Busted

China’s Biggest Underground Banking Case Cracked

Money flowing in offshore direction gives authorities headache

Police in eastern China have exposed the biggest illegal banking case in the country, a scheme involving eight gangs responsible for transactions worth RMB 410 billion ($64.2 bln). The scheme used scores of shell companies based in Hong Kong, through which more than a million foreign exchange transactions were carried out aiming to move money out of mainland China, local media report.

Investigations started in September 2014, focusing on the eastern Chinese province of Zhejiang, and so far 100 people suspected of taking part in the scheme have been detained by the authorities. One of the leaders of the criminal group told China’s state information agency Xinhua that a lot of investors wanted to circumvent the strict rules governing forex trade in the country, which earned one of the gangs involved in the group more than RMB 50,000 ($7,829) a day at times.

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Money Laundering

According to Chinese media cited by Reuters, the group used non-resident accounts to channel money offshore mainland China, where its tracks would be all but lost. The scheme involved clients depositing renminbi in local resident accounts, the money was then transferred to the non-resident accounts and used to buy foreign currency through fake trade transactions. The actual money was directly sent to banks in Hong Kong and abroad.

China is having to deal with a lot of suspicious financial service providers and this case is the latest move in an orchestrated clamp-down on such organizations that are often involved in money laundering, gambling and fraud, according to the Chinese Ministry of Public Security. The authority added that since August this year, 37 illegal banks have been exposed.

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