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Presenting 5+1 Ways To Smuggle Billions Out Of China

Tyler Durden's picture




 

Last week, we brought you the story of “Mr. Chen” and his “yellow loafers,” tea, and Snickers bars. 

Chen is apparently a kind of catch-all for China’s network of underground bank frontmen operating out of kiosks selling candy bars and “fizzy drinks” (to quote WSJ). As long as you know the right shady go-between, you can work with Chen to move money out of the country in violation of the official $50,000/year limit. 

The method of choice for these “banks” is apparently "matchmaking", whereby you simply give Chen some money and the funds show up a few hours later in Hong Kong. 

Of course this is an underground business and so things don’t always go as planned, something a “Mr. Chan” (with an "a") discovered when he attempted to move CNY63 million out of the country via “Mr. Chen” (with an "e") only to find that once the transaction was complete, he only had CNY8 million left. That’s a pretty hefty fee even in the world of money laundering and so, Chan reported “Chen” to the authorities. The subsequent investigation led to the arrest of some 31 people and netted 1,087 accounts holding some CNY12 billion. 

None of the accused were ever heard from again.

Well, now that the market is convinced that Beijing is targeting a yuan deval that’s orders of magnitude larger than what we’ve seen so far, capital continues to flow out of the country and underground banks aren’t the only conduit. There’s the infamous UnionPay end-around for instance as well as good old fashioned cash in a briefcase. Or cash on your legs:

On Tuesday, Bloomberg is out with a visual summary of several ways you can get your cash out of China. Below, find the rundown along with some color.

*  *  *

Read the full Bloomberg piece here

 

Daniel Zhang, 34, is a self-made millionaire who lives in China’s southern city of Shenzhen. Earlier this year he gave the equivalent of $77,000 to a local money-changing shop and saw it appear less than an hour later in a bank account he had previously opened across the border in Hong Kong.

“It was easier than I expected and cost little,” says Zhang, who bought Hong Kong stocks with the money. “I don’t know whether this is legal, and I don’t care that much.”

In Hong Kong, more than 1,200 currency-exchange shops have seemingly little daily activity. These brightly lit storefronts specialize in helping wealthy Chinese transfer their money overseas. The premium isn’t high — only about 1,000 yuan ($160) per HK$1 million ($130,000) more than bank exchange rates would be if they could do the transaction.

It works like this: Chinese come to Hong Kong and open a bank account. Then they go to a money-change shop, which provides a mainland bank account number for the customer to make a domestic transfer from his or her account inside China. As soon as that transaction is confirmed, typically in just two hours, the Hong Kong money changer then transfers the equivalent in Hong Kong or U.S. dollars or any other foreign currency into the client’s Hong Kong account. Technically, no money crosses the border -- both transactions are completed by domestic transfers.

Even with a $500,000 U.S. dollar check in his pocket, 10 times the amount allowed by law, factory owner Frank Deng felt at ease as he passed though Chinese customs from Shenzhen to Hong Kong earlier this year.

He got the check from a so-called underground bank in southern China’s Guangdong province, drawn from a Hong Kong bank account and denominated in U.S. dollars so that it could be cashed upon crossing the border. Deng had given the “bank,” which operates as part of China’s shadow-banking system, the equivalent in yuan from his account in China in order to receive the check. Using that money, plus other deposits on other trips, Deng planned to make a 50 percent down payment on a HK$10 million apartment.

Jenny Cai, a Shanghai resident, bought a A$1.2 million ($867,000) apartment in downtown Sydney after seeing pictures at a marketing event in Shanghai. To do it, she asked her husband and daughter to combine their $50,000 annual quotas with hers to come up with the down payment.

The practice is called “smurfing” - named after the little blue cartoon characters who collectively make up the whole. Also known in Chinese as “ants moving their house,” for small grains of dirt being moved individually, the government has started restricting the amounts of cash that can be moved in this way, as well as how often banks can send money to a single account abroad from multiple sources.

Mainland Chinese make news by being caught with cash in their luggage or strapped to their bodies: Shenzhen customs stopped 80 people trying to smuggle a total of 30 million yuan into Hong Kong in the first three months of this year, Ming Pao newspaper reported.

For the most affluent people, Chinese banks offer a legitimate channel to get money for home purchases overseas. China Construction Bank Corp., the nation’s second-largest lender, last year started a product that enables its private banking clients to borrow up to HK$20 million in Hong Kong by using yuan-denominated deposits and other assets on the mainland as collateral. 

