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China's Card-Carrying Money Smugglers

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China's Card-Carrying Money Smugglers GLOBAL BRAND: China UnionPay has become one of the largest bank card brands in the world with more cards in circulation than any other. REUTERS/STRINGER CHINA China’s card-carrying money smugglers Chinese are evading currency restrictions when travelling abroad by conducting phony sales on their UnionPay bank cards to get mounds of cash. BY JAMES POMFRET SPECIAL REPORT 1 CHINA CARD-CARRYING MONEY SMUGGLERS MACAU, MARCH 12, 2014 city’s revenues drawn from gambling, and a willingness to tolerate some capital flight rowing numbers of Chinese are - especially if it can be tracked through using the country’s state-backed names on bank cards. Moreover, the rapid Gbankcards to illegally spirit billions growth of UnionPay, including the spread of dollars abroad, a Reuters examination of its terminals at retail stores across the has found. world, is playing a key role in China’s strat- This underground money is flowing egy for making the yuan a global currency. across the border into the gambling hub No one knows for sure how much of Macau, a former Portuguese colony that Chinese money is being channelled ille- like Hong Kong is an autonomous region gally into Macau. Tam Chi Keong, an as- of China. And the conduit for the cash is sistant professor at the Macau University the Chinese government-supported pay- of Science and Technology, puts the total ment card network, China UnionPay. at HK$1.57 trillion ($202 billion) a year In a warren of gritty streets around through various channels.. Tam says his es- Macau’s ritzy casino resorts, hundreds of timate is based on his analysis of Macau’s neon-lit jewellery, watch and pawn shops finances and interviews with gambling in- are doing a brisk business giving main- dustry participants. land Chinese customers cash by allowing NUMBER ONE: Macau is now the world’s largest A senior UnionPay executive said the them to use UnionPay cards to make fake gambling hub with annual gaming revenues Shanghai-based company has long been purchases - a way of evading China’s strict seven times that of Las Vegas. aware of the payment card abuse in Macau currency-export controls. REUTERS/BOBBY YIP and elsewhere, but was limited in its ability On a recent day at the Choi Seng to act. That’s because the primary respon- Jewellery and Watches company, a mid- sibility lies with authorities in Macau or dle-aged woman strode to the counter any other country where the fraud is taking past dusty shelves of watches. She handed place, he said. the clerk her UnionPay card and received “The problem you are talking about has HK$300,000 ($50,000) in cash. She signed 3.53 existed for several years,” said the executive, a credit card receipt describing the transac- who spoke on condition of anonymity. “We tion as a “general sale”, stuffed the cash into billion have continuously taken measures.” her handbag and strolled over to the Ponte THE GOVERNMENT’S SON 16 casino next door. The number of UnionPay bank The withdrawal far exceeded the daily cards in circulation, the most in Though relatively unknown in the West, limit of 20,000 yuan, or $3,200, in cash that the world UnionPay has quietly grown to become individual Chinese can legally move out of one of the biggest card brands and pay- the mainland. “Don’t worry,” said a store Source: The Nilson Report ment networks in the world, accepted in clerk when asked about the legality of the 142 countries. There are more UnionPay transaction. “Everyone does this.” by corrupt officials and business people to cards in circulation now than any other Internal discussion documents prepared send money out of the country. brand - 3.53 billion, or nearly a quarter of by UnionPay and by financial authorities It’s unclear why the central bank, the the world’s total, according to the industry in Macau and China show these fake sale Peoples Bank of China (PBOC), hasn’t newsletter, the Nilson Report. Visa remains cash-backs are widespread in such retail cracked down harder on the practice, al- the world leader by transaction value with stores. The practice violates China’s anti- though the documents Reuters reviewed $4.6 trillion in card transactions in the first money-laundering regulations as well as show the bank was aware it had become a half of 2013; UnionPay was second with restrictions on currency exports, according growing problem. $2.5 trillion. to Chinese central bank documents re- Industry experts point to a weak enforce- If UnionPay poses a problem for viewed by Reuters. Chinese authorities also ment culture in China, a reluctance to hurt Chinese authorities, it is a problem of their fear the UnionPay conduit is being used Macau financially with 80 percent of the own making. The