Financing Illegal Migration

Chinese Underground Banks and Human Smuggling in New York City

Linda Zhao

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137290908
• Topic: Business
• Subtopic: Financial Risk Management
• Index: Business

This unique study explores the relationship between informal financial systems, illegal migration and human smuggling. Focusing on Chinese illegal immigrants working in the US, it examines the motivation and patterns of the use of illegal fund transfer systems, providing a revealing insight into the workings of Chinese underground banks.

1

Introduction

Underground banks have had a long history in Asia; they existed long before Western banking systems came into existence (Cassidy, 1990; Passas, 2003). The Indian and Chinese underground banking systems are the two major archetypes (Sharma, 2006; Passas, 2003). The former system is called Hawala or Hundi in the Middle East, Indian subcontinent, North Africa, and the Horn of Africa, while the counterpart indigenous to China is widely known as Qianzhuang (pronounced “ch’ien-chuang,” meaning “money shops”) among their Chinese clients both in the U.S. and in mainland China. They remain active in different parts of the world as informal financial systems, paralleling conventional banking institutions (Passas, 2003). Generally termed informal value transfer systems (IVTS), they are used to “transfer funds or value from place to place either without leaving a formal paper trail of the entire transaction or without going through regulated financial institutions at all,” and fund transfer happens without money movement (Passas, 2003, p. 8). Being part of an underground economy, with much of their activity going unnoticed, underground banks are primarily considered as a convenient and efficient instrument for expatriate workers to transfer remittances back to their country of origin (Jost & Sandhu, 2000). However, since September 11, 2001, underground banks in the Middle East and India have drawn public attention because of their alleged roles in financing terrorism. Another concern has been raised regarding the function of underground banking systems, as human smuggling has become a growing industry globally. Smuggling people into industrialized countries has become a conspicuous phenomenon in certain sending regions in China (primarily the eastern region of Fujian Province and the southern region of Zhejiang Province). This trend seems to continue unabated in spite of reinforced border control in the U.S. and the countries of the European Union. In the 1990s, police in China, Japan, Australia, Great Britain, and the U.S. discovered that Chinese-run underground banks located in these countries had been routing huge sums back to China for illegal immigrants over the past years (Kakuchi, 2004; Mei & Wang, 2004; Preston, 2006). Though the operation of underground banks is legal in many countries, it is outlawed in China, India, and Pakistan, and by some jurisdictions in the United States. The systems have not been considered as an appropriate subject of criminological or social inquiry due to their highly secretive nature. Questions surrounding the mysterious Chinese underground banking systems abound when it is situated in the context of illegal immigration aided through human smuggling. For example, are there border-spanning financial systems involved in the operation of smuggling Chinese? Do these Chinese-controlled underground banks facilitate illegal migration and human smuggling? Do Chinese underground banks represent a key mechanism in the larger social problem of illegal migration, or potentially pose a serious threat of potentially support other illegal activities like their counterpart systems in the Middle East and India? The need for an in-depth understanding of the relationship between these informal fund transfer systems (IFTs), illegal migration, and human smuggling has never been more pressing – given recent concerns arising from terrorism and illegal immigration in the United States.

Organized crime or illegal enterprises

In China underground banks have captured the attention of the government as well as of the general public since the beginning of the twentieth century. Their rather sinister image has been shaped by anecdotal evidence, police statements, and media accounts largely based on police reports. Their operation has become a public concern in China because of the belief that underground banks may be connected to a wide variety of criminal activities such as tax evasion, smuggling, capital flight, money laundering, and corruption. In the U.S., knowledge of Chinese-controlled underground banks remained obscure until quite recently. In 2005, a Chinese underground bank owner was convicted and sentenced for her role in human smuggling. She was found to have financed human trafficking in cooperation with Chinese gangs in NYC. The operations she masterminded included the “Golden Venture” incident in 1993, in which 10 people (out of 289 illegal Chinese immigrants being smuggled) drowned when their ship ran aground off Queens, NYC (Fritsch, 1993; Gladwell & Stassen-Berger, 1993).