*  *  *

As we've documented extensively, one shouldn't expect this to abate anytime soon. Here's the situation as we described it previously: 

The problem for China is that there are quite a few reasons to believe that the PBoC is targeting a much larger devaluation before it's all said and done. This keeps the pressure on as the local population, worried about losing purchasing power in the coming months and years, continues to move money out of the country. As the capital flight accelerates, the PBoC is forced into still more FX interventions to prop up the yuan and that means more FX reserve liquidation. Of course those interventions must be offset with RRR cuts in order to preserve liquidity. But the market interprets rate cuts as more easing (even if, when considered with hundreds of billions in FX reserve drawdowns, the net effect doesn't amount to much) which only serves to put still more pressure on the yuan, prompting the entire cycle to repeat itself. Throw in a crashing stock market and it's pretty clear that the outflows aren't set to abate, or, as we put it previously, "it's all about expectations and since China needs to boost exports and stimulate its economy - which is the fundamental reason why it proceeded with devaluation in the first place - any stop gap measures to halt the devaluation are doomed to fail." 

And while Bloomberg does an admirable job of mapping out the various ways Chinese citizens can break the law on the way to explaining what we've been harping on for years (namely that affluent Chinese are behind soaring real estate prices the world over) they failed to document the cheap, risk-free way to get money out of the country. On that note, we close with excerpts from "The Reason For Bitcoin's Recent 60% Surge Revealed":

It was precisely two months ago, on September 2nd, when we explained that as a result of China's recent currency devaluation, in order to mitigate the inevitable capital outflows that such an FX move would unleash, China was "scrambling to enforce capital controls" in order to prevent the exit of hot (and not so hot) money from China's economy.

We then ventured to say that "this is great news for bitcoin":

At the time of that forecast, the price of bitcoin was highlighted with the red arrow.

 

And while we were confident it was indeed Chinese capital "mobility" using the bitcoin channel that was the impetus behind the nearly 60% surge in the price of the digital currency in past two months to fresh 2015 highs, moments ago we got the closest thing to a confirmation when Bitcoin Magazine reported that "China is leading the charge, with the price trading anywhere from $10-$15 above the rates on U.S. and European exchanges."

Bitcoin Magazine further adds that "China is experiencing unprecedented amounts of growth. On October 30th, Jack C. Liu, the Head of International at OKCoin, said, in a tweet, that it had been the “busiest day of the year @OKCoinBTC as #Bitcoin trades to 2015 high of $344. No clawbacks on futures, no downtime. Great day for us & industry.”"

Two days later, he went on to reveal that OkCoin had seen incredible demand for accounts on the exchange.

And here is the validation that, just as predicted here two months ago, bitcoin has become the go-to asset class for millions of Chinese savers seeking to quietly and under the radar transfer funds from point A to point B, whatever that may be, in the process circumventing the recently expanded governmental capital controls:

While he didn’t provide any concrete numbers, he did comment last week on what was driving the adoption. “Some Chinese traders are expressing a view on the CNY exchange rate after the last devaluation and you have interest by mainland speculators to move to other assets after the stock market fallout,” he explained in an interview with Bitcoin Magazine.

 

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Tue, 11/03/2015 - 14:25 | 6744718 localizer
localizer's picture

Is Bloomberg trying to promote the process with such elaborate "know-how" articles?

Tue, 11/03/2015 - 14:26 | 6744727 Boris Alatovkrap
Boris Alatovkrap's picture

Yuan tei king mo ni tsu fo lein kaon to li? Mei bi yu tei ping tsu yu le gu sum mon ni.

Tue, 11/03/2015 - 14:33 | 6744755 Money Boo Boo
Money Boo Boo's picture

bing, bong.........POW!!

Tue, 11/03/2015 - 14:41 | 6744783 coinhead
coinhead's picture

"money laundering" has become a deprecated term since the introduction of Bitcoin.  There are only transactions now.

Tue, 11/03/2015 - 14:56 | 6744864 Herd Redirectio...
Herd Redirection Committee's picture

I think we have just 'discovered' the secret behind Canada's 'real estate market'...

Canadian mortgages, backed by funds 'held in China'.  "Trust me, no seriousry"

What could go wrong?

Tue, 11/03/2015 - 14:59 | 6744879 DetectiveStern
DetectiveStern's picture

I like bitcoin. Any currency that can't be printed by central banks is a move in the right direction.

Tue, 11/03/2015 - 15:26 | 6745040 coinhead
coinhead's picture

..obviously teh we is a big fuknuckle Bitcoin pumper and fan.  But also, it is doubtful that .gov does not know "Satoshi" real identity at this point and thus, we should assume that teh Satoshi hoard is in teh hands of .gov.

