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China busts underground bank used to funnel $3 billion out of the country

BEIJING—The money came from all over China — its wealthy southern and eastern coasts as well as the arid northwest — as thousands of people scrambled to circumvent the country’s strict controls on wealth.

In the end, more than 10,000 people had used an underground bank to effectively funnel $3 billion (U.S.) out of the country before authorities put a stop to it, Xinhua, China’s state-run news agency, reported Thursday.

The discovery of the underground bank in Shaoguan, in the southern province of Guangdong, offers a glimpse into how Chinese citizens skirt government limits to get their money out of the country. Their efforts took on global significance two years ago, when a loss of confidence in China’s outlook led many of its people to send their money abroad, a flow that helped drive a remarkable $1 trillion drop in China’s stash of surplus foreign money. The exodus cast a shadow over China’s long-held status as a major global economic growth engine.

China appears to have since stemmed the surge of money abroad, thanks to an improved economic outlook and tough new efforts to keep the money at home. But the underground bank bust announced Thursday showed the lengths that authorities will pursue to enforce limits on money leaving the country.

Chinese police have detained seven people believed to be involved in the bank, according to the Thursday reports. Authorities discovered 148 “illegal and fraudulent accounts” from the bank, involving more than 10,000 people, the Xinhua report said.

Underground banks are illegal but common in China. According to China’s Ministry of Public Security, underground banks handled more than $137 billion in transactions last year. Other ways in which people circumvent government limits include directing money to casinos in Macau, the only Chinese territory where gambling is legal, as well as using credit cards to buy luxury goods abroad and buying insurance policies that can be cashed out overseas.

China imposes strict limits on how much money can leave the country. Those limits help the government keep a firm hand on the value of its currency, and Chinese authorities credit the limits with helping keep its financial system steady during emergencies like the 1997 Asian financial crisis and the global crisis that began in 2008.

The government sets a $50,000 limit on the money Chinese citizens can move out of the country in a year, although businesses and those making strategic investments can send out much more.


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