SUBSIDIARIES of oil giants China National Petroleum Corp. (CNPC) and Sinopec were among the clients of an underground bank in Shenzhen which was shut down last week.

The Economic Observer said the authorities found the names of subsidiaries of CNPC and Sinopec on the client list they seized from the underground bank, which allegedly handled transactions totaling 4.3 billion yuan (US$580 million) between [WHEN?] 2006 and May this year.

The underground bank has made national headlines since CCTV reported the case Thursday. The bank, which was allegedly run by a Hong Kong woman named To Ling, had operated out of a Shenzhen flat for at least seven years and handled at least 4.3 billion yuan in the past 18 months, CCTV said. It had clients in 31 provinces and cities.

Authorities are blaming underground banks for billions of yuan in illicit cash flows out of the mainland, the South China Morning Post said yesterday.

According to CCTV, mainlanders would deposit money with the underground organization, which would then instruct its Hong Kong agents to transfer the funds into Hong Kong accounts to buy stocks in the SAR.

The Economic Observer said the bank's transaction records showed it had relationships with "well-known state enterprises," including Sinopec and CNPC. One document showed it had transferred [A TOTAL OF?] 370,000 yuan on four different occasions to a bank account of Sinopec's Shenzhen subsidiary in one day.

A manager of a CNPC subsidiary in Shenzhen has admitted dealing with the underground bank. The newspaper reported the two energy giants' subsidiaries in Shenzhen were helping with the investigation.

But an employee of the CNPC subsidiary insisted it was innocent and said it had no "duty and responsibility" to check if the financial agency arranged by its Hong Kong clients was legal. The Sinopec subsidiary refused to comment.

A senior CNPC employee said the bank was referred to the company by Hong Kong customers. CNPC's internal regulations require transactions be done in yuan. The Hong Kong clients therefore suggested to the subsidiary that it settle bills through a third-party financial agency recommended by them, the employee said.

He said his company was unaware that the financial agency was an underground bank.

Arrested during the bust in June was To, 43, a money-exchange shop owner in Hong Kong. Five other suspects were also arrested.

Ninety bank cards, 40 internet bank passwords, 67 bank books and 11 identity cards for account transfers were seized, as well as a large number of ledgers and journals.

The bank, based in a residential area, reportedly averaged eight million yuan in daily transactions, with transaction fees hitting more than 10 million yuan.

Last year, police smashed more than 70 underground financial organizations around the mainland that were involved in US$3 billion worth of transactions, CCTV reported.

(SD-Agencies)