Authorities Sound Alarm Over Illegal Fundraising


Chinese authorities are planning a crackdown on illegal fundraising due to concerns over its increasing sophistication and spread from coastal regions into China’s interior.

The latest figures from China’s Inter-ministerial Joint Conference Office for the Disposal of Illegal Fund Raising indicate that there were 5197 cases of illegal fundraising throughout China last year, involving a total of 251.1 billion yuan (approx. USD$36.47 billion).

These figures mark a significant decline in the total number of cases compared to 2015, with a year-on-year fall of 14.48%, while the total volume of funds involve also edged lower by 0.11%.

Last year’s decline can be imputed, however, due to a rampant surge in illegal fundraising in 2015, when the total number of cases leapt 71% year-on-year, and the total funds involved skyrocketed by 120%.

Authorities have expressed concern about the ongoing danger of financial intermediaries engaging in illegal fundraising, as well as the increasing involvement of online platforms.

In response to the potential spread of illegal fundraising, Yang Yuzhu, head of the Joint Conference Office, said that the government would conduct special investigatory activities into illegal fund-raising risk from May to September this year, focusing in particular on investment and finance intermediaries that provide investment advisory, money management and third party wealth management services, as well as online finance companies including online lending platforms, crowdfunding platforms and third party payment platforms.

According to Yang the propensity for private financial intermediaries to engage in illegal fundraising without a license was increasing, with official figures indicating that unlicensed companies are involved in at least 30% of new illegal fundraising cases.

Another issue highlighted by the authorities is the increased use of the Internet to engage in illegal fundraising, which abetting the spread of the practice to regional parts of China.

Member of the Joint Conference Office and head of the Economic Investigation Bureau of the Ministry ofPublic Security Liu Lujun said that following the rapid spread of the Internet and online financing and payment methods, criminal risk was also spreading to marginal provinces as well as third and fourth-tier cities.

While in the past financial fraudsters might rely upon word of mouth promotion and the establishment of a large number of branch companies in local areas, Liu said that recent years they were making increasing use of the Internet to lure victims and absconding with funds.

As a consequence illegal fund raising is spreading rapidly from China’s affluent coastal areas and gaining traction in the Chinese mid-west.

Liu pointed to the unceasing innovation of fraudsters when it came to tapping the Internet for new methods to raise illegal funds, pointing in particular to online lending and virtual currencies, as well as charitable donations and financial mutual assistance.