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South Korean nabbed in illegal banking
By Hu Cong (China Daily)
Updated: 2005-02-25 02:40

A South Korean is in police custody as a suspect in the first-ever, foreigner-run underground forex den unearthed by Chinese police, a Ministry of Public Security official said yesterday.

Zhang Jing, deputy director of the ministry's Economic Crime Bureau, speaks at a press conference on money laundering and illegal banking business in China on February 24, 2005. [Xinhua]
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) worth of money 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 by the ministry, the State Administration of Foreign Exchange and the central bank, People's Bank of China.

The three administrations launched a special campaign cracking down on underground banks and money laundering. It lasted from last April to December. The case of Kim, the first foreigner ever found engaged in illegal forex dealing in China, was one major result.

Police in Qingdao traced Kim's den last April. Nearly 100 local police officers blitzed the four branches of his business on December 30 after a full investigation for eight months, according to Zhang.

The police captured Kim and 17 others involved in the case on the spot, and seized 1.35 million yuan (US$163,000) worth of cash, in addition to some deposit certificates and bank cards, Zhang said.

Kim's allegedly 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 personnel in those places.

Increase in cases

Underground banking activities have risen 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 prestigious Renmin University of China in Beijing.

"Moreover, it in many cases facilitates criminal activities such as smuggling, drug trafficking and graft," he added.

Local police, banks and forex administrations altogether busted 155 underground banks involving 12.5 billion yuan (US$1.5 billion) in last year's campaign, Zhang said.

Some 110 million yuan (US$13.3 million) of cash was seized, 42 million yuan (US$5 million) on 460 bank accounts were frozen, and 19.4 million yuan (US$2.3 million) in fines were imposed.

"Judging by the detected cases, the underground dealing is in considerable scale and is stretching from coastal provinces to the inland," said Zhang.

In particular, underground banks are found "tightly connected" with money laundering, he added.

Alongside the crackdown campaign, the central bank and the 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 under current accounts, allowed people studying abroad to buy more foreign currencies and freed the use of domestic bank cards in Singapore, Thailand and South Korea, she said at yesterday's press conference.

Cai said the central bank is assisting in legislation on money laundering.

The Law Committee of National People's Congress started drafting a law against money laundering last year. The drafting panel includes personnel from the central bank.

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