China’s Ministry of Public Security tightens screws on underground banking

china-underground-bankingProcessing online gambling transactions in China could get a lot tougher after authorities broke up a major underground banking operation.

On Thursday, the Ministry of Public Security announced that police in Zhejiang province had detained around 100 suspects connected with an illegal banking system that handled transactions totaling RMB 410b (US $64.2b). The authorities are calling it the largest ‘grey capital’ takedown in the country’s history.

The suspects reportedly belonged to a network of eight gangs that processed transactions via dozens of Hong Kong-based shell companies on behalf of as many as 14,000 clients. The ring stands accused of helping Chinese residents launder money earned via illicit means, including online gambling sites dealing with Chinese bettors.

Chinese authorities began investigating the ring in September 2014 and warrants were issued three months later. It has reportedly taken this long to sort through the complex web of affiliated companies that handled 1.3m individual transactions via 850 different bank accounts.

The Xinhua news agency quoted one of the eight gang leaders saying his group earned up to RMB 50k ($7,830) per day via the set-up. Similar operations are believed to charge a fee of up to 5% of the transferred sum, depending on the size of the individual transaction.

In August, China announced it was tightening the screws on illegal banking operations in a bid to reduce corruption and shore up the local currency by preventing unauthorized conversion of yuan to dollars. People’s Daily, the Communist Party’s official news outlet, claims the authorities have cracked 37 underground banking cases since the August announcement.

China’s attacks on underground banks are one plank of the state’s ongoing crackdown on corruption among public officials, which is routinely cited as one of the chief contributors to the 17-months-and-counting revenue decline at Macau casinos. The added scrutiny of the shadow banking industry is also making life difficult for Chinese-facing online gambling operators but history has proven that where there’s a will, there’s a way, and the Chinese market is sufficiently immense to warrant a little risk-taking.