Tue, 11/03/2015 - 16:04 | 6745278 balanced
balanced's picture

Wtf does that even mean? Do you understand what open source means?

Tue, 11/03/2015 - 17:11 | 6745729 coinhead
coinhead's picture

Open source means nothing in this instance.  It tells us nothing about who (or what organization) controls what particular wallet.

Tue, 11/03/2015 - 17:54 | 6745975 Stuck on Zero
Stuck on Zero's picture

Method #6: Ship a container full of Christmas Toys to a captive store in the U.S. Each toy contains a wad of cash.

Tue, 11/03/2015 - 15:08 | 6744909 38BWD22
38BWD22's picture

 

 

China now mines some 56% - 60% of Bitcoin (that works out to some 390 BTC per day, gross amount).  At some point there will be a LOT of BTC wealth there.  

390 BTC * $400/BTC = approx. $156,000 per day of BTC created there (approx. amount today).  OK, these pools have many people sharing those newly mined BTC, but at some point there will be some "Chinese Whales" holding BTC.

 

They can feel free to negotiate with me for a nice ocean view condo once they have enough....

 

EDIT:

Bitcoin's main weakness now are the .gov controls.  It's hard to spend LARGE amounts of BTC if you want to do it quietly.

Tue, 11/03/2015 - 15:52 | 6745163 Prisoners_dilemna
Prisoners_dilemna's picture

~3600 BTC are mined daily while the block reward is at 25BTC per block.

 

6blocks/hr*24hr=144blocks*25BTC_reward=~3400BTC/24hrs

 

Fluctuates slightly due to difficulty changes related to mining hashrate, aiming to get a block every 10 minutes.

Otherwise point well made.

 

https://blockchain.info/stats

In the last 24 hrs ~4,100 BTC mined.

Tue, 11/03/2015 - 15:55 | 6745206 38BWD22
38BWD22's picture

 

 

Thanks for the correction.

Wow, I even had my coffee today......

Tue, 11/03/2015 - 14:28 | 6744736 ultraticum
ultraticum's picture

While missing the only state-resistant method.

Tue, 11/03/2015 - 14:28 | 6744734 SMC
SMC's picture

Same plan, different continent...

Convert the fiat trash to physical assets as fast as you can.

Tue, 11/03/2015 - 14:29 | 6744739 Boris Alatovkrap
Boris Alatovkrap's picture

Kapital Kontrol is tell tale of real state of global finance. Is facade that is crumble under freedom and free market force.

Tue, 11/03/2015 - 15:51 | 6745170 alphahammer
alphahammer's picture

 

 

You should change your photo Boris. You look like a constipated emo kid that couldn't get tickets to Fallout Boy.

I know you're trying to look all Paris cafe chic and all... but ...

Tue, 11/03/2015 - 17:43 | 6745909 Boris Alatovkrap
Boris Alatovkrap's picture

Funny, Boris is not so regular and cannot get ticket to Fallout Boy. Maybe is keep photo for while...

Tue, 11/03/2015 - 14:29 | 6744740 Son of Loki
Son of Loki's picture

What's funny is to see how many Americans are trying to get their money out of America! Wait until the Canadian and USA tax authroties start taxing, investigating, confiscating as things tense up between Uncle Sam and the PRC'ers.

 

" Glass arays gleener on other side."

~ Old Chinee Proverb

Tue, 11/03/2015 - 14:31 | 6744752 BurningFuld
BurningFuld's picture

And the USA makes it super easy:

The United States has become a top tax haven for foreign companies, despite the Obama administration's efforts to crack down on U.S. firms stashing money overseas. 

The U.S. came in third place on the Tax Justice Network's biannual Financial Secrecy Index, behind Hong Kong and Switzerland.

"An estimated $21 to $32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world," the report says. "Secrecy jurisdictions," it notes, are also known by the more common term "tax havens," and are countries that "use secrecy to attract illicit and illegitimate or abusive financial flows."

States like Delaware and Nevada have become tax havens, according to the report. They allow anonymous shell companies to operate within their borders, letting foreign companies funnel profits through the U.S. while largely avoiding taxes in their home nations. Economists argue that this type of activity widens the gap between the super-rich and the rest of the world.

TJN admits that the U.S. has been a "pioneer" in rewriting the rules for international secrecy jurisdictions -- the Organization for Economic Cooperation and Development has emulated U.S. policies -- but "provides little information in return to other countries, making it a formidable, harmful and irresponsible secrecy jurisdiction.”

