China’s War on Underground Banks Reportedly Uncovers $148 Billion in Illegal Activity

October 20, 2016, 10:58 AM UTC
China Issues New, Hard-to-forge Yuan Notes
SHANGHAI, CHINA - AUGUST 31: (CHINA OUT) A Chinese man identifies a new issued 100 yuan note with an old one issued in 1999, at a bank on August 31, 2005 in Shanghai, China. Authorities issued new yuan notes today that largely resemble bills in circulation but with new marks meant to foil currency counterfeiters. New 100, 50, 20, 10 and 5 yuan notes, as well as a 1 jiao coin (10 Chinese cents), were available from the People's Bank of China. The design of the new bills, bearing a portrait of former Chinese leader Mao Zedong, remains the same as the last-issued 1999 series but incorporate new watermarks and other minor changes that will make it harder to duplicate, according to state media. (Photo by China Photos/Getty Images)
China Photos/Getty Images

China has uncovered over 1 trillion yuan ($148 billion) worth of illegal transactions by underground banks this year, the official Financial News reported on Thursday, citing a senior official at the foreign exchange regulator.

The State Administration of Foreign Exchange (SAFE) will step up investigations into capital outflows and intensify a crackdown on underground banks to foster healthy development of the country’s foreign exchange market, Zhang Shenghui, a senior director at SAFE told the newspaper.

So far this year, SAFE has uncovered illegal capital outflows worth $8.43 billion, and with the help of police has busted 56 cases of illegal transactions via underground banks, he said.

SAFE has also punished three banks for inadequate compliance measures, which lead to several companies using fake trades to buy foreign currencies, the newspaper, which is affiliated with the People’s Bank of China, said.

Earlier this month, state-run Xinhua news agency reported police in China’s southern Guangdong province had busted underground banks that handled around $35 billion in illegal money transfers this year.

China’s yuan has sharply weakened against the U.S. dollar this month, having breached a psychological key support level of 6.7 on Oct. 10 and hitting a six-year low.