Financing Illegal Migration

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 subcon-tinent, 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 regu-lated 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 instru-ment for expatriate workers to transfer remittances back to their country of origin (Jost & Sandhu, 2000).

Chinese underground banks are not a recent phenomenon. An analysis of their historical evolution indicates that they were burgeoning in China’s financial market in the first half of the 20th century and then disappeared from the scene by the 1950s. A reforming China in the later part of the 20th centu\ry furnished an opportunity to resurrect these old institutions, first in South China. Considering that these informal fund transfer systems (IFTs) are illegal in both the U.S. and China, how they thrived in China, expanded their territory into Chinatown, NYC, and became implicated in human smuggling is a mystery worthy of unraveling. Interviews with Fujianese illegal immigrants in this study show that underground banks in the U.S. collaborated with their counterparts in China in smoothly transferring the earnings of Fujianese illegal immigrant workers from the U.S. to China, since transactions undertaken through underground banks have never gone through conventional financial systems.

The revival of Chinese underground banks during China’s post-reform era after a nearly three-decade hiatus has been a subject of interest for the government and scholars alike. Various reports have indicated that they have played a significant role in the rapid growth of private enterprises by acting as loan-makers, informal foreign exchange dealers, and remitting agencies, through which large amounts of money have been moved domestically as well as across borders (Tsai, 2002). The operation of underground banks in China has been prohibited since 1998¹ and has been considered illegal in some states of the U.S. However, there is a lack of systematic research tracking the evolution of these informal financing systems, and no reliable investigation has been conducted into underground banking systems with regard to their connection with illegal and criminal activities. Information found in police records presents limited evidence concerning these activities. Needless to say, the perspec-tives of the clients of underground banks have rarely found a place in scholarly examination or in news reports.

This study illustrates that the entrepreneurs operating underground banks responded to market opportunities arising out of the needs of a specific ethnic group of illegal immigrants. However, the avail-able information leaves other puzzling questions unanswered. Data derived from this research show that underground banking opera-tions rarely extended to customers beyond their co-ethnic group members and generally remained in a clearly defined, geographi-cally circumscribed area – the Fujianese settlements in Chinatown, NYC, and Philadelphia. These attributes of underground banks do not seem compatible with the principle of profit maximization and market expansion. A plausible explanation for this finding is the role of ethnic trust. However, how ethnic trust governs the transactions of underground banks and interactions between operators and their clients is not clear.

This study is the first to investigate the use of underground banking systems among members of a specific ethnic group by tapping the clients’ perspectives. None of the previous research on illegal immigration and human smuggling has addressed the financial component of the process, or the operation of underground banking systems. Specifically, no prior research has elicited firsthand information from the operators or users of underground banks due to the highly secretive nature of their illegal activity. Limitations of data notwithstanding, the narratives of the respondents have provided valuable information regarding the role of these informal fund transfer systems in the lives of their clients, information which implies possible connections to illegal migration through human smuggling. Most of what has been reported herein is unique information never before reported. The following is a brief summary of the key findings of this research.