The features of underground banks exemplified in this case, including the immigrant background of the operators, their family business nature, and the role of a criminal element in alliance with ethnic groups, immediately evoked the specter of “organized crime” in the same way that human smuggling activities worldwide do in the eyes of scholars, governmental agencies, and the general public. In the 1960s organized crime theory prevailed in scholarly publications and at major government hearings in explaining criminal activities such as prostitution, gambling, loan-sharking, and narcotics trafficking, which were perceived to be controlled by ethnic groups like those of Italian, Jewish, or Irish descent (President’s Commission on Law Enforcement and Administration of Justice, 1967; Nelli, 1969). The influence of this theory has gradually eroded since the 1970s, but observers still tend to fall back on the notion of organized crime whenever an alien-dominated crime like the human smuggling trade hits the headlines.

In contrast to the organized crime model, an illegal enterprise perspective proposes that illegal enterprises are involved in the provision of illegal goods and services to customers who have knowledge of their illegality. In different periods of American history, the list of illegal goods involved has included liquor, pornography, and narcotics. Illegal services have ranged from bookmaking, gambling, and prostitution, to loan-sharking (Haller, 1990, p. 207). The literature suggests that the properties of illegal enterprise are distinct from those of activities defined as organized crime (e.g. Smith, 1980; Reuter, 1986; Haller, 1990). Organized crime models perceive mafias or organized crime groups as centrally controlled, hierarchically structured establishments; they exercise monopoly over illegal markets through coercive power generated by corruption and violence. Proponents of the illegal enterprise model contend that illegal markets consist of “localized, fragmented, ephemeral, and undiversified enterprise” (Reuter, 1986, p. 131). The wide range of illegal activites were largely small-scale and short-term, and were carried out by small, independent criminal enterprises. Also, violence was not frequently used for the enforcement of business agreements (Haller, 1990). With a focus on the role of Chinese-operated underground banks from the perspectives of their clients, the study provides an opportunity to examine whether these informal financial systems are more properly categorized as ethnic-specific illegal enterprises or as organized crime. Within the limitations of the data used in this research, if the findings of this study show that Chinese-controlled underground banks exhibit more of the characteristics of illegal enterprise, this may help make a preliminary case that these informal fund transfer institutions are not properly identified as organized crime, or as serving as part of organized crime.

Research on Chinese underground banks

The Chinese underground banking system has been an elusive subject for academic study. Much of what we know about Chinese underground banking derives from a small research literature on remittance transfer systems, in which Chinese-operated underground banks are known as one variant of informal remittance transfer systems whose services, unlike those of the registered or licensed formal sector, are not subject to the control or regulation of the competent authorities (Passas, 2003). So far, only three studies have been identified. A study by Cassidy (1990), a former CIA employee, was the first to provide a relatively reliable historical account of the Chinese underground banking system from the 18th century through the early twentieth century. His research notes that Chinese living in Southeastern Asia and the U.S. used underground banks to move money for facilitating the narcotics trade. However, he emphasizes that “while sometimes technically violable they are not inherently illegal”; the mechanisms they exploit “are the vestiges of a banking system of a far-flung people that antedates modern electronic banking” (Cassidy, 1990, p. 15). He cautions against a premature conclusion that the mechanisms are knowingly employed for criminal purposes before any further investigation is made.

Lambert (2000), a veteran crime investigator, examined the development of Chinese informal fund transfer systems in Southeast Asia since the 1980s in the light of the American government’s concern about the role of Chinese underground banks in narcotics money laundering. His study suggests that an underground banking network controlled by an organized Chinese crime group was active in support of heroin trafficking from the Golden Triangle to the U.S. market. However, Passas argues that Lambert’s article contains many factual errors deriving from his quotation of “facts by repetition.” Passas further points out that some statements made in Lambert’s study about the misuse of underground banks were “sheer speculation and based on no known cases ... ” (Passas, 2003, p. 26).