Obama has made various attempts throughout his presidency to tighten rules on offshore tax loopholes. Last year, his administration announced it would further limit corporate tax avoidance overseas.

Banks and other financial companies are also required by U.S. law to submit information about overseas assets belonging to American citizens.

Tue, 11/03/2015 - 14:41 | 6744759 gcjohns1971
gcjohns1971's picture

The amount of cash strapped to that lad's legs, when described in Gold, would fit into a nifty Western Belt Buckle.

Well... What did you think those monstrosities were for anyway?

 

Think how much wealth you could have in an olympic weight set.  (about $5Million)

 

Say...

I smell a rat...

If Chinese *individuals* have been buying as much Gold as we've been told then why isn't that lad wearing a great big western belt buckle?

 

Did the guy with concealed Gold not get caught?

Or is it the Chinese government buying the gold...mostly paper...to back its entry into the SDR?

Seriously curious.

Tue, 11/03/2015 - 14:54 | 6744851 highandwired
highandwired's picture

You have to remember that there are over 1 BILLION chinese in China!!!  If they were ALL buying gold, there would be none available

Tue, 11/03/2015 - 15:20 | 6745009 gcjohns1971
gcjohns1971's picture

Doesn't follow.

The same logic applies to the cash on that kid's legs.

Yet there it is.

Tue, 11/03/2015 - 16:32 | 6745471 imapopulistnow
imapopulistnow's picture

Add a USA and Canada to your total. There are nearly 1.4 billion in China.

Tue, 11/03/2015 - 15:48 | 6745161 alphahammer
alphahammer's picture

 

"Bada boom. He will be here all week"

That was some seriously funny shit. No. Really. I'm tearing up over here...

Tue, 11/03/2015 - 15:53 | 6745188 cheech_wizard
cheech_wizard's picture

Ever read the novel "Snowblind:  A Brief Career in the Cocaine Trade"?

Standard Disclaimer: Consider it a primer.

“There is nobody in the world, let alone at MIT or Lowell Tech, who is faster at math than a dope dealer.”

 

Tue, 11/03/2015 - 14:36 | 6744765 Yen Cross
Yen Cross's picture

  #6] Buying fake art overseas and selling it for insane amounts of money through corrupt dealers and mob sydicates.

Tue, 11/03/2015 - 15:26 | 6745042 sleigher
sleigher's picture

Scott, is that you?

Tue, 11/03/2015 - 15:59 | 6745229 Prisoners_dilemna
Prisoners_dilemna's picture

My last employer was fond of buying 3000 carat beryls from seller "SeizedAssetsAuctioneer" on proxbid.com. (FMV for these dyed stone from India is ~ $80, he paid $250)

He wanted me to help fill out IRS form 8283 and get a write off for $330,000 as the "full retail replacement value" appraisal that came with the rock stated that was it's value. (appraisal was also fake/scam)

I showed him the actual US Marshalls auction site listing real goods with starting bids in the thousands of dollars.

His response to me, "well I like the auctions that start at $1".

/facepalm

 

I respect his business model but that's about all he has going for himself. Poor guy.

Tue, 11/03/2015 - 14:39 | 6744776 lasvegaspersona
lasvegaspersona's picture

Mr. Chan

ya heard of gold??

Never gets devalued by the government (well not so you could see.)

Tue, 11/03/2015 - 15:46 | 6745156 alphahammer
alphahammer's picture

 

A wee bit hard to strap gold ingots to your legs now isn't it Charlie...

Tue, 11/03/2015 - 14:40 | 6744779 replaceme
replaceme's picture

So how do you get money out of the US, I have not seen Mr Chan working the East Side - will the Chinese go after the Hong Kong banks like the US goes after the rest of the world?

Tue, 11/03/2015 - 14:43 | 6744792 cougar_w
cougar_w's picture

American industry sent jobs to China, and then wage-stagnated Americans bought Chinese plastic doo-dads on credit. Now the Chinese get our real estate paying cash.

Wow nice plan there guys. Way to give away the farm, great work.

Tue, 11/03/2015 - 15:16 | 6744989 strangeglove
strangeglove's picture

And its Gone!

Tue, 11/03/2015 - 16:02 | 6745260 robertocarlos
robertocarlos's picture

Those money leg braces cost less than the Obamacare leg braces.

Tue, 11/03/2015 - 16:06 | 6745292 robertocarlos
robertocarlos's picture

Collect underwear.

Get a mortgage from a Canadian bank.

Profit.

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