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Is Underground Banking Safe for Money Laundering

Everyone out there is thinking that “Is underground banking safe?” Over the year 2016, China was the one having uncovered over 1 trillion Yuan nearly $148 Billion of worth over the transactions done illegally by underground banks. These steps were taken into action to foster the development of the foreign exchange market of the country healthily. Also to remove the illegitimate or illegal money transactions.

Further, it was stated that the State Administration of Foreign Exchange (SAFE) will be looking forward to investigating capital outflows and reinforce the cracking down on underground banks.

Underground Banking – The meaning

underground banking

Underground banking is a commonly used term for informal or illegal banking arrangements running parallel but independent of the formal banking system. These are also referred to as alternative payment systems by FATF in 1999, informal funds transfer system by World Bank & IMF in 2003, and many more names.

Concern growing continuously

Such a type of informal or illegal banking called underground banking has long been regarded as a way out of money laundering only. It is considered to be important to achieve and maintain a balance between regulations of the underground banking sector. To reduce or lower down the flow of illegal funds and permitting is used in a way of alternative remittance (payment) system.

It is used in facilitating a range of disparate crimes, consisting of intellectual property, arms as well as drugs trafficking. The evasion of the taxes as well as illegal smuggling of immigrants also falls under such factors.

Crackdowns of China over such Underground banks

Reducing the level of such underground or illegal banking is the most important thing there in China. China is facing strong capital outflow pressures, partly due to expectations of weakening yuan. Foreign exchange reserves of the country (China) have fallen at about US$450 billion nearly within the last year. Due to this fall still, there are no signs of improvement or even the stabilization of the numbers in recent months, these are just getting down and down.

In recent years, China cracked the biggest underground bank in the nation. It was handling nearly $64 billion of foreign exchange transactions undergone illegally. Nearly 350 – 400 people were arrested or taken to the court or faced some kind of hash punishment according to the bigger their scam is.

China keeps up its efforts to break the chain and even the root of this underground braking system. According to the Ministry of Public Security of China, a large number of suspects who were responsible for the operation of such illegal activities in underground banks were arrested. In all 450 suspects are working over 190 or 200 illegal banks or businesses that rounded up about 200 billion yuan i.e.HK$234 billion in illegitimate transactions or illegal payments.

Being Cautious

Extreme measures are taken by the Chinese government to stop taking down such illegal activities. The government is taking measures and monitoring the cash flow constantly to stop such activities completely. With a single move, the central bank of China had opened a ‘green channel’ for police, so that the law enforcers get able to track or trace every activity done by these illegitimate banks (Underground banks). If any bank or factory is found carrying such activities as illegal transactions or payment then they would be punished. As a result, the government would perform a full ceasing of operations of both the parties involved in such transaction.

Regulatory Solutions

It suggested that a large number of underground bankers would be willing to cooperate with regulatory measures taken up by the banking Committee, Housing, and Urban Affairs 2001. Some steps to discuss and kept in mind are given below:

  • Licensing with a designated or vulnerable competent authority- financial intelligence unit or financial sector regulatory body
  • Identification of underground banking services by examining all range of utilized media ( TV, social media, radio, newspapers, etc)
  • Background checks to be carried out by the over operators, owners, shareholders of such an illegitimate banking system.
  • Collaborating with formal banking and financial sector to identify those underground banking activities.
  • Guiding those businesses which may be involved in the operation of underground banking or illegal banking services.
  • Building of law enforcement agencies that may be aware of the compliance requirements for underground banking services.
  • Introducing those methods or laws by which the government can achieve those illegal services.


From this, it can be concluded that underground banking services are running over a vast network in China. Hence making laws and taking valuable and strict actions is the only way remained to get it down. There is no way to ask “Is Underground banking safe or not” It is not at all safe. As the name suggests ‘Illegal banking’. Illegitimate or illegal is always unsafe for the one and for the country too.

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