How underground banking is affecting Macau

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A Chinese citizen who comes to Macau to play VIP bac- carat will typically spend a minimum of 100,000 yuan. But China only permits 20,000 yuan a trip and $50,000 a year per person to be taken out of the Mainland. So how
can this high roller player circumnavi- gate the rules? One of the solutions can be using the services of an under- ground bank, several of which operate in Guangdong Province, enabling him or her to spend “all the money” he or she wants in Macau.
One year ago, the Guangdong Pro- vincial Public Security Department announced that 83 cases had been busted, involving some 207.2 billion yuan, in less than a year. According to Chinese media outlets, the number of cases has jumped sevenfold since 2014.
Other data from the same sources: 79 criminal headquarters were uncovered, 231 suspects were arrested, with cash in different currencies seized, amounting to more than 37.15 million yuan, while 3,491 suspicious accounts were frozen, involving 665 million yuan.
At the same press conference the head of the Economic Crime Investi- gation Bureau, Huang Shouying, con- ceded “underground banking is ram- pant in Guangdong as the neighbouring province serves as the frontier of ‘open and reform.’”
The problem is so serious that China’s Ministry of Public Security has reiterated on several occasions its determination to crack down on under- ground banking, while the Mainland’s central bank speaks of its intentions to act against underground banks,
offshore company accounts and other means of moving money gained from corruption.
The Macau Connection
Huang Shouying added that the under- ground banks had “primarily sprung up in Shenzhen, Zhuhai, Guangdong, Dongguan, Foshan and other cities in the Pearl River Delta and other coastal cities, as well as some hometowns to overseas Chinese.” From these loca- tions, there’s always a connection with Hong Kong, Macau or Taiwan, accord- ing to the same bureau head.
In point of fact, the problem exists in Macau, as the Monetary Authority of Macau recognises. “AMCM has been keeping a close eye on the matter should it have an implication on the banking sector of Macau; and going after the cases should be within its purview. Ad- ditionally, the law enforcement agency has been co-operating with AMCM to cope with any illegal/unauthorised fi- nancial activities,” an Authority told Macau Business. No more details were given, despite our insistence, in particu- lar about the number of cases that have already been analysed.
One of the more interesting ques- tions would be to see if any junket was involved in these investigations, as it is a common accusation that they often use the underground banking system to transfer money out of China to fund VIP players in Macau casinos.
Guangdong police revealed last No- vember that “at least 207 billion yuan was channelled out of the province last year” in illegal money transfers, “with some cash channelled to Hong Kong and Macau.”
And it was widely reported in Chi- na (by Xinhua) that Li Huabo, former section director of the finance bureau in
Poyang County of Jiangxi Province, had transferred 12.81 million yuan with the help of an underground bank in Foshan City in Guangdong to gamble in Macau.
How they work
Foshan case officers said the under- ground bank used by Li had pocketed about 30,000 yuan commission for laundering/transfering the 12.81 mil- lion yuan.
According to several sources, un- derground banks usually charge over 0.5 per cent of the cash moved. It may not seem a profitable business but the amounts involved are usually huge.
UMAC professor Li Sheng explains underground banks “are usually or- ganised and run by families or groups and function like a company. The core members are typically family members or familiar countrymen from the same hometown. There’s usually a clear divi- sion of responsibilities and a connection to Macau.”
“The system has the capability of transferring funds from one country to another in a matter of hours, provides complete anonymity for the customer, guarantees total security, converts gold or other items into currency, and con- verts one currency into another of the customer’s choice,” according to US ex- pert Larry Lambert.
The Chinese struggle against un- derground banking began more than a decade ago but in recent years has been reinforcing the fight against il- legal cross-border outflows in an at- tempt to slow capital flight as the yuan weakened. Since 1983, a number of U. S. Drug Enforcement Administra- tion documents have been ‘postulating the existence of an underground bank- ing system dominated by Chinese in Southeast Asia.’