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Inner Mongolia: Where Bankers Sold Bunk

Regulator Says Insider Crimes a Nationwide Concern

Underlying the trial of a woman authorities say drained bank accounts and kidnapped a banker’s wife are vexing questions about account security and teller supervision at China’s state-run bank branches in Inner Mongolia.

Hundreds of millions of yuan were stolen from customer accounts at the Bank of China’s (BOC) branch and the Agricultural Bank of China’s (ABC) branch in the city of Bayan Nur between 2007 and 2011, say prosecutors who have charged Tu Ya and twenty-three alleged accomplices. These include Tu’s husband Jin Junping, a boyfriend named Li Shengrong, and eleven former BOC employees.

Tu has been charged with scheming with bank executives and tellers to defraud eighty-three bank clients, draining a combined 2.7 billion yuan from their accounts. Authorities have forced Tu to repay victims about 2.2 billion in principal and interest, but the rest of the money—much of which she allegedly used for bribes—has been deemed unrecoverable.

The trial began in Hohhot on August 1 when prosecutors from the Xing’anmeng bureau of the Inner Mongolia People’s Procuratorate formally charged the suspects with financial fraud, illegal bank deposit marketing practices, and other crimes.

After reviewing the indictments and hearing witness testimony, the presiding judge adjourned the proceedings at Hohhot’s Intermediate People’s Court on August 7. Most defendants have been jailed pending a verdict, for which a date has not been announced.

Banking regulators have been paying close attention to the Tu case and its implications for managing employee-related risk at bank branch offices, a source at the China Banking Regulatory Commission (CBRC) said.

As of the first quarter of this year, over sixty percent of illegal fundraising cases involved participation of bank employees, CBRC chairman Shang Fulin said at a Beijing conference on July 31.

“In almost all cases of operational risks leading to investigations at banks, the perpetrators colluded with bank insiders to different degrees,” a high-level bank regulatory official said. And Tu’s case triggered a wave of investigations.

Insider crime at bank branches was cited as a nationwide concern recently by Shang. He urged regulators to watch for bank employees who, for example, write high-interest loans for bank clients outside official channels.

Authorities say Tu pulled off a colossal Ponzi scheme that would have been impossible without help from inside the banks. Attorneys representing some of her co-defendants who used to work at banks say the scheme is quite common in Inner Mongolia.

Tellers and bank executives have been known to get involved. One of Tu’s fellow defendants, a woman named Tonglaga who was fired from a job she long held at BOC’s Inner Mongolia business office, did not deny joining Tu, but testified that the scheme also must have had high-level support.

On the witness stand, Tongala said getting a superior’s permission to move any large sum of money at the bank was easy. “Whenever they saw Tu’s name, they authorized it in two or three seconds.”

Tonglaga also testified that she always worked within full view of surveillance cameras, which meant superiors must have chosen to have ignore transactions and other office activities related to Tu.

Complicity apparently ran deep because even basic transaction rules were flaunted at branches where Tu did business. For example, according to BOC rules, a window teller is never supposed to move more than 50,000 yuan in a single transaction, nor handle more than 500,000 yuan worth of transfers in a single day. But tellers allegedly routinely moved millions and sometimes tens of millions of yuan on Tu’s behalf in just a few transactions, prosecutors say.

Foiled Plot

The five-year money-funneling operation started falling apart in summer 2011. But it was Tu herself who apparently hammered the nail in the coffin by making an ill-fated decision to try saving herself by kidnapping the wife of a prominent bank president.

Tu and accomplices allegedly nabbed Yang Ruilian, stuffed her into an SUV, and drove off on July 19, a month after the victim’s husband, Zhang Fengkui, spearheaded a crackdown on illegal transactions at BOC.

Zhang at the time was serving as president of BOC’s Inner Mongolia branch and had cracked down after BOC regulators uncovered questionable transactions involving clients with big accounts. Discrepancies were found in connection with more than forty accounts, threatening Tu’s operations.

BOC officials found illegal teller operations at a branch had involved transferring funds for Tu. Three bank workers were fired: Tonglaga; a teller named Lei Wenxia at the People’s Park branch of BOC in Baotou; and Guo Biao, a deputy manager at a BOC branch in Bayan Nur.

Prosecutors say the crackdown was directly responsible for breaking “Tu’s capital chain.”

In a desperate attempt to salvage her fortune, Tu asked to meet Zhang at his office in Hohhot to speak on behalf of Tonglaga, Lei and Guo. The request was denied.

Tu and her husband then started plotting to kidnap Zhang. But after several attempts to nab the bank president failed, the couple targeted Yang.

On July 19, Tu learned Yang would return from Chengdu, Sichuan Province, in the evening to her home in Hohhot. That’s when she hatched the kidnap plot.

