Chinese officials have busted the country’s largest-ever underground banking ring, involving transactions totaling $64 billion. The principal suspect used non-resident accounts to facilitate more than 14,000 counter-parties for the transfer of billions of yuan offshore, the newspaper said.
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The official People’s Daily, citing police officials, reported on Friday that more than 370 people have been arrested or face lawsuits or other punishments in the case centred in eastern Zhejiang province.
Processing online gambling transactions in China could get a lot tougher after authorities broke up a major underground banking operation.
One suspect, identified as Zhao Mouyi, established over 10 phony companies in Hong Kong, and then used those companies to transfer over 100 billion yuan overseas.
The case highlights the nation’s struggle to control capital outflows that have helped to send real-estate prices soaring from Vancouver to Sydney – even when Chinese citizens are officially limited to converting $50,000 of yuan per year. “Zhao then allegedly transferred it to his clients’ accounts”. HSBC told Reuters it could not comment on individual cases but it has “zero tolerance” for money laundering.
The investigations began in September 2014 and in the past year Chinese police sifted through more than 1.3 million shady transactions, according to Xinhua.
“China’s foreign exchange control is pretty useless”, said Yin Zhongli, a deputy director at the Chinese Academy of Social Sciences’ Institute of Finance.
Brian Jackson, a senior economist for IHS Economics in Beijing, said the crackdown may be aimed, in part, at staving off capital flight led by insiders as China prepares for another round of state-owned enterprise reform.
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Underground banking presents an increasingly complex threat to China’s financial security, encompassing issues from financing for drugs and terrorism to tax fraud, the Ministry of Public Security said earlier this year.
