By Chen Yang Source:Global Times Published: 2015-1-28

A farmers` cooperative in Nanjing that posed as a commercial bank has duped depositors out of their money. It is far from an isolated case, and experts have said that more focused regulation of the cooperatives is needed.

A building used as a fake bank, which operated for more than a year before being shut down, in Nanjing, East China`s Jiangsu Province Photo: IC

Carefully designed to resemble a State-owned bank, a fake bank in Nanjing, capital of East China`s Jiangsu Province has cheated about 200 depositors out of more than 200 million yuan ($31.8 million).

The authorities have arrested two suspects - Zeng Yong, head of Nanjing Mengxin Rural Economic Information Specialized Cooperative, and He Xubin, the firm`s senior consultant.

They have been charged with illegally taking deposits from the public, the Jiangsu People`s Procuratorate said in a statement on its website Tuesday.

Local prosecutors approved the arrest of the two suspects on November 27, and decided on January 23 to extend the period of detention by one month due to the complicated nature of the case, the statement also said.

Counterfeit

The fake bank was established in 2013, and it operated for more than a year before suspicions were raised.

People were taken in by the bank, not only because they were tempted by the higher rate of return it offered, but also due to its physical resemblance of a State-owned bank, Jiangsu Public Security Department said in a statement on Friday.

The bank had uniformed clerks behind the counters, LED screens, standard bank queue management systems and documents that appeared to be genuine. But it was actually licensed as a farmers` cooperative to offer agriculture consultancy services, and had no qualification to operate any financial business.

Local police began to investigate after a victim reported the bank to them in June 2014.

The victim, a businessman in Hangzhou, capital of East China`s Zhejiang Province, learned of the bank from a middleman and deposited 12 million yuan in May, with the promise of a weekly return rate of 2 percent.

After getting the returns for four weeks, the victim found the interest payments suddenly stopped. He went to the bank but was unable to withdraw his deposit, so he reported it to the local police.

Most of the bank` victims are private business owners in neighboring Zhejiang Province, who deposited between 100,000 and 20 million yuan into the fake bank, the statement said.

One of the suspects caught by the police said the deposits were used for lending and investment projects, but when the investments failed the bank was unable to pay the money back to the depositors.

"What made so many depositors lose their sense of caution was the high return rate the bank promised," Wang Yanhang, a senior fellow with the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times Tuesday.

Lack of supervision

There has been debate online about how it was possible for the fake bank to operate for more than a year without being exposed by the local authorities.

The bank, together with seven other rural cooperative units, was reported by local citizens for illegally accepting deposits just two months after its launch, the Beijing Times reported Monday, citing Huang Sujing, deputy head of the Administration for Industry and Commerce of Pukou District, Nanjing.

The People`s Government of Pukou District sent a working team including local industry and commerce personnel as well as public security and banking authorities to investigate the eight cooperative units.

Huang said only the industry and commerce authority held talks with the representative of the fake bank, and ordered that it should stick to its licensed activities. But the working team did not suspend or shut down its business, according to the Beijing Times report.

As the fake bank illegally attracted public deposits, it should be under the supervision of local banking authorities, Huang told the newspaper.

However, an official surnamed Liu with the China Banking Regulatory Commission (CBRC) branch in Jiangsu Province told the Global Times Monday that the fake bank was registered as a specialized farmers` cooperative, so it was not under the CBRC` supervision.

"If its activities had caused a negative effect for the financial system, then we would have intervened," he said.

In China, specialized farmers` cooperatives are mutual-help economic organizations that are joined voluntarily by farmers and are registered with the local industry and commerce authorities. Members can contribute funds and share dividends, according to the Law on Specialized Farmers` Cooperatives.

"As the fake bank in Nanjing was able to exist for more than a year, we also can not rule out the possibility that it was operating with `protective umbrella,`" said Wang from the Chongyang Institute.

"If any officials are found to be guilty of conniving with the illegal business, they should be severely punished," he said.

Not an isolated case

Along with the fake bank in Nanjing, there have been other illegal fundraising cases in Hebei and Shandong provinces.

A specialized farmers` cooperative in Ningjin county, East China`s Shandong Province cheated over 200 people out of more than 8 million yuan in less than half a year by promising them high returns. The police got back 4.1 million yuan, but the rest had been spent by the suspects on villas and luxury cars, local newspaper Qilu Evening News reported in August 2014.

In several counties in North ­China`s Hebei Province, some representatives of specialized farmers` cooperatives fled after getting as much as 140 million yuan from local farmers in 2014, media reports said.

"Many cases of illegally accepting deposits have been found in farmers` cooperatives due to the low entry barriers to the sector," Wang said.

The CBRC and the Ministry of Agriculture jointly issued a notice in September 2014, suggesting that provincial governments should shoulder the main responsibility in cracking down on illegal fundraising by rural cooperatives.

Farmers` rural cooperatives are not allowed to attract deposits, lend the funds to non-members, or use the funds for any non-agricultural business, the notice said.

There were 1.29 million specialized farmers` cooperatives by the end of 2014, up 31.18 percent from a year earlier. Farmers had contributed a total of 2.73 trillion yuan to these cooperatives by then, up 44.15 percent year-on-year, data from the State Administration of Industry and Commerce showed.

Xie Yongmo, secretary-general of Baixin Rural Mutual Cooperatives, a Beijing-based consultancy on rural finance, said rural cooperatives should not be blamed.

"They are supposed to help farmers and develop the agricultural industry, but have been used by some criminals for illegal fundraising activities," he told the Global Times.

"We cannot simply attribute these activities to negligence by supervisory officials, as illegal fundraising concerns banking, industrial and commerce and public security departments," Xie said, adding that the central government should be more specific about who is responsible for regulating farmers` credit cooperatives.（欢迎关注人大重阳新浪微博：@人大重阳，微信公众号：rdcy2013）