Pretending to be a courier, Tu phoned Yang late that night and said she wanted to deliver a package immediately. The two then met at the apartment complex gate, where Yang was muscled into the SUV.

While riding down the road together, Tu allegedly told Yang that she would be held until her husband agreed to rehire the three ex-employees within three months or pay a 200 million yuan ransom.

Police quickly traced the kidnapper and victim. Within eight hours of the abduction, police arrested Tu and her accomplices, and were searching for Jin. Jin was arrested ten months later in Zhuhai, Guangdong Province, and returned to Inner Mongolia.

Before the kidnapping, prosecutors say, Tu got help from BOC Inner Mongolia business office manager Wang Xue, Jin’s girlfriend and a relative of a co-defendant in the Hohhot fraud case, Wang Chunping.

Wang got to know Tu in 2010 and helped her illegally acquire 178.5 million yuan from bank clients, prosecutors say. Of that amount, more than 50 million yuan was missing when BOC launched the 2011 crackdown. In late 2012, Wang died of a heart attack.

Tu was held in a detention center for two years before facing trial for kidnapping. While incarcerated, she met a fellow inmate who had been a judge and was charged with accepting bribes.

After hearing from the ex-judge that a financial fraud conviction can carry the death penalty, Tu told authorities she would return to her victims all 700 million yuan owed if they agreed to set her free. Her proposal was rejected.

The kidnapping trial opened in Inner Mongolia this year but a verdict has not been handed down.

Fortune Building

Jin, who is Tu’s second husband, provided the power base on which their financial schemes were built. He was in the military before landing a job at a Ministry of Railways office in Hohhot, and later went into business.

The couple opened a spa and entertainment complex in Bayan Nur that apparently earned them several million yuan annually. Later, Jin won a political appointment as a member of the Chinese People’s Political Consultative Conference in the city of Urad Zhongqi.

In 2001, Tu and Jin decided to put their profits to work by lending money to friends and relatives. The wife led associates to think she was also getting involved in real estate and building a jewelry business, but in fact she was laying a foundation for a lucrative game of pyramid financing.

About 63 million yuan she raised by 2011 was used to buy twenty-two homes, prosecutors said, some in her name and some on behalf of others. She also bought a kilogram of gold, and more than seventy pieces of diamond jewelry.

But another big shopping spree highlighted her real intent: Tu raised 26.9 million yuan, prosecutors charged, to buy thirty-two cars, some that she gave bank tellers who aided her schemes, and others she distributed to people to whom she owed money.

Authorities seized 112 million yuan worth of real estate, cars, cash, and merchandise from Tu after her arrest.

A source close to Tu said that she also paid large bribes to unnamed “officials,” spending much of the 700 million yuan taken from bank customers. Bribery charges, however, were not included in the financial fraud indictment nor have they been mentioned by prosecutors.

The indictment does, however, say Tu set off down the fraud trail by initially colluding with bank workers at ABC branches in Bayan Nur in 2001. Seven of her twenty-three co-defendants had links to alleged money-siphoning, which totaled more than 1.8 billion yuan, in that city.

One defendant, Wulan Qiqige, worked at the Urad Zhongqi branch of ABC in Bayan Nur. Between 2001 and 2008, she allegedly illegally pocketed the difference between a three percent monthly interest rate paid to bank clients with more than 2.5 million yuan in deposits, and a four percent monthly interest rate she collected on loans issued to Tu. Wulan has since repaid every bank client.

Another former ABC employee, Song Xiaoyu, apparently helped Tu devise the Ponzi scheme in 2007.

Tu often banked at ABC’s branch in Hohhot, where Song worked. The banker asked Tu to help him drum up more savings deposit clients in exchange for help with her scheme, and a deal was reached.

A few months later, Tu and Jin convinced two people to deposit money in the Qingcheng branch. But while signing up one client, Song stole the account password and funneled the funds—four million yuan—into Tu’s account.

That was the first of several cash diversions that prosecutors say involved close cooperation between Song and Tu.

At that time, ABC was preparing to launch an initial public offering on both the Shanghai Stock Exchange and the Hong Kong bourse. Preparations included internal investigations to clean up any dirty business lurking in bank branches.

In 2008, ABC fired Song along with other employees that seemed problematic. But before leaving, Song taught two bank colleagues, Gerile and Yin Guimei, how to help Tu obtain passwords. Moreover, Tu arranged for Song to teach his password-stealing tricks to other tellers with whom she cooperated. In exchange for his password instruction courses, Song received free lodging at a hotel and an Audi sedan.

Gerile helped Tu raise 54.7 million, prosecutors said, and Yin opened the gates for 9.4 million yuan in exchange for kickbacks, including 188,000 yuan in cash and an Audi.

