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Black market banking brings billions from China

As the illegal trade in jade, timber and drugs along the Sino-Burmese border appears unstoppable, black market banks have become a major channel for laundering criminal assets, according to insiders who are familiar with the business.

Cross-border trade between Burma and its superpower neighbour to the north is thriving. Burma’s Ministry of Commerce estimates that the total value of official cross-border trade between Burma and China from April 2013 to January 2014 was US$3.2 billion, but reports show that illegal trade has far exceeded that figure. The scarcity of reliable data, however, makes this difficult to prove.

China has a $50,000-a-year limit on moving capital as a way to control inbound and outbound foreign exchange flows. As a result, underground black market banks, which are based across the Burmese border, have almost monopolised cross-border finance.

“Good jade items can cost as much as a few million (yuan),” said Xie, a Chinese emerald businessman in Ruili who admits to trading the precious stones illegally. “There is simply no other way to bring that much cash to Burma without private banks.”

Such underground black market banks have been active for years, according to Chen, a black market currency trader in Rangoon. With just a phone call, tens of billions of yuan in funds can be easily transferred to Burma, or vise versa.

“On the phone, we ask our clients to deposit their money into a designated account (in China), and the money will be transferred later through Hong Kong or Macao to Burma,” he said.

According to the illegal currency trader, after depositing the money, one can either meet up with the currency traders in Burma to retrieve the smuggled remittances or have the money transferred to a bank account in Burma. Exchange and commission rates vary every day depending on the market.

Chen said dealers from Japan and Thailand also use underground banks for illicit money transfers.

When asked who is in charge of the smuggling business, Chen did not answer directly, but said only that it would be “someone rich enough to run businesses in both countries”.

Xie posited only that most of the black market banks are run by Burmese or ethnic Chinese in Burma.

“Burmese can easily open bank accounts in China, but it is hard for Chinese to do that in Burma. That’s why most of the dealers are Burmese,” said Xie. They also have the language advantage to know the latest exchange rate in advance, he added.

It is extremely difficult to trace the source of smuggled funds. The Chinese police have prioritised tackling money laundering by Burmese businessmen over recent years, but illicit traders typically open more than 50 personal bank accounts to keep the money moving.

A manager of state-owned Agricultural Bank of China (ABC) admitted that smuggling might be structured to “facilitate criminal activity”, adding that without closely monitoring fiscal systems, it’s impossible to tell whether money is laundered or not.

The ABC signed a cooperation agreement with Myanma Economic Bank (MEB) in 2009 in a bid to rein in the illegal money trade. The deal enabled businessmen with MEB accounts to open an account with the ABC to easily facilitate transfers. But most dealers still prefer the black market banks because they offer faster and cheaper services. Some prefer the black market simply to avoid paying taxes.

About 12 to 15 major private banks each have the capability of transferring 50 million yuan ($8.1 million) in funds every day, said Chen. This estimate was reinforced by the China Securities Journal, a Chinese-language newspaper, citing an anonymous expert who said that approximately $32.5 billion flows into Burma from China every year.

Unsurprisingly, black market bankers come in varying degrees of credibility. In some cases, the traders will disappear after taking money from their clients, who have no legal protection whatsoever.

Echo Hui is a freelance journalist based in Hong Kong who works primarily on Chinese and Burmese affairs.


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