Uncovering Shadow Banking Activities in China
A clampdown on shadow banking in China reveals illegal banking activities worth billions. Shadow banking includes informal lending and unregulated wealth management products, and has become prominent post the 2008/2009 financial crisis. Recent incidents in Shanghai uncover underground banking rackets involving large sums. The operations involve exchanging currencies for real estate purchases and overseas tuition payments.
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'Gangster grannies' and China's shadow banking world Karishma Vaswani BBC, Asia business correspondent 18 August 2016
a clampdown on shadow banking in China uncovered $30bn (23bn) worth of illegal banking activity. It may seem a staggering figure, but analysts say this is just the tip of the iceberg.
what is shadow banking? what is shadow banking? abc report
In its most basic form, it includes pawn-shops, the man on the street offering you ready credit at exorbitant rates, and attractive but risky investment schemes. It also encompasses unregulated wealth management products offered by legitimate financial institutions. But a substantial part of the sector also includes individuals or informal networks with no financial licence or regulation.
Informal lending has always existed in China's economy, but shadow banking really took off post the global financial crisis in 2008/2009.
http://www.shanghaidaily.com/metro/society/31-held-for-running- underground-banking-racket-in-Shanghai/shdaily.shtml
POLICE have detained 31 suspects for running an underground banking racket in Shanghai that involved foreign currencies worth over 2 billion yuan (US$300 million) in the past three years.
The gang, led by a 60-year-old local woman surnamed Sun, provided the service to about 100 people. Most of them exchanged Chinese yuan for foreign currencies to purchase real estate or pay for their children s tuition in foreign countries.
Sun had contacts in provinces, including Zhejiang and Sichuan, who helped with the money transfers. The total amount of illegal transactions through the network could exceed 10 billion yuan, police said.
The modus operandi involved clients transferring yuan into domestic accounts set up by the gang. The corresponding amount in foreign currencies was then deposited into foreign accounts of the clients through a remittance channel that worked outside the traditional banking systems. In short, money was transferred without any actual movement.
Deals were also done with banknotes exchanged offline. The cap for foreign currency purchasing for individuals in China is US$50,000 per year. the single largest transaction was about 10 million yuan. The gang profited between 30 to 50 cents for every US$100 worth of money exchanged, he said
She reportedly led a local gang and provided shadow banking services to about 100 customers who wanted to buy real estate abroad or pay for their children's school fees in foreign countries.
Because it is an unregulated industry, it's hard to say definitively who uses them, but it appears that Chinese companies, corrupt officials looking to move their money overseas, local governments interested in higher returns and the Chinese middle classes have all invested in the shadow banking sector.
Moody's Investors Service says that the shadow banking system continues to expand rapidly, with assets held by these less regulated banks totalling some 78% of China's GDP.
And in its annual review of the Chinese economy, the International Monetary Fund recently said that almost half of the shadow banking products that have fuelled China's credit boom carry "an elevated risk of default".
Article 176 Whoever illegally takes in deposits from the general public or does so in disguised form, thus disrupting the financial order, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also, or shall only, be fined not less than 20,000 yuan but not more than 200,000 yuan; if the amount involved is huge, or if there are other serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than 10 years and shall also be fined not less than 50,000 yuan but not more than 500,000 yuan. Where a unit commits the crime as mentioned in the preceding paragraph, it shall be fined, and the persons who are directly in charge and the other persons who are directly responsible for the crime shall be punished according to the provisions in the preceding paragraph.
Article 192 Whoever, for the purpose of illegal possession, unlawfully raises funds by means of fraud shall, if the amount involved is relatively large, be sentenced to fixed-term imprisonment of not more than five years or criminal detention and shall also be fined not less than 20,000 yuan but not more than 200,000 yuan; if the amount involved is huge, or if there are other serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than five years but not more than 10 years and shall also be fined not less than 50,000 yuan but not more than 500,000 yuan; if the amount involved is especially huge, or if there are other especially serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than 10 years or life imprisonment and shall also be fined not less than 50,000 yuan but not more than 500,000 yuan or be sentenced to confiscation of property.
Should Mrs Sun be punished? Is punishment adequate?
