From drugs to oil and from the iPhone 6 to jade and timber, smuggling in China is a thriving business that generates billions of dollars each year. Perpetrators of these economic crimes must somehow launder their illicit profits, and smuggling currency out of China seems to be their preferred method.

Macau, a former Portuguese colony that now operates as an autonomous region of China, is one of the most profitable gambling spots of the world. With a labor force that is less than 350,000 strong, Macau produced a GDP of $43 billion in 2011. In recent years, Macau has become ground zero for smuggling money out of China through a merchant debit card system that