Kim Cheon-Jae, 45, is being detained for running an underground bank in Qingdao, Shandong Province, that allegedly transferred around 240 million yuan (US$29 million) in and out of China illegally every year since 2001, according to Zhang Jing, deputy director of the ministry's Economic Crime Bureau.
Zhang announced the case at a joint news conference yesterday held by the ministry, the State Administration of Foreign Exchange and the central bank, the People's Bank of China.
They ran a special campaign against underground banks and money laundering from last April to December. Kim's case, the first foreigner ever found to have engaged in illegal forex dealing in China, was one major result.
Police in Qingdao traced Kim's operations last April. Nearly 100 local officers blitzed the four branches of his business on December 30 after an eight-month investigation, according to Zhang.
They captured Kim and 17 others involved on the spot, and seized 1.35 million yuan (US$163,000) in cash, in addition to some deposit certificates and bankcards, Zhang said.
Kim's alleged underground forex service was found to have reached several other cities in Shandong, as well as Shanghai and the northeastern province of Jilin, and his business mainly catered to South Korean companies and their personnel.
Underground banking activities have increased in recent years amid a booming economy, and have become a target of the government's effort to maintain financial security.
"Rampant underground banking and forex dealing has very serious repercussions since it hurts the normal business of banks and distorts the financial system," said Lu Jianping, a law professor at Beijing's Renmin University of China.
"Moreover, in many cases it facilitates criminal activities such as smuggling, drug trafficking and graft," he added.
Zhang said that local police, banks and forex administrations busted 155 underground banks involving 12.5 billion yuan (US$1.5 billion) in last year's campaign.
Some 110 million yuan (US$13.3 million) in cash was seized, 42 million yuan (US$5 million) in 460 bank accounts frozen, and 19.4 million yuan (US$2.3 million) in fines imposed.
"Judging by the detected cases, underground dealing is done on a considerable scale and stretches from coastal to inland provinces," said Zhang.
Underground banks are also found to be "tightly connected" with money laundering, he added.
Alongside the crackdown, the central bank and forex administration are improving financial services to narrow the "living space" of underground banks, said Cai Yilian, deputy director of the central bank's department on money laundering.
They have, among other things, eased exchange restrictions on current accounts, allowed people studying abroad to buy more foreign currencies and freed up the use of domestic bankcards in Singapore, Thailand and South Korea, she said at yesterday's press conference.
Cai said the central bank has been assisting the Law Committee of the National People's Congress on legislation regarding money laundering since last year.
(China Daily February 25, 2005)
