Kong.

“A Chinese company could export goods to its Hong Kong subsidiary worth $100 each but invoice the export at $80 each,” explained Reuters. “The Hong Kong subsidiary sells them for $100 each and parks the profit in an offshore bank account.”

The Hong Kong Customs and Excise Department is now probing the matter, alongside Chinese officials, by looking into banks’ trade financing operations.

China also launched its own campaign against fake trade invoices through its Nation’s Blade operation.

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