Source of funds for matters with Chinese nexus

China limits the amount of cash Chinese residents can send out of China to $50k per year. To defeat these limits, some residents use an underground banking system run by Chinese criminals. Chinese underground banking is a major issue as it is also used by Organised Crime Groups for various money laundering purposes. Keystone cannot receive funds that have come, or you suspect may have come, via this underground banking system. Chinese underground banking concerns cannot be cleared by simply checking that the client's funds come through to the Keystone Client Account from a UK bank account, as the central premise of Chinese underground banking is that mule accounts are used to transfer funds into a central UK account for subsequent use.

Chinese underground banking concerns all of China - mainland and overseas territories. If funds originated in yuan from mainland China and the person is a Chinese national otherwise subject to People's Bank of China and State Administration of Foreign Exchange regulations, then they will be subject to the currency controls even if those funds have come through the Chinese overseas territory. A Chinese national can't legally send funds through an overseas territory to send onwards to the UK. The Chinese national may therefore resort to underground banking mechanisms where middle-men agree to accept the yuan funds in exchange for making similar funds available overseas. Frequently, this overseas cash will have illicit origins and be the proceeds of crime in the UK.

If the funds are wholly generated in Hong Kong in HKD by a Hong Kong resident (or similar for Macau, Taiwan and similar overseas territories), then it is likely Chinese currency controls around yuan will not apply. However, any individual concerned about and potentially caught by the regulations should seek legal advice from a Chinese specialist lawyer.

If you have a matter with a connection to China, where funds in excess of US$150k are being provided by our client, then you must be satisfied that Chinese underground banking has not been used. You should note on your file why you are satisfied.

If you are in doubt, you should consider any/all of:

1. Calling the MLRO or Director of Operations and Compliance for advice;
2. Asking the client to provide you with details as to where the funds were sent from (if they were not sent from China, directly or indirectly, then there is no issue);
3. Asking the client how the funds were accrued (if accrued outside of China and not sent back to China first, then there is no issue).

If you are not convinced with the answers you are given, you should contact the MLRO or Director of Operations and Compliance.