After four rural banks in Central China's Henan Province cut off online services to their clients, the provincial banking and insurance industry regulator and the province's financial affairs supervision bureau said late on Saturday that the case is under police investigation.

After an initial probe, Henan New Wealth Group was found to have manipulated and utilized the online trading systems of Yuzhou Xin Minsheng Village Bank and three other rural lenders, the provincial banking and insurance regulator said, adding that the diverted funds are being investigated. 

The regulator urged Henan's rural banks to actively cooperate with public security departments during the investigation, and protect the legitimate rights and interests of their clients in accordance with the law.

In a related development, the public security bureau in Xuchang city, Henan, filed a case against Henan New Wealth Group for alleged criminal acts on April 19. Police in the city also announced on Saturday that a number of suspects have been arrested and a batch of assets involved has been frozen.

A preliminary probe showed that a group led by the group's actual controller was suspected of using the village banks to engage in illicit activities from 2011 onwards. The case is reportedly very complicated and involves a good number of people, according to an official notice released on Saturday.

Since April 18, clients of the four rural banks in Henan and one in neighboring Anhui Province found that they could not withdraw their cash. Subsequently, some of the clients complained that their digital health codes, which track people's travel and COVID-19 nucleic acid test information, turned red, including some clients who didn't visit Henan.

In order to prevent the spread of COVID-19, most public places and public transportation services in Chinese cities require people to present a green health code, taken within 48-72 hours.

The irregularity quickly sparked criticism on social media platforms, with many social media users questioning whether the health code system was illegally hijacked in Henan to prevent the banks' clients from visiting Henan. 

The local commission for discipline inspection in Henan's capital city Zhengzhou announced on Friday the launch of an investigation and accountability procedures.

According to an investigation by domestic economic news site Yicai.com, the actual controller of Henan New Wealth Group is Lü Yi, who was born in Nanyang, Henan in 1974 but changed his nationality to become a citizen of Cyprus. 

Through his hundreds of companies across China - many of which are shell companies - Lü controls many domestic urban and rural small lenders. 

The group has been suspected of the illegal use of third-party platforms to absorb public funds.

Global Times