China breaks up illegal banking ring

Taking advantage of a “loophole” relating to non-resident accounts, which has since been filled by banks, Zhao circumvented the capital controls by directly transferring yuan overseas and then exchanged the money into foreign currencies at banks including HSBC Holdings Plc in Hong Kong, the People’s Daily said.

Around 100 suspects from eight suspected gangs have been detained during the investigation which was launched a year ago. The probe saw police officials sort through 1.3 million suspicious transactions and 3,000 bank accounts, the state-run Xinhua said.

Police in east China’s Zhejiang Province have broken the country’s largest underground bank, which has carried out illegal Forex transactions of RMB 410 billion (US$64 billion), according to a report by Xinhua news agency, referring to sources at the Ministry of Public Security. The case brought the total for underground banking and money-laundering activities to 800 billion yuan since April, the newspaper said.

Police busted another 10 unapproved banks this week, allegedly linked to about 51.6 billion yuan ($8.1 billion) in illegal transactions.

Sources told Reuters on Wednesday that China had moved to restrict trade at offshore yuan clearing banks – stepping up capital controls even as Beijing positioned its currency for inclusion in the global Monetary Fund’s reserve basket.

China has tight currency controls, which officially limit individuals to converting $50,000 worth of currency a year, but they are widely evaded.

Capital outflow accelerated in China this year.

“Underground banks have been used for laundering money obtained from corruption, online gambling, telecommunications fraud, drugs and terrorism”, the ministry said.

Police have shut down 37 such banks since August.