Met Police: Seven convictions
The sentencing of seven people involved in a money laundering network via Chinese underground banking is a valuable reminder to solicitors of its risks, the Solicitors Regulation Authority (SRA) has said.
The Metropolitan Police announced this week that the seven were jailed for a total of 24 years and 11 months between them after officers discovered they had laundered over £55m between February 2020 and June 2023.
“Increasing concerns around underground banking led Stoke Newington officers to begin investigating the group,” it said.
They arrested two men who were using a Chinese messaging app to sell British pounds to university students to circumnavigate foreign currency controls which limits the amount of cash that can be taken out of China per year.
Messages on their phones identified that they were working for a person with the user handle ‘There is a Big Sun in the Sky.’ This person arranged for the pair to collect large amounts of cash, sometimes as large as a quarter of a million pounds at a time.
The men were not told the identities of those they collected cash from, and were instructed to take a photo of a £5 bank note, including the unique serial number. This was then passed onto the courier, allowing the interaction to take place without either party knowing the identity of the other.
This in turn would prevent those in the chain giving information to police if they were arrested.
The National Crime Agency (NCA) first issued a warning on Chinese underground banking in 2019.
It explained how the transfer of funds for personal purposes out of China by Chinese citizens was tightly regulated by the Chinese government, and in all but exceptional circumstances was limited to the equivalent of $50,000 per year.
“All such transactions, without exception, are required to be carried out through a foreign exchange account opened with a Chinese bank for the purpose. The regulations nevertheless provide an accessible, legitimate and auditable mechanism for Chinese citizens to transfer funds overseas.
“Chinese citizens who, for their own reasons, choose not to use the legitimate route stipulated by the Chinese government for such transactions, frequently use a form of informal value transfer system (IVTS) known as ‘underground banking’ to carry them out instead.
“Evidence suggests that this practice is widespread amongst the Chinese diaspora in the UK.”
As money entering the UK by this route has left China illegally, these were not funds that should be accepted for transactions or payment of fees.
The NCA said evidence from successful money laundering prosecutions in the UK has shown that Chinese underground banking was abused for the purposes of laundering money derived from criminal offences, by utilising cash generated from crime in the UK to settle separate and unconnected inward underground banking remittances to Chinese citizens in the UK.
The cash is frequently deposited into ‘mule accounts’ held by Chinese students as the first step in the process.
Michelle Clement, the SRA’s AML regulatory manager, said the case was a reminder that of the risks where solicitors were asked to undertake a transaction where the client’s money has come from abroad.
She explained that the important feature of IVTS was that “value rather than monies, are what moves”.
“So, monies entering the system at the beginning (e.g. China) are not the same funds being used to settle the inwards remittance (e.g. the UK).”
This meant for solicitors that “understanding and being satisfied with the source of the UK funds used in the inwards remittance is key”.
She continued: “Clients receiving money from individuals or businesses that you cannot verify can be a red flag of money laundering. It could also be a sign that money is being sent using unofficial sources.”
The Legal Sector Advisory Group has issued an advisory note on Chinese underground banking.
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