card brand is often seen SPECIAL REPORT 2 CHINA CARD-CARRYING MONEY SMUGGLERS as an arm of Chinese state policy. challenges for UnionPay. While the card Plastic cash UnionPay was established in 2002 system is helping monetary authorities UnionPay, the world’s largest card issuer by the PBOC and the State Council or open up the capital account, it is also en- and the second-largest commercial card Cabinet. Its founding shareholders were abling people to funnel their ill-gotten brand by transaction volume, raked in 85 Chinese banks, led by the five biggest gains out of China, said Yan. “It’s not the $2.5 trillion worth of card purchases in the state-owned banks. Former senior PBOC only tool” for money laundering, Yan says, first half of 2013. officials still fill the company’s top ranks, “but it’s a major tool.” CARD CIRCULATION GROWTH including UnionPay’s current chairman, Su Macau is a prime gateway for this ac- Percent change, 2012 vs. 2017 forecast Ning, and its former president, Xu Luode. tivity. It is the only place in China where They declined requests to be interviewed. casino gambling is legal, and so Chinese 60 51% UnionPay dominates the card market in gamblers bring vast sums of money here. China thanks to a central bank decree that Because Macau is administered separately 40 requires all card issuers, including foreign from the mainland, there are restrictions on ones, to process their yuan-based transac- how much currency mainland Chinese can tions through UnionPay’s electronic pay- take into the gambling haven. But gam- 20 ment network. All Chinese merchants and blers find ways of skirting currency controls automated teller machines are required to when they cross into Macau. And much process their yuan transactions through of the money these mainlanders ostensi- 0 UnionPay MasterCard Visa UnionPay. The World Trade Organization bly take to Macau for gambling, Chinese in July 2012 ruled that China was dis- authorities believe, is actually going abroad NUMBER OF CARDS IN CIRCULATION criminating against foreign card brands, into bank accounts. Billion cards, 2012 but it made no specific recommenda- Any steps to clamp down on UnionPay tions. Foreign card brands still have to use cashback transactions would likely rattle UnionPay for settlements in China. Macau, because the cash also feeds the ca- UnionPay 3.5 UnionPay’s increasing use overseas is sino sector on which the territory’s $43.6 part of Beijing’s multi-pronged strategy billion economy overwhelmingly depends. to eventually open up China’s capital ac- Macau is now the world’s biggest gambling Visa 2.5 count and internationalize the yuan, which hub, with revenues seven times those of Las is formally known as the renminbi. Beijing Vegas. Last year, gambling revenue rose 19 also eased restrictions on many kinds of percent to $45.2 billion. Nearly 40 percent MasterCard 1.2 capital transfers as it gradually loosens up of that went to the government in taxes. control over the currency, making it easier Beijing is particularly concerned about for money to leave China’s borders. The the role of this capital flight in the country’s TOTAL CARD PURCHASE VOLUME efforts have paid dividends. The renminbi endemic government corruption scandals. Trillion dollars, first half 2013 has already overtaken the euro to become An internal research report in 2008 by the Credit card Debit card* the second-most used currency in trade fi- PBOC identified UnionPay cards as one nance, according to data from global trans- of the main tools for corrupt individuals to action services organisation SWIFT. facilitate cross-border transfer of funds. The Visa $4.6 “(China) may be happy to see UnionPay central bank report said the practice was sweeping different markets across the growing rapidly. world in different countries and territories,” Many card users follow their money UnionPay $2.5 said Yan Lixin, head of Fudan University’s abroad. Since the mid-1990s, an estimated China Centre for Anti-Money Laundering 16,000 to 18,000 Communist party of- MasterCard $2.0 Studies in Shanghai. “It is backed up by ficials, businessmen, CEOs and other in- the government. It is the real son of the dividuals have “disappeared” from China, government.” according to a separate PBOC report pre- *Includes prepaid cards for Visa and MasterCard. At the same time, these changes pared in 2008 – taking with them some 800 MasterCard excludes Maestro and Cirrus data. have vastly complicated the compliance billion yuan ($133 billion). Source: The Nilson Report. SPECIAL REPORT 3 CHINA CARD-CARRYING MONEY SMUGGLERS FAKE SALES: Jewellery and pawn shops around Macau’s casinos do a brisk business giving customers piles of cash by ringing up phony sales on their bank cards. Many of the shops have signs saying they welcome UnionPay cards.
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