Police have busted a five billion yuan (US$633 million) money-laundering racket in Shanghai as part of a nationwide probe.

The investigation uncovered seven large underground banks, involving money laundering exceeding 14 billion yuan.

Forty-four suspects have been arrested in Shanghai, Guangdong, Beijing, Inner Mongolia, Liaoning and Heilongjiang, and 58 million yuan has been seized or frozen, Han Hao, deputy director of the economic crime investigation department of the Ministry of Public Security, said yesterday.

A Singaporean and three other suspects have been arrested in Shanghai, Han said. The Singaporean is accused of operating an underground bank in Shanghai, making remittances and providing foreign exchange and other banking services between Singapore and China.

The operation was active in 25 large and medium cities in China, Han said.

"Money laundering crimes are mainly conducted through the financial system, underground banks, online banks, cash smuggling, investment, international trade and securities and futures markets," he said.

"The fight against money laundering will help control other crimes closely connected with it, such as organized crime, drug trafficking, terrorist activities, smuggling, corruption and financial frauds."

New regulations

Cai Yilian, deputy director of the anti-money laundering bureau of the People's Bank of China, the central bank, said some international organizations, including the International Monetary Fund, estimate money laundering accounts for three to five percent of gross domestic product.

In October, the national legislative body adopted China's first anti-money laundering law, which expands the definition of money laundering to include corruption and bribery, and gives the central bank greater power in investigations.

The law, expected to go into effect on January 1, requires financial and some non-financial institutions to maintain client and transaction records, and to report large and suspected transactions.

They are also empowered to freeze capital for 48 hours, to prevent corrupt officials from shifting their illicit gains, Cai said.

The Ministry of Public Security and the PBOC have jointly held training classes and seminars to raise awareness of the criminal activity.

Next year, the ministry will cooperate with the bank to improve regulations on the transfer of evidence and suspicious cash deals, Han said.

China has participated in international probes against money laundering, he said. Since 2002, China has helped foreign police investigate or solve more than 400 cases, and international police have also helped Chinese police dig out culprits.

"In recent years, police departments have frequently detected illegal earnings transferred to Hong Kong and Macau in smuggling, fraud and tax-related cases," Han said.

Smuggling operation

He listed a smuggling operation by the Yuanhua Group in Xiamen City, in east China's Fujian Province, and a corruption case involving three bank heads in Kaiping City, in south China's Guangdong Province.

Both cases involved huge sums of illicit money transferred abroad from Hong Kong, which has maintained close cooperation with the mainland in fighting money laundering and other crimes and later provided important evidence in solving these cases, Han said.

Three former heads of the Bank of China Kaiping branch were found to have taken advantage of their posts and diverted almost US$600 million they embezzled to the United States via underground Hong Kong banks.