Is Beijing the world’s banking capital for terrorists? Ruthie Zahavi, whose four-year-old son was killed by a rocket launched by Hamas in 2004, and dozens of other victims of terrorist acts in Israel seem to think so.
On August 21, they filed suit in Superior Court in Los Angeles, alleging that, beginning in July 2003, Bank of China transferred millions of dollars to help Hamas and Palestine Islamic Jihad. The moneys, originating in Iran and Syria as well as other places in the Middle East, were funneled through Bank of China branches located in the United States to a branch in Guangzhou, the capital of China’s Guangdong province. From there the funds were wired to Israel, the West Bank, and Gaza, where they were used “for the purpose of planning, preparing for and executing terrorist attacks” between May 2004 to January of last year.
The plaintiffs claim that in April 2005 Israeli counterterrorism officials met with officials from China’s central bank and the country’s Ministry of Public Security to demand an end to Bank of China’s role in the money transfers. The transfers, however, continued, according to the complaint in the case. The Chinese central bank denies the meeting ever took place.
Furthermore, Bank of China denies all of the plaintiffs’ allegations. “The accusation is absolutely groundless,” the bank said in a statement issued Wednesday. Wang Zhaowen, a spokesman for Bank of China in Beijing, said the bank “always complies with the United Nations’ anti-money-laundering regulations. Also, our New York branch and related representative offices always follow U.S. banking regulations.”
Really? Bank of China has long been suspected of involvement in unseemly activities outside Chinese borders. Before the recent terrorism allegations, the bank was caught up in several North Korean scandals. For instance, in February 2006 it was accused of involvement in the trade in counterfeit American currency, specifically, holding large amounts of cash in three accounts in Chiyu Banking, a subsidiary of its Hong Kong unit, Bank of China Hong Kong. Bank of China Hong Kong denied responsibility in that case too, saying that “we are extremely vigilant in our day-to-day operations over possible illegal activities, including money laundering.”
Of course, any bank can be the unwitting depository and transmitter of dirty funds, but this particular institution has had a long involvement in illicit North Korean activities. In a wide ranging probe this decade of Pyongyang’s counterfeiting of American currency, its manufacture of methamphetamines, and its trade in fake cigarettes, Bank of China’s name came up at almost every turn. For instance, when American law enforcement authorities finally shut down Banco Delta Asia, a Macao bank deeply connected to North Korea’s illegal activities, Pyongyang appeared to move its accounts across the border into China into Bank of China branches in Zhuhai, the city on the northern boundary of Macao, and perhaps Shenzhen, the city just north of Hong Kong. That was a natural move because North Korea had also been using Bank of China in Macao as well as nearby Hong Kong. “Every North Korean bank has accounts at the Bank of China,” said one former North Korean businessman.
Why is Bank of China involved in so many dubious activities? After the 1949 revolution, the bank became the financial window for the People’s Republic. Last decade, it formally gave up that specialized role but has remained the country’s main foreign exchange bank. This decade, Bank of China has sold large strategic stakes to foreign banking institutions and shares to the investing public, but the Chinese government still controls its operations. If Beijing deals with a rogue leader or terrorist somewhere in the world, it most always funnels cash through Bank of China, which has operations in about thirty nations. The central government may say that it does not control the bank, but in reality it does.
And that brings us back to the Los Angeles case. “Most of the banks of the world are not doing business with terrorist organizations,” says Federico Castelan Sayre, a lawyer for the plaintiffs in Zahavi vs. Bank of China. Yet referring to Bank of China, he said, “They chose to do so willingly.” Perhaps it is more precise to say that the Chinese government chooses to do business with terrorist organizations and that the country uses Bank of China to implement its reprehensible tactics.
Washington declined to sanction that bank when it was dismantling North Korea’s international banking networks a few years ago. American officials apparently hoped to quietly persuade the bank to rid itself of its Pyongyang connections. It may have done so, but Bank of China appears to have continued with other activities of an even worse nature.
The sensitive Chinese government hates the spotlight on its questionable relationships, and the case in Los Angeles is bound to expose Beijing’s connections to Middle East terrorism. So going after Beijing’s international banker in the California case is essentially an attack on the Chinese government. The stakes, therefore, will be high in California’s Superior Court.