'Black banks' targeted in latest anti-graft crackdown

By Zhang Yan (China Daily) Updated: 2015-10-16 07:22

Currency management

Li Mingzhao, a senior official at the Economic Crimes Investigation Bureau, said underground banking operations can lead to a range of serious problems, including a rise in organized crime, drug trafficking, illegal immigration and online gambling, all of which have the potential to derail social stability.

Meng, the vice-minister, said the focus on underground financing is intended to help maintain economic stability. "Cracking down on underground banks is closely related to national economic safety, as well as overall economic and social development," he said.

Dai Peng, head of the Criminal Investigation College at People's Public Security University of China, said the authorities, especially those in the banking sector, should assist the police by strengthening checks on commercial trading and tightening supervision of bank officials to prevent them from becoming involved with corruption.

"China's banks should conduct careful examinations of client identities and documentation and tighten supervision to monitor the suspicious flow of assets overseas," he said.

The authorities need to "make improvements to the management of foreign currency exchange to encourage businesses to conduct legal transnational trading and meet the strong demand for cross-border capital transactions", he said.

Vice-Minister Meng stressed that the government will actively pursue corrupt officials and other economic criminals, irrespective of their whereabouts. "We have redoubled our efforts to fight money laundering, and it doesn't matter where suspects have escaped to, or how much money they have sent abroad illegally, we will find them and bring them back to stand trial," he said.

Contact the writer at zhangyan1@chinadaily.com.cn

A lucrative but highly risky undertaking

"After the number of police raids surged, we decided to turn to clients introduced by trustworthy friends and acquaintances, rather than solicit business publicly," Lin Weidong said.

Lin (not his real name) has been running an underground bank in the Luohu district of Shenzhen, a manufacturing hub in Guangdong province, for seven years.

"The pursuit of material benefits, huge market demand and loopholes in the banking supervision mechanism have been catalysts for money-laundering crimes," said the 37-year-old "black banker" from Chaozhou, Guangdong.

He and his accomplices used to approach potential customers on the streets of Shenzhen's financial district, but now they only conduct clandestine transactions for clients introduced by trusted acquaintances, including a number of officials at high street banks.

To avoid attracting the attention of the police, many underground banks operate under the guises of registered commercial trading companies, investment brokers or consultancies, he said.

Every year, Lin conducts illegal transfers of money and assets for tens of clients, including high-ranked businesspeople, heads of State-owned companies and corrupt officials.

Client numbers may be small, but the sums being transferred often total millions of yuan, and customers pay high premiums, as much as 3 to 5 percent per 100 yuan ($15.80), to send funds overseas. The money is usually transferred to the US, Australia and other countries that haven't signed extradition treaties with China, he said.

In light of the greater risk now posed by the official crackdown on corruption, Lin said he is planning to sever his connections with the underground bank and become a legitimate businessman.

"Most clients think transferring illegal proceeds abroad via 'hidden channels' is safe and convenient because the process bypasses the banking sector's examination and approval procedures, such as ID checks, submission of trading documents and full disclosure of the sources of funds or assets," he said.

"In fact, there are many potential risks in the underground banking system, including financial and personal safety, and if the police uncover the transactions, the brokers and clients are equally accountable in the eyes of the law," he added.