China arrests 800 in yearlong underground banking crackdown

People walk past a Chinese bank that deals with U.S. dollar deposit services in downtown Beijing on August 17. As the yuan's exchange rate has weakened against the U.S. dollar, investors have attempted to move their cash overseas including with underground banks. File photo by Stephen Shaver/UPI

Feb. 27 (UPI) — China, in an attempt to reduce money flowing out of its nation, arrested more than 800 people last year involved in unlicensed banking operations totaling $131 billion, the Ministry of Public Security announced.

The suspects were linked to 380 major cases related to unapproved financial institutions commonly used for money laundering, including gambling, drug trafficking and smuggling, the ministry announced Sunday.

The ministry said in a statement the illegal operations were “rampant” across the country because of the development of Internet finance and new online payment methods.

“A huge amount of cross-border transactions existed beyond the government’s watch, creating a big ‘black hole’ in China’s financial system,” the statement said.

Underground banks are “distorting China’s financial regulation orders and endangering China’s national economic security,” the statement said.

“For a long time, underground banks have become a fast channel to transfer money, for they are anonymous and hidden,” Zhang Niannian, an official with the central bank, told the Indian Express. “Many criminals have taken advantage of the channel to transfer their illegal gains to the overseas.

As the yuan’s exchange rate has weakened against the U.S. dollar, investors have attempted to move their cash overseas. The country’s foreign exchange reserves are still the world’s largest but they shrunk to a six-year low in January to $2.99 trillion from a peak of $3.99 trillion in June 2014.

“Transactions via underground banks are often opaque and it’s hard to accurately estimate the detailed amount and size of deals,” the ministry statement said.

Wu Yongxin, the captain of Shenzhen police’s anti-money-laundering team, said underground banks profit from differences in prices of the official exchange rate and their own exchange rate.

“The managers of these banks have an acute awareness in countersurveillance. They roughly switch bank accounts every two or three months,” he said, “Sometimes even if we discovered the transactions, these transactions could not lead us to any specific individual, not to mention any specific individual who actually works for the bank.”


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