Categories: B2B PaymentsNews

China’s $4.5B Shadow Bank Crackdown

China has busted a shadow banking network, reports said Wednesday (Nov. 25), amid efforts of major crackdowns on the underground market that has led to concerning outflows of foreign currency.

[bctt tweet=”China has busted another shadow banking network.”]

According to reports, the underground banking network handled $4.5 billion worth of illegal transactions at a single bank, the Agricultural Bank of China (AgBank), alone. The bust included arrests of 14 individuals in four gangs; each gang, reports said, saw daily transactions worth more than $100,000.

Local reports said AgBank, the nation’s third-largest by assets, was under investigation by authorities. The shadow banking network reportedly handled 1.4 million foreign exchange trading records.

The crackdown is part of China’s broader efforts to curb massive capital outflows following weakened economic performance this year, reports said.

This outflow often stems from the need for foreign currency. For businesses, an effort to strengthen cross-border trade means a greater need for this foreign currency. But banks can restrict currency sales, forcing the foreign exchange market to go underground.

A similar phenomenon has recently been witnessed in Egypt.

The situation also stems from Chinese investors’ abilities to place their money overseas, leading to a global rise in property prices. Reports said China saw $194 billion worth of capital outflow in September alone.

Only days ago, China confirmed a separate $64 billion bust of an underground banking network that saw $125 billion in money laundering since April, reports said.

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New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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