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Mandy Zuo

China will impose tougher punishments on underground bankers moving money in and out of the country as fears of capital flight grow.
Underground bankers trading in large amounts of foreign currencies will now be charged with the crime of operating an illegal business and risk more than five years in jail, according to a judicial notice that took effect from the start of the month.
Before this, offenders were only fined.
The Supreme People’s Court and the Supreme People’s Procuratorate issued the notice on January 31, saying the rule would apply to underground transactions that involved at least 5 million yuan (US$74,000) or resulted in a profit of 100,000 yuan.
The statement also stressed that the authorities were expanding their scope from the underground channelling of money offshore to include illegal “contra trading” of foreign currencies.
Hundreds arrested in China crackdown on ‘underground banks’
In contra trading, the money changer holds accounts inside and outside the country and tries to match the demand of buyers and sellers of different currencies, without the need for the funds to cross the border.
Clients in China send an agreed amount to the banker’s account in China, and the banker then remits the equivalent in foreign currency to the customers’ overseas accounts. The banker carries out a similar transaction with overseas clients, getting them to put money in the banker’s overseas account before remitting the money to the overseas customers’ accounts in China.
The procuratorate said illegal payments and foreign currency trading through underground banks had been on the rise in recent years.
Dealers used to profit from buying low and selling high on local foreign currency black markets. Now they had shifted to illegal contra cross-border money transfers, substantial capital outflows that were unmonitored, the procuratorate said.
“The major business for most underground banks is now contra payments, leading to huge capital outflows and great damage to society. It’s the major target of our crackdown,” the procuratorate said in the notice.
The US$144 million in dirty cash that no money launderer in China would touch
Chinese authorities have stepped up action to curb capital outflows in the past couple of years as individuals and companies have sought better investment opportunities overseas to counter the weak yuan and slower economic growth.
That action has included a ban on domestic cryptocurrency exchanges, stricter disclosure requirements for individuals buying foreign currencies, and tighter limits on corporate investments abroad.
As these routes offshore have narrowed, many have turned to the black market.
The State Administration of Foreign Exchange said that in August last year a man from Henan province tried to move more than 100 million yuan overseas via illegal operators using a contra system.
The man, surnamed Guo, was fined over 8 million yuan, the highest fine for an individual that year, the administration said.


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Chinese authorities are cracking down on contra payments, an illegal way of moving money offshore without crossing a border. Photo: AP

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China

People & Culture

Top court and prosecutors say they are cracking down on contra payments and the threat they pose to society


Country’s top court and prosecutors say they are cracking down on contra payments and the threat they pose to society.