Song was arrested in September 2011 on suspicion of embezzlement, and later charged with teaching criminal tricks. Only after the successful IPO did these illicit dealings at ABC branches in Inner Mongolia come to light.

After losing her connections at ABC, Tu moved her scam to BOC. In 2009, prosecutors say, Tu obtained nearly 700 million yuan via thirty four illegal money transfers executed by Lei at the BOC People’s Park branch in Baotou. One of Lei’s tricks involved getting an account password by pretending to want to help a new customer open a bank account.

Authorities also say former BOC employee Guo—one of the three people that Tu wanted rehired in exchange for the kidnapping victim’s release—helped Tu.

Guo took a low-level job at BOC in 1994, and was still earning only about 1,500 yuan a month when he started collaborating with Tu. In fact, the indictment says he had not earned anything for fourteen months before starting to work with Tu because he had failed to attract new deposits.

Guo’s brother-in-law was Tu’s boyfriend, Li Shengrong, which put him in a good position to aid Tu’s scheme. Thus, prosecutors say, while working at BOC he helped Tu transfer 89 million yuan—activity that led to the money-laundering charges for which he’s now standing trial.

Victims or Cohorts?

Li is another co-defendant who built good relations with Lu. He is a former political commissar for the Bayan Nur military district and was involved in planning to develop the city’s tourist district in 2006.

Li and Tu met at a meeting organized by city officials seeking tourism-related investment. Tu had been invited as a wealthy businesswoman, and Li attended because the proposed tourism district borders the city’s military district.

The tourism plan died, but the relationship between Li and Tu blossomed based on mutual ambitions. Court documents say Tu proposed “marrying” Li after showing him a bank account book with a 68 million yuan balance. Turns out, the book was phony.

Li’s status in the military improved Tu’s credibility among the kinds of people she could fool. Between December 2010 and July 2011, the indictment says, Li repeatedly “used his status and influence as a military political commissar to win confidence among people. He repeatedly made guarantees for their deposits illegally. His guarantees eventually totaled 428 million yuan.”

At the trial, the court heard that while Tu’s “capital chain” was crumbling in June 2011, six BOC bank customers in Bayan Nur, including Wei Yongliang, asked Li to guarantee the 374 million yuan they had loaned Tu. They demanded “big brother Li sign his name on the loan receipt and act as guarantor for Tu.”

Li said he couldn’t back such a massive amount, but Tu came to his aid with a bank book under her name that claimed a balance of 280 million yuan. It, too, was fake.

Four months after Tu’s arrest, Li retired from the military. Three days later, he was detained on suspicion of illegal banking activity.

Li was formally arrested within weeks and charged with fundraising fraud. Moreover, officials the following year launched an investigation into whether he had tried to bribe a police officer with the Saihan Public Security Bureau in hopes of winning Tu’s release.

To this day, though, Li’s attorneys say their client was a victim of Tu’s deceit.

The indictment says more than twenty of the eighty-three people from whom she obtained bank deposits have so far been repaid with principal plus interest, pocketing combined profits of more than 170 million yuan. At least ten earned interest equal to more than fifty percent of their investments.

The attorney for another man accused of being a Tu accomplice, a former BOC teller named Zhang Lei, said those bank customers who agreed to turn over their money to Tu must have known she was up to no good. How could anyone, he asked, believe a bank book showing a 100 million yuan balance after the account holder had deposited a mere 1,000 yuan?

The attorney further noted that long discussions with Tu had preceded these depositors’ decisions to open accounts. And many worked with Tu to open more than one deposit at bank branches with which she cooperated.

Testifying at the trial, Lei said she thinks every customer was in on the scam.

And court papers indicate there was no lack of power among the people who handed their cash to Tu.

The indictment mentions the deputy director of the Dongsheng District Public Security Bureau in the city of Ordos, Zhang Kexiong, who made deposits through Zhang after being “duped four times.” At Tu’s behest, prosecutors said “falsified deposit books” were used to transfer 30.4 million yuan of the official’s money into accounts designated by Tu.

The official gave more money to Tu between March and April 2011 in several chunks, for a total of 97.5 million yuan. That amount had risen to 127.9 million yuan by the time Tu was detained, of which she has so far repaid 119.2 million.

Another depositor, Wang Shengjun, earned 29.5 million yuan on a deposit of 9.1 million, according to court documents. Another, named Wang Xuan, saw a return of 35.5 million yuan on an investment of 16.7 million. The indictment calls each a “businessman” but does not say how they earned so much.

Since Tu never kept written records, exactly how much money she owes is unclear. Her personal files, however, do include IOUs. Also in her files are papers that she and Jin started putting together in 2009 toward plans to immigrate with their fortune to the United States.