Passas’s preliminary study of underground banking systems worldwide offers a comprehensive overview of the distribution and operational characteristics of an underground banking system available to varied ethnic groups around the world (1999). His study briefly touches on the main forms and features of the Chinese IVTS in Hong Kong and the U.S., and describes the regulatory measures taken by the governments in Taiwan, Hong Kong, and mainland China. Based on secondary data sources (including archival documents and interviews with scholars and law enforcement officials), Passas characterizes the Chinese system as primarily non-criminal in function. His study identifies the following attributes of the system: (1) The Chinese IVTS are characterized by one-way traffic, meaning that money primarily flows to China, while underground banking systems in other areas, such as hawala in India, are bi-directional; (2) Most of the funds remitted by clients (Chinese residing in the U.S.) were lawfully earned money, instead of rather than criminal proceeds being laundered; (3) Violence is generally not an attribute of the Chinese underground banking system; (4) IVTS in most cases do not have the capacity to deal with transactions involving substantial amounts of money generated by illegal enterprises; (5) No solid evidence indicates that corporations and state agencies are involved in illegal money transfer through the Chinese IVTS; (6) The prevalence of import/export invoice manipulation practices are less evident in the Chinese system than in hawala networks; (7) The illegal foreign currency transactions and remittance methods primarily violate the laws of China.

Despite disagreement on the extent of the growth of the Chinese underground banking system worldwide, two of these three studies asserted that the unregulated use of the system may not be a grave concern, because it is believed that ethnic groups resort to the system either for legitimate purposes or for relatively minor offenses. By the very nature of their illicit function, investigations into Chinese underground banks do not generate reliable official records or other primary documentation, so firsthand materials are seriously lacking in this area. This limitation is the principal rationale for the approach employed in this study, which explores the role of Chinese underground banks based on their clients’ accounts, the perspective of illegal Chinese immigrants.

As indicated above, the state of scholarship to date on Chinese underground banking is minimal. None of the previous studies has substantiated its findings by gathering firsthand information from Chinese clients or owners of underground banks. Previous inquires have also stopped short of examining how the Chinese underground banking systems have adapted to changes in Chinese socioeconomic conditions and globalization. Scant attention has been paid to factors underlying the re-emergence and growth of underground banks in a transitional China as it has moved from a centrally controlled to a free market economy.

Furthermore, previous research studies have not distinguished between different types of customer of underground banks, and failed to clearly delineate the disparate purposes of the people using the system – i.e. whether they are criminals, criminal syndicates, companies, legal residents, or illegal immigrants – in the context of China’s increased integration into a global economy. The result is that understanding of the dynamic process underlying the resurgence and growth of underground banks could be problematic, and any conclusion that underground banks are of little consequence in illegal activities could be oversimplified.

Chinese underground banks in U.S. bound illegal immigration through human smuggling

Because of its secretive nature and the difficulty of access, the contemporary Chinese underground banking system has never received adequate treatment in scholarly work, either in its own right or as a secondary subject in studies of illegal migration and human smuggling. Little is known about its role in illegal migration and human smuggling due to lack of systematic data. Specifically, no inquiry has been made into why clients choose underground banks for sending remittances over other alternatives, their relationship with the owner/operator of underground banks, the nature of typical transactions in underground banks, how their clients view this informal value transfer system, and what discernable effects the remittances transferred through underground banks have on the lives of their families in China. Recent scholarship on Chinese smuggling has provided well-documented accounts of the ordeals that Fujianese illegal immigrants have lived through before and after arriving in the U.S. (Chin, 1999), as well as of criminal activities involved in organized international smuggling networks (Chin, 2003) and even of the impact of Chinese human smuggling on the American labor market (Kwong, 1997). Police investigation in China suggests that the sending regions for illegal immigration coincide with the areas that have thriving underground banks. Thus, there has been much speculation about the connections between the informal financial system and human smuggling operations. There are also suggestions that illegal Fujianese immigrants turn to underground banks in the U.S. to send remittances home (Chin, 1999).

This book is concerned with a particular type of Chinese underground bank, which serves as a remitting agent among a particular group of Chinese. The study examines Chinese underground banks located in Chinatown, New York City (NYC), and the ways in which they support various activities among the largely illegal immigrant populations they serve. The information is gleaned from their clients living in the U.S. These populations primarily involve undocumented Chinese laborers smuggled into the U.S. from Fujian Province, P.R. China (China), who represent the largest population of illegal Chinese migrants in the U.S. In addition to understanding the role of the underground banks in the lives of illegal Chinese immigrants, this study investigates the role Chinese underground banks play in illegal migration and human smuggling from the perspective of the immigrants, as Chinese human smuggling represents one of the important sources of illegal immigration in the world (see Smith, 1997).

This research investigates the role which Chinese underground banks have played in the decision-making processes of illegal Chinese immigrants, including their decision to migrate through smuggling, paying smuggling fees, repaying debt, supporting their families, and assisting in the migration of their families. In the absence of an appraisal of the role of Chinese underground banks, an understanding of the process of illegal Chinese immigration would be incomplete.

The investigation is organized into five broad exploratory areas. These are represented by the main interview questions shown as follows:

Why do Fujianese illegals turn to underground banks?

The large presence of Chinese immigrant workers abroad implies the necessity of a financial intermediary in both the hosting and the sending countries, which functions as the remittance agent for immigrants and their families in China. Both in the past and in the present, local economic pressures seem to be the principal cause driving Chinese to find employment overseas (e.g. Chen, 1940; Chin, 1999; Watson, 1975). Thus, remittances were often the main source of income for the families in China (Hood, 1997, pp. 76–91; Watson, 1975, pp. 132–154). According to previous research, Chinese immigrants traditionally resorted to banking or the postal services as the means of dispatching their earnings to the home community. People who did not trust banks or the postal service relied on their fellow workers as currency carriers (Watson, 1975, pp. 132–154). In the mid-1800s, the British Colonial government set up an emigration agency in the receiving community (e.g. Xiamen, a port city in South Fujian) to handle remittances for Chinese overseas laborers and their families (FO, cited in Cartier, 2001).

It is unclear whether contemporary illegal Fujianese immigrants have other alternatives to underground banks in dealing with their remittances.. Their relation with smugglers is another factor which should not be ignored: they might be compelled to use the services of underground banks under the coercion of smugglers, who want to see smuggling debts paid by smuggled Chinese immigrants in a reliable and prompt manner. Therefore, the first question the research seeks to answer is why Fujianese illegals choose underground banks as their money remitting agents.

Who operates Chinese underground banks in the U.S.?

Historically, remittance businesses were operated by individual emigrants or families with extensive connections overseas (Chen, 1940, p. 79; Woon, 1984, p. 87). A notable case was a Kuan lineage from Kaiping, Guangdong province, which ran a remittance business at their grocery stores and drugstores in British Columbia, Canada, and owned branches in Hong Kong (Woon, 1984, p. 68). The branches of these remittance firms were responsible for currency exchange (from foreign currency to Chinese currency), notification, and delivery of the money to the emigrant families.

One of the aims of this study is to establish whether underground banks still function as remitting firms like their predecessors, and whether they exclusively serve illegal immigrants. Aside from individual immigrants or families who might continue the tradition of running remittance businesses, smuggling groups may also enter this lucrative market.

What mechanism has sustained the operation of underground banks?

This research also examines the mechanism underlying the existence and development of underground banks. In particular, the research explores whether a kinship-based network or a bond of lineage assume importance for their operation. Lineage, a kinship organization, was distinctive in its function as a social institution which used to be prevalent in South China, allowing its members to draw on material and nonmaterial resources of the lineage (Baker, 1979;...

Table of contents

• Cover
• Title
• 1 Introduction
• 2 Chinese Underground Banks in China and the United States: Background
• 3 Main Clientele and Operators of Underground Banks: Analysis and Findings
• 4 Mechanism, Purposes, and Role of Underground Banks in the Smuggling of Chinese
• 5 Facilitating Role of Underground Banks: Implications of the Research
• Appendix: Research methods
• Notes
• Bibliography
• Index