Chinese Authorities Arrest 450 in Underground Banking Crackdown

The flow of capital out of countries or jurisdictions has always been a contentious issue, with China arresting upwards of 450 suspects after cracking down on underground banks or illegal offshore companies, according to a recent Bloomberg report.

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Underground banking involves the transfer of money through informal channels rather than formal banking – the practice is a recognized method by which legitimate remittances from overseas workers are transferred. However, underground banking has also long been regarded as a conduit for Money Laundering .

Underground Banking in Focus

Chinese authorities have already begun a crackdown on using offshore companies in a bid to control and ultimately curb illegal capital flows. Presently, the cases involved almost $30 billion of transactions, according to the Chinese Ministry of Public Security, with 450 suspects facing recourse. One of the main impetuses for outflows of capital has been the price of the yuan, which could rekindle should the price of the currency weaken.

Outflows have been exiting China in the billions over the past few months, reaching $55 billion in July – still this figure seems relatively tame compared to $171 billion back in December 2015.

To date, a number of agencies and organizations including the People’s Bank of China (PBoC) and the State Administration of Foreign Exchange (FX) are actively involved in the initiative against illicit flows, which portends the extended use of crackdowns moving forward.