How to rob the bank of China of $1 billion and almost get away with it

Even the biggest bank robberies of all time have nothing on the size and daring of the three Bank of China managers who stole several billion dollars from the bank using fake identities and fake companies. How the bank was defrauded to such a large extent is nor becoming clear as some of the people involved are now in court in Hong Kong over the theft.

The Bank of China managers are facing prosecution in the US on 15 counts of defrauding the bank to the tune of US$485 million. The scam was simple: loans from the branch in southern china were funded to companies in Hong Kong and not repaid. In the Hong Kong case the amount is staggering: US $821 million is alleged to have been wired to a bogus company in Hong Kong.

But this begs the question: how can almost $1 billion dollars go to an unlisted company without a credit rating that no one has ever heard of ? Where are the much vaunted risk management systems ? How did no-one in the senior management of the Bank of China know this was going on ?

Among other things the money was used for was a $1 million gambling spree by one of the accused, Yu Shendong, who is now enjoying some peace and quiet in a Chinese prison. Now at least we know why Macau is booming ! But seriously, US$1 billion that we know of was ripped off one of China's largest banks and nobody noticed for years. Talk about risk management and compliance issues.

So while the Bank of China may look nice and refreshed thanks to new investors pumping in US$11 billion into its June IPO, have things really changed so much or is there still potential for more massive fraud ?

Do Chinese banks really know where the money they loaned is or are there more fraud cases out there ? And with foreigners still barred from buying outright control of Chinese banks, are the worlds best practice risk management systems really being brought to China or is it still hyperbole ?

Let us know your thoughts.