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Chinese Underground Banking and Source of Funds in UK Properties Market


Figures from media show that in 2019, buyers from Mainland China and Hong Kong invested £7.69 billion in the London’s high worth property market. The figure would be a lot higher if the whole of England’s property market is included, such as the popular cities like Manchester, Leeds and Liverpool within the UK’s Northern Powerhouse framework.  In 2021, Chinese investment in the UK assets as a whole was estimated as £135 billion.  

Can Chinese funds easily and legitimately enter the UK now?  

The answer is both yes and no. 

Yes – there are certain specified permissible purposes for foreign exchange in China: such as studying abroad, living costs/travelling abroad, business visit, visiting relatives and friends, seeing doctor abroad, pilgrimage, overseas training, employed to work abroad, international exchanges, leaving the country to settle aboard, relieving overseas direct relatives etc.       

No – there are very strict foreign exchange controls imposed by China. If Chinese funds want to enter the UK property market, a paper published by the National Crime Agency (NCA) in the UK in 2019 warned that under the existing foreign exchange restrictions imposed in China, there was no legitimate way for Chinese funds to invest in the UK property market. This remains the position now at the time of writing this blog. 

Under strict foreign exchange restrictions as a matter of state control, Chinese individuals are allowed to transfer funds out of China within the limit of USD50,000 per year through designated foreign exchange settlement account. Passengers bringing cash of over RMB20,000 (about USD3,000) require a bank’s permit.  Funds transferred out of China are forbidden to be invested in overseas property markets.    

Underground banking and money laundering

The alternative mechanism of underground banking which helps outflow of Chinese funds has become a useful means to move funds to a wide range of destinations outside China.  This form of informal value transfer system (IVTS) creates a significate money laundering and terrorism finance threat.  

The NCA has indicated that criminal groups outside China offer their clients in China to move funds to a wide range of destinations instead of just one by having access to “cash pools” in different jurisdictions. Chinese underground banking facilities usually make payment in cash, “smurfed” or broken down into a large number of smaller amounts to evade reporting restrictions, and received by numerous accounts with multiple banks into which the cash is paid. The money moved out from China through those “cash pools” is usually not the same money received in the destinations, and is usually involved in criminal assets.   

The NCA has evidence to show that Chinese students are recruited to take part in the underground banking scheme by saying that they are providing transmission services for other students or Chinese citizens working in the UK. Once cash is received in these students’ accounts in China, they ultimately transfer those funds to an account controlled by the person who recruited them. The students are usually awarded for a fee for becoming a part within the money laundering group. However, these students should be aware that they are contravening the laws of China.       

Source of Funds check by law firms    

Responsibility for law firms undertaking property transactions in the UK is considerable in checking source of funds from China. For funds from China with the source looks suspicious and might have breached the existing foreign exchange controls in China, even in the absence of evidence of involvement of underground banking, it is still considered necessary for law firms to make a Suspicious Activity Report (SAR) to the NCA to alert law enforcement to potential instances of money laundering or terrorist financing.    In most situations, the purpose of making a SAR is to request a defence (otherwise known as “consent”) under the Proceeds of Crime Act so that if “consent” is given, the law firms may continue with the property transaction. 

Funds from Hong Kong (possibly through China) are subject to the same scrutiny as Chinese funds?

If the Hong Kong source of funds is not clearly from only Hong Kong but is suspected to link to China, it could be a red flag. Tracing of its original source is necessary.  

It there is evidence to show that the funds are from long standing Hong Kong property, there should not be a concern. 

Should you require any additional information in relation to a Chinese Legal Sevices matter then please get in touch at [email protected] or call us on 0330 127 8888 and our team will be more than happy to help.


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