Chinese authorities have uncovered the country's biggest underground banking case involving transactions totalling more than 410 billion yuan ($64 billion), official media reported, part of a drive to combat illegal capital outflows. The investigation, which started in September and focused on the costal province of Zhejiang, found that dozens of Hong Kong-registered shell companies forged more than 1.3 million fake transactions to transfer money offshore, the official People's Daily reported on Friday.
China started cracking down on underground banks in April and has so far uncovered more than 170 cases of money laundering and illegal fund transfers, involving more than 800 billion yuan ($125.34 billion). The cases come as capital outflows reach hundreds of billions of dollars, triggering alarm in some circles.
A hundred suspects from eight gangs were detained in the latest case, the official Xinhua News Agency said. The principle suspect used non-resident accounts to facilitate more than 14,000 counterparties for the transfer of billions of yuan offshore, the newspaper said. Twenty-one counterparties' bank accounts illegally transferred more than 1 billion yuan overseas, the People's Daily said, adding that the suspect used the inability of some onshore commercial banks to identify non-residential accounts to help his operation.
Clients were asked to transfer yuan to domestic accounts and the money was then transferred to non-residential accounts the suspect controlled. Those accounts were then used to buy foreign currency with forged trade transactions, and directly funnelled the cash to offshore banks in Hong Kong and elsewhere, the newspaper said.
The People's Daily said one of the offshore banks used to receive foreign currency was HSBC Holdings. HSBC told Reuters it could not comment on individual cases but it has "zero tolerance" for money laundering. The underground banking operation profited as much as 1.53 million yuan a day, with an average profit of 2 million yuan per month, the newspaper reported citing police. Another suspect registered 12 shell companies in the northwestern province of Ningxia and illegally obtained 38.6 million yuan of export incentives from the local government by using an underground bank to report fictitious trade transactions, the People's Daily said.
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Research Associate at Center for Islam and Global Affairs (CIGA) at Istanbul Sabahattin Zaim University