China busts biggest ever 'underground bank'

Chinese authorities have uncovered an "underground bank" which illegally transferred money overseas in a case valued at $64 billion, said to be the country's largest ever, according to a police statement.

Police in the eastern city of Jinhua found that the chief suspect, whose surname was given as Zhao, set up shell companies in Hong Kong and then made transfers from the mainland through a network of more than 800 bank accounts, said a Jinhua police statement posted on Friday.

China keeps a tight grip on outflows of funds due to worries capital flight could disrupt the economy. Individual Chinese citizens are only allowed to convert the equivalent of $50,000 from the domestic yuan currency under an annual quota.

A year-long investigation found more than 300 people were involved in the underground bank, of which around 100 faced criminal punishment, the police statement said.

Zhao used fake corporate accounts in Hong Kong to receive yuan, converted the funds into foreign exchange through banks and transferred it to his clients, it said. 

China is moving gradually to make its currency fully convertible, as part of economic reforms befitting its status as the world's second largest economy.

Beijing also hopes to become one of the International Monetary Fund's reserve currencies as a constituent of its Special Drawing Rights (SDR) basket. IMF experts recommended earlier this month that China join the exclusive club.

IMF chief Christine Lagarde said that staff experts, in their report to the IMF board, ruled the yuan now "meets the requirements to be a 'freely usable' currency", according to a statement.

Photo Caption: A year-long investigation found more than 300 people were involved in an underground bank which illegally transferred money overseas (AFP Photo/Frederic Brown)