China busts underground bank funneling billions out of country

China busts underground bank funneling billions out of country
Chinese authorities have exposed a clandestine banking scheme used by more than 10,000 people to transfer over $3 billion overseas. Beijing has recently boosted efforts to curb capital outflows and fight corruption.

According to state news agency Xinhua, Chinese police have detained seven people in the southern province of Guangdong in connection with the scheme which involved more than 20 billion yuan ($3 billion).

The suspects allegedly profited from the exchange rate between the Chinese yuan and the Hong Kong dollars. Almost 150 “illegal and fraudulent accounts” are suspected of being involved, said the police, adding the investigation was still ongoing.

The people running the underground bank had illegally bought and stolen the identity documents of more than 200 people to open the fake accounts that underpinned the enterprise, said the authorities.

China’s public security ministry cracked down on more than 380 illegal underground banks last year, involving over 900 billion yuan ($137 billion). In 2015, Beijing busted the country’s biggest “underground bank” which handled $62 billion (410 billion yuan) of illegal foreign-exchange transactions. The bank transferred money overseas using non-resident accounts, exploiting regulatory loopholes and bypassing oversight. More than 370 people have been arrested; some face lawsuits or criminal charges.

Chinese authorities have imposed strict limits on the amount of cash that can be moved out in an attempt to keep a firm hand on the value of its currency. The government set a $50,000 limit on the money citizens can move out of the country in a year while businesses can make bigger transactions.

The restrictions led some Chinese nationals to use underground banks to get cash overseas illegally because they felt investments were safer outside the country.