Bank fraud brings executions

WHILE SOME CORPORATE OFFICERS continue to carp about the stiffer penalties being handed out by the Securities and Exchange Commission for accounting fraud, those punishments pale in comparison with what's going on in China.

In September, amid a flurry of white-collar arrests, officials in the People's Republic executed Wang Liming, a onetime accounting officer at China Construction Bank, the country's largest property lender. According to reports, Wang defrauded the bank out of $2.4 million. Two other bank employees were also executed. In an unrelated corruption case, an officer at the Zhuhai branch of the Bank of China was put to death as well.

According to sources in China, the executions signal that the country's new paramount leader, Hu Jintao, is serious-dead serious--about cleaning up its troubled banking sector. Those banks are facing increased competition from foreign rivals, which were granted limited license to issue renminbi-denominated loans this year. Before joining the World Trade Organization, China must fully open its financial sector to cross-border banks by 2007.

While decrying the recent executions, China hands point out that systemic corruption in the banking and property sectors threatens to derail the country's rise to economic superstardom. That, in turn, would be bad news for U.S. corporates lusting after the vast consumer market on the mainland. Says U.S.-China Business Council president Robert Kapp: "If efforts by Chinese authorities to clean up the behavior of thousands, if not millions, of employees in the banking system are unsuccessful, it will be very difficult for American companies operating in China." It's also true, though, that the execution of corporate criminals could further stain China's human-rights record.

The thought of going head-to-head with powerful global banking institutions can't cheer executives at China's four state-owned banks. Those banks are thought to be siring on $200 billion in bad debt.

Meanwhile, officials in Beijing say they still intend to go ahead with the planned initial public offerings of both Construction Bank and Bank of China. But the IPOs--originally slated for this year--have been pushed back until 2005, a sign that things are not nearly right at the two financial giants. Another possible sign: late last year, the head of Construction Bank was sentenced to 12 years in prison for taking bribes. Apparently, he had a good lawyer.

COPYRIGHT 2004 CFO Publishing Corp.
COPYRIGHT 2004 Gale Group