Underground Bank Chanelled $3bn Past Beijing’s Capital Controls

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Chinese authorities have busted an underground bank that funnelled several billion dollars past Beijing’s strict capital controls.

Police have arrested seven individuals believed to be involved with the underground bank in the Guangdong province city of Shaoguan according to a report by the state-run Xinhua News Agency.

According to the report authorities uncovered total of 148 “illegal and fraudulent accounts” involving over 10,000 depositors who used the underground bank to channel $3 billion out of the country.

The underground bank stole or otherwise illegally procured the identification documents of over 200 people to open fake accounts that could used for their operations, which involved the transfer of renminbi funds to a Macau-based criminal gang that would convert them into Hong Kong dollars.

The mammoth sum involved exemplifies the determination of many Chinese investors to thwart Beijing’s strict capital controls and shift their funds to overseas jurisdictions.

Beijing stepped up curbs on capital outflows around a year ago in order to stymie the $1 trillion drop in China’s foreign reserves over a two year period, as investors opted to stow their wealth abroad in the wake of the 2015 stock market upset, an abrupt drop in the renminbi as well as heightened concerns over easing GDP growth.

The beefed up controls triggered a sharp decline in outbound foreign investment, yet also helped to push foreign reserves back above the $3 trillion threshold.

China has long imposed capital curbs in order to shore up its control of the renminbi, as well as prevent the type of funds exodus that felled its regional peers during the 1997 Asian Financial Crisis.

Individual Chinese citizens are subject to a $50,000 ceiling on the amount of money they can transfer out of the country per year, with exemptions for certain companies and investors in strategic sectors.

Given that the gambling hub of Macau is one of the few legal conduits for shifting huge sizeable out of China, the former Portguese-colony is coming under pressure to tighten up its capital controls as well as introduce other measures to combat malfeasance.

According to Macau Daily Times these measures already include the use of ATM’s installed with facial recognition software, in order to conduct surveillance of clients with Chinese bank cards.

Underground banks themselves continue to do roaring business despite Beijing’s crackdown on the Chinese finance sector, with the Ministry of Public Security indicating that they processed over $137 billion in transactions in 2016.

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