It is known that the operation of “underground banks” is closely allied with “money laundering,” illegal foreign exchange transactions and currency smuggling. There are two main types of illegal banks. Some of them, through illicit trade in foreign exchange, make a profit from the different exchange rates in the official market and the black-market. With the state constantly enhancing legislation for foreign exchange management and enforcement and supervision, underground money operations with street peddlers at the bottom and the money runners at the top of the black market pyramid, have seen their operational risks rise. Attention is now turning to the more sophisticated operation that provides virtual professional services for the capital flows of foreign currency crime syndicates. This will be the top target of the foreign exchange watchdog and the police.

Such operations have flourished because foreign currency is needed in the activities of smuggling and conversions among currencies are also required in the process of money laundering. They not only flourish in their traditional home along China’s eastern coast, but also now appear in remote even poverty-stricken areas. They usually adopt a transactional way of renminbi clearance inside China and foreign currency clearance outside China. Criminals with knowledge of both high technology and finance are emerging.

Relevant officials in the foreign exchange administration and the Ministry of Public Security hold that it is a must to set up an information-led crackdown working system so as to root out the “underground money houses.” First of all, a supervisory standard for abnormal flows of capital and a report system for suspicious fund operations should be established to help the analysis and detection of crimes covering banks, foreign exchange administrations and police departments.

(china.org.cn by Alex Xu, July 3, 2002)