CRI听力:China Launches Campaign against Underground Banks

Authorities in China have launched a nationwide 3-month crackdown targeting money laundering and the illegal transfer of funds that take place outside the formal banking sector.

Tan Yaling, head of the China Forex Investment Reserch Institute, says its important for the authorities to maintain order in the financial and capital markets.

"A crackdown on underground banking is meant to stop illegal or non-compliant moves which go against market rules. Offenders will be sanctioned. This is very important to maintain order and stability in the Chinese economy, as many speculators have been able to shift money out of the financial and capital markets."

Chinese law prohibits individuals from transferring more than 50-thousand US dollars out of the country per year.

However, the underground banking system provides a way to circumvent this law.

OuYang Xiong with the State Administration of Foreign Exchange explains how these underground banks work.

"These underground banks don't check identities, and don't verify their transfers. As such, their operating conditions aren't counted on the forex balance. They are an open venue for money laundering and ways to get large quantities of money out of the country. We've found that certain bank employees have also been involved in the underground market, which is very disturbing."

This isn't the first crackdown on underground banks in China.

In April, 66 banks were caught illegally transferring some 430-billion yuan, or some 67.5 billion U.S. dollars, out of China illegally.

The underground operations were primarily family-run and used online and mobile payments to move the funds.

Li Mingzhao with the Ministry of Public Security's anti-money laundering department says they're working with other departments in the current crackdown.

"Ministry of Public Security is set to work with the People's Bank of China and the China Banking Regulatory Commission. When investigating bank accounts, we will share information and establish quick and effective coordination."

Underground banks are being cited as a major risk to the capital markets in China, with regulators concerned the flight of money out of the system is going to create even more volatility.

This week has represented the steepest losses on the markets in China since 2007.

The Shanghai Composite index has extended losses the past 4 trading days, dropping by 1.3 percent on Wednesday after dived 8.5 percent on Monday and nearly 8-percent on Tuesday.

For CRI, I'm Min Rui.