China’s Biggest Underground Banking Case Cracked

Authorities in China have cracked the country’s biggest ever underground banking networks which handled illegal foreign exchange transactions worth 410 billion yuan. The probe saw police officials sort through 1.3 million suspicious transactions and 3,000 bank accounts, the state-run Xinhua said.

Zhao used fake corporate accounts in Hong Kong to receive yuan, converted the funds into foreign exchange through banks and transferred it to his clients, it said.

Illegal flows of such “grey capital” have not only had an impact on China’s foreign exchange management system, but also seriously disturbed the country’s financial and capital markets order, the People’s Daily, the Communist Party’s official mouthpiece, reported on its website.

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

Processing online gambling transactions in China could get a lot tougher after authorities broke up a major underground banking operation. While a few of that money comes from honest earnings, a portion is believed to have been obtained via corruption or fraud.

In a separate case related to an underground bank in Fujian, a senior executive of a Chinese state-owned enterprise reportedly tried to move $2.8 million overseas, using a network that included Hong Kong, Taiwan, Australia and Saudi Arabia.

HSBC declined to comment on the report.

“The government wants to stem outflows and stabilize the yuan’s exchange rate, but the outflows can not be stopped unless people change their expectation on yuan depreciation”, Xi said.

Over 370 people were detained, prosecuted or otherwise reprimanded in the case, police in Jinhua city said in a statement on their website.

China has been tightening control over capital flows even as it pledges to remove its currency controls and make the yuan fully convertible by 2020.