China Just Busted a $64 Billion “Underground Bank”

November 20, 2015, 4:26 PM UTC
A woman exchanges money at a currency exchange shop in Hong Kong.
A woman exchanges money at a currency exchange shop in Hong Kong on September 15, 2011. Hong Kong said it has no plans to unpeg its currency from the US dollar, amid growing calls to end the 28-year peg to allow the Hong Kong dollar to appreciate against the greenback. AFP PHOTO / LAURENT FIEVET (Photo credit should read LAURENT FIEVET/AFP/Getty Images)
Photograph by Laurent Fievet — AFP/Getty Images

China has uncovered the country’s biggest underground banking case handling around $64 billion in illegal foreign-exchange transactions, reported People’s Daily.

Police officials say more than 370 people have been arrested or face criminal charges in line with investigations on the illegal bank, which began in September. Authorities combed through more than 1.3 million fake transactions that transferred money offshore, and have frozen more than 3,000 bank accounts related to the case, according to Bloomberg.

The case was traced to the Zhejiang province, where a suspect helped to transfer more than 100 billion yuan ($15 billion) for clients, reported Bloomberg. Yuan would be transferred to non-residential accounts the suspect handled, according to Reuters. The suspect would exchange the yuan to foreign currency with forged transactions, and the cash was then channelled to offshore banks.

This brings the total amount uncovered for underground banking and money laundering activities in China to $125 billion so far this year, as the country tries to stem capital outflows that have hit record numbers this year. In September, Bloomberg notes, China’s capital outflows may have climbed to a record $194 billion. In its own analysis, the U.S. Treasury said that Chinese capital outflows have topped $500 billion in the first eight months of this year.

One way to track the activity level of underground banking, The Wall Street Journal details, is to check Chinese foreign exchange reserves, although this indicator also depends on China selling dollars to prop up the renminbi. This has been falling since September last year, according to data posted by China’s central bank:

On Wednesday, China’s central bank suspended trading in bond repos and account finance for offshore yuan clearing banks and any related participants, sources told Reuters. The move was seen as a way to limit the transfer of funds outside of the country, to restrict capital outflows and contributing to holding the exchange rate stable.