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China Launches Nationwide Crackdown Targeting Underground Banks

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Published on : Aug 27, 2015

The Chinese authorities have launched a nationwide 3-month crackdown to expose the illegal transfer of funds and money laundering taking place outside the formal banking sector of the country. In this regard, the head of Forex Investment Research Institute in China – Tan Yaling said that it is necessary for authorities in China to make stringer regulations to maintain order in capital and financial markets. 

A crackdown of shadow banking or underground banking is intended to restrain illegals and non-compliant financial activities, which defies the market rules. Following the crackdown, the offenders will be sanctioned. The regulatory step taken by the authorities in China is very essential in order to maintain stability in the economy of China, which is hoarded by numerous speculators who drain money from the country’s capital and financial markets. 

The law in China prohibits any individual from transferring more than US$50,000 out of the country in a year. However, the underground banking in China provides ways circumvent to the law, helping businesses transfer more than the said amount. OuYang Xiong explained how this money laundering works in China along with the State Administration of Foreign Exchange. He said that checking identities is not a trend in these underground banks, neither do they verify transfers. Hence, the forex balance does not evalute the operating condition. These underground banks serve as an open platform for money laundering and provide ways to help transfer a large amount of money out of the country. Investigations have revealed that many bank employees are also involved in this money laundering racket of Japan, which is not a good news for the country. 

However, this is definitely not the first crackdown of underground banking in China. In April this year, almost 66 banks were caught for illegally transferring over 430 billion yuan and 67.5 billion U.S. dollars illegally out of China. 

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