Swiping cards 800 times for insurance beats China cash curbs

(Bloomberg) — More than 800. That’s how many times Hong Kong insurance agent Raymond Ng swiped the credit cards of a mainland Chinese client buying HK$28 million ($3.6 million) worth of insurance policies in the city earlier this month

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Dozens, maybe more. That’s how many other agents are using similar tactics as a way around new restrictions on insurance policy purchases by mainlanders that are often used to evade capital controls and get their money out of China, according to interviews with five Hong Kong agents working for Prudential PLC, AIA Group Ltd. and two smaller insurance companies.

“There are always ways around new restrictions,” said Ng, 30, who started selling insurance and investment products to mainland Chinese four years ago, declining to allow his company’s name to be used. “Chinese customers are accelerating the pace of moving assets outside China, especially through insurance products.”

Multiple credit-card swiping to buy insurance products, even hundreds of times, isn’t illegal in Hong Kong, but it allows individuals to exceed limits on insurance purchases by mainlanders meant to control capital outflows from China. The widespread practice shows just how eager Chinese remain to move money abroad amid a weakening economy and expectations of further declines in the yuan, potentially putting pressure on authorities to impose stricter curbs.

Clamping down

Since February, Chinese regulators have moved to control the booming business of citizens buying insurance in Hong Kong, first by putting a $5,000 limit on each transaction and later by limiting electronic transfers for such purchases. Previously there had been no limit on the use of the country’s China UnionPay Co. credit and debit cards for buying the policies, giving individuals wanting to move money abroad a convenient way around the country’s foreign-exchange controls. Multiple card swipes mean the new curbs lose some of their effectiveness.

When it imposed the $5,000 limit, the State Administration of Foreign Exchange said it would “closely monitor” cardholders and insurers for cases where cards have been swiped multiple times, though the regulator stopped short of banning multiple card use to purchase individual policies.

Violating controls

China’s foreign exchange regulator allows Chinese citizens traveling abroad to purchase health or travel insurance policies, but it views buying offshore life insurance and investment policies a violation of capital controls, Wang Yungui, a director of SAFE’s General Affairs Department said at a press conference in Beijing last week.

The most popular polices in Hong Kong, agents say, are those that combine a life insurance element and an investment component. These can be cashed out after a few years, at which point the money can be used for property investment or other purposes, raising fewer questions about how the money left the Chinese mainland. Hong Kong’s insurance regulator last year warned of growing money laundering risks through such policies.

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Chinese citizens are allowed to convert up to $50,000 worth of yuan a year into other currencies, and they can move that money abroad for investing purposes regulated under the country’s capital account policies. China doesn’t impose any limit on citizens’ use of debit or credit cards overseas when they’re used for consumption purposes — settling hotel bills or buying luxury goods, for example.

Difficult distinction

But it’s next to impossible for regulators or credit card companies to distinguish between purchases of health and travel insurance policies by mainland visitors to Hong Kong and the more controversial life insurance and investment policies.

A spokesman for AIA said in an e-mail response that it complies with all guidelines in the processing of applications of life insurance by mainland visitors in Hong Kong. A UnionPay press officer said last week that the company complies with regulatory requirements on managing merchants through monitoring and analyzing data.

Spokesmen for Prudential and for Hong Kong’s Office of the Commissioner of Insurance declined to comment on the practice. The People’s Bank of China and SAFE didn’t respond to requests for comment.

Prudential, which had previously limited its Hong Kong agents to swiping credit cards no more than 10 times for each client, removed that ceiling as of last Monday, according to two agents briefed on the change. Prudential declined to comment on the move.

So far this year, share prices of Prudential in Hong Kong have fallen 20 percent and AIA is down 9 percent, compared with the 7 percent decline of the city’s benchmark Hang Seng Index during the same period.

Raised stakes

The People’s Bank of China’s battle to shore up the yuan caused foreign exchange reserves to drop to a four-year low in February, raising the stakes in the effort to stem capital outflows, which reached $1 trillion last year according to Bloomberg Intelligence. Fears that money is leaking out via purchases of insurance in Hong Kong help explain the recent clampdown.