China Nets More Illegal Foreign Currency Traders Cashing In on Offshore Gambling

China’s foreign exchange regulator said it has fined 10 people for conducting illegal currency trades totaling $6.6 million for use in cross-border gambling activities, as the government crackdown on unlawful capital outflows intensifies.

The State Administration of Foreign Exchange (SAFE) meted out fines totaling 5.8 million yuan ($896,730), stating that the individual cases stretched back as far as 2017, according to a statement released Friday (link in Chinese).

This marks the latest batch of cases involving illegal foreign-currency trades announced by SAFE and highlights how China has stepped up efforts to crack down on unlawful capital outflows by imposing stiff penalties, especially on those found to have engaged in cross-border gambling.

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All forms of gambling are illegal on the Chinese mainland. The government does not view (link in Chinese) state-permitted lotteries that benefit social welfare and the sports industry as gambling.

However, underground banking networks and payment platforms enable gamblers to avoid financial controls and transfer funds to offshore gaming sites, especially those that market themselves to Chinese citizens.

Of the cases revealed on Friday, five had used underground banks to facilitate their illegal foreign exchange trades. Use of underground banks is a well-worn approach through which Chinese citizens get around capital controls to transfer money overseas, which many have used for gambling or property purchases abroad.

From June 2018 to January 2020, a suspect surnamed Liu allegedly traded more than $1.6 million worth of foreign currency through underground banks, the highest amount among the five cases that used banks, the SAFE statement showed. Liu received a fine of 1.2 million yuan.

The remaining five cases used a point-of-sale (POS) devices to trade foreign currency for overseas gambling activities. A suspect surnamed Cai illegally traded $1.7 million in this way. Cai was fined 1.7 million yuan, the highest among the 10 cases, the regulator said.

Fan Yifei, a deputy governor of the People’s Bank of China, said last year that cutting off the financing channels used for cross-border gambling is a crucial task in preventing and defusing major financial risks.

Contact reporter Tang Ziyi (ziyitang@caixin.com)

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