China Uncovers Massive ‘Underground Bank’ – Financial Institution Handled $64 Billion Of Illegal Foreign-Exchange Transactions

China uncovered a huge ‘Underground Bank,’ which was offering illegal foreign exchange transactions worth billions of dollars.

Chinese police confirmed they have cracked the country’s largest illegal financial organization. The underground bank, being operated in Zhejiang province, was successfully processing illegal financial transactions worth $64 billion, before police shut it down. The raid was part of an ongoing probe into such rogue financial institutions that circumvent China’s economic policies. Such institutions are being strategically hunted and shut down.

The underground banking network may be the country’s largest discovered yet, however, officials remain extremely cautious as they are in the midst of an intense crackdown of institutions that facilitate exchange of foreign currency without involving the country’s financial system, thereby disrupting China’s financial management, facilitating corruption, and helping terrorists and criminals launder their dirty money, reported ABC News.

Speaking of the massive size of the underground bank, the Ministry of Public Security said the financial institution handled illegal foreign exchange transactions worth 410 billion Yuan ($64 billion). Earlier this week, police in Guangdong Province had discovered at least 10 such illegal or unapproved banks. Collectively, these banks were independently handling transactions worth 51.6 billion Yuan. Just last year, Chinese police handling financial crimes had issued arrest warrants for 56 suspects.

Though the number of suspects appears low, these enterprising criminals were operating about 3,000 such underground banks. Even after the country took swift action and froze the assets of these banks, many people continue to operate such underground banks as they are a promising and lucrative option to earn money as commission by offering foreign exchange currency in a swift, albeit illegal manner. In fact, since April, Chinese authorities have discovered 170 institutions with similar operating methods. Collectively, these financial institutions may have laundered over 800 billion Yuan ($126 billion), reported state run media People’s Daily.

According to Jinhua city police’s website, the underground bank that China shuttered recently had at least 370 people associated with it. Incidentally, Jinhua in Zhejiang province on China’s eastern coast, is infamous for its illegal financial networks that facilitate foreign exchange transactions.

Police claim the mastermind behind the underground bank was a man named Zhao Mouyi, who transferred over 100 billion Yuan overseas using 850 different bank accounts, and a dozen Hong Kong front companies, reported Xinhua. The network, as well as the financial transactions, were so complex it took police an entire year to trace them and connect the dots. In all, Mouyi and his team had made over 1.3 million transactions to ensure investigators didn’t get suspicious.

Why are people relying on such underground banks to move foreign exchange? China has strict currency controls and doesn’t permit individuals to convert more than $50,000 worth of currency in a financial year. Needless to say, there are many who wish to circumvent this restriction.

China’s economy seems to be weakening. The fears that their currency or investments is neither safe within the country, nor in the local currency, Chinese citizens are trying to invest outside China, reported International Business Times. Fearing Yuan might not be a safe bet, Chinese people are trying to move their money offshore. But since they can’t do so legally, at least without inviting penalties or arrests, many underground banks enable currency exchange and transfer of funds higher than the permissible limits set by China, for a fee.

China is reeling under widespread corruption and the current administration is trying hard to crack down on corrupt officials, who too, have moved their massive ill-gotten wealth outside the country through similar means, reported China Topix. The ruling Communist Party recently allowed couples to have two children, by abolishing the ‘One Child’ policy. Now it is trying to improve the financial condition by shutting down such underground banks.

[Photo by ChinaFotoPress/Getty Images]