The Bank of China is on the brink of gaining its first full foothold in the Pacific, with an application to set up a branch in Papua New Guinea's capital Port Moresby in the final stages of approval.
The bank first signed a memorandum of understanding with the PNG government in 2019 and established a representative office in Port Moresby in June last year.
But Prime Minister James Marape and his government have been eager to grant Bank of China a full commercial operating licence, arguing it will bring major economic benefits to the country.
The move is being watched closely by the Australian government, which is wary of how criminal groups and the Chinese government could exploit the bank's presence in Port Moresby — particularly as the city prepares to open its first casino next year.
Former Australian government official and anti-money laundering expert Bridi Rice said that if the Bank of China did not adhere to the same anti-money laundering regulations that Western banks enforce, it would create increased potential for financial crime in PNG.
"The trifecta of casino, new bank, and special economic zone is a well-worn criminal path in other parts of the world, particularly South-East Asia," she said.
"For Papua New Guinea, this is not just a geopolitical move, it is a development that will have financial inclusion, criminal and development implications for generations to come."
Chinese bank closes in
One source familiar with the process confirmed that Bank of China had paid its licensing fees and that the government anticipated PNG's reserve bank would give it the green light shortly.
The ABC sent questions to the Bank of PNG and its Financial Analysis and Supervision Unit, but it did not provide a response.
PNG's Foreign Minister Justin Tkatchenko told the ABC he hoped the process would be done by this year, or in early 2025.
He said the move would help bolster growth in PNG.
"Papua New Guineans, Australians, or anybody that is buying products from China, they'll be able to now purchase it in [China's currency]," he told the ABC.
Mr Tkatchenko predicted that would drive down the price of goods in PNG, benefiting consumers.
"It will bring in greater competition in pricing when buying goods, and it will give better opportunities to our small business owners and to Papua New Guinean businesses that want to trade and buy stock from overseas," he said.
"So it's a win-win situation."
Meanwhile, Australia and the US have been trying to convince Western banks to stay in the Pacific while keeping a close eye on China's financial presence in the region.
Pacific analyst Jess Collins from the Lowy Institute told the ABC that state-owned Bank of China would be "under pressure to report to Beijing on the bank's clients and PNG's elite".
"With the mass exodus of Western banks from the region, the concern is that China will fill the void, risking the economic security of Pacific nations," she said.
"This is yet another example of China putting pressure on Australia's traditional domains of partnership, forcing the Australian government to put more resources into the security of the region."
Casino operations outsourced
Australian officials and analysts are also concerned with how the Bank of China branch could interact with a new casino — PNG's first — due to open next year in Port Moresby.
Earlier this month Mr Marape attended a groundbreaking ceremony for the "Million Kina" casino, which will be built as part of the contentious Paga Hill Estate — a sprawling commercial and tourism development planned in the heart of the capital's business district.
It is set to include a 300-room luxury hotel and an upgraded port for cruise liners, operating as a "special economic zone" with "fast-track" customs, immigration and tax processes.
The casino will cater to foreign tourists and high-rollers, rather than ordinary PNG citizens.
But the project has stirred political controversy in PNG. One regulatory body has alleged that the casino's application for a licence was not valid and called for the build to be brought to a halt.
Gudmundur Fridriksson, CEO of the Paga Hill Development Company (PHDC), said casino operations would be outsourced to a suitable third-party operator and 30 per cent of its gross revenue would go to the PNG government to support grassroots activities and social programs.
"We completely understand people may have concerns," he said.
"Which is why PHDC has been working with the regulator, the National Gaming Control Board, to ensure the successful candidate meets all of their requirements, including those related to anti-money laundering rules.
"In this way, the venue's operation can be fully compliant, regardless of patron and their source currency."
Mr Fridriksson said the casino would diversify tourism and help overcome negative perceptions of PNG by becoming an "icon of Port Moresby" akin to Australia's Sydney Harbour.
"The project has the very real potential of transforming the nation's capital, presenting an image of a modern, progressive nation to the world," he said.
But Bridi Rice, who is now CEO of the Development Intelligence Lab, said the casino could open up opportunities for fraud.
"There is no better place for a money laundering operation than an illicit economy beyond the scrutiny of citizens and authorities, containing a casino, with banks prepared to play by different rules, in a nation with known corruption issues and weak anti-money laundering enforcement," she said.
[YouTube banks]The ABC sent questions to the Bank of China, but it has not yet replied.
PNG's foreign minister dismissed the concerns, insisting new anti-fraud and anti-corruption laws in Papua New Guinea would guard against wrongdoing.
"Even for us members of parliament, it's hard for us even to get 10 kina out of the bank without being questioned on every single aspect of what the money's come from, what you're spending that money on, and so on," Mr Tkatchenko said.
"Our laws in Papua New Guinea are very strict, very robust … there will be no difference with the Bank of China."
Bank's 'symbolic' significance
China has also been trying to promote its currency to settle cross border trades as part of its push to erode the US dollar's dominant global position.
Last year the Bank of China said its move to set up a representative office in PNG was a "vivid interpretation" of President Xi Jinping's Belt and Road Initiative, and would "deepen bilateral cooperation in RMB (Renminbi) settlement".
But the head of China markets research at Trivium, Dinny McMahon, told the ABC the geopolitical significance of opening a branch in PNG was "more symbolic than real".
"To start with, Bank of China's main business will be providing services to Chinese companies and nationals operating in PNG," he said.
"The extent to which BoC provides those customers with RMB denominated services will depend on whether the customers want it — and that's not a given."
Mr McMahon said the RMB was "still more expensive to use for most cross border transactions" which meant that "even Chinese firms may prefer to use dollars when sending money back and forth to China".
"If the RMB becomes more appealing globally, then firms in PNG will use it more — not because Bank of China has set up a branch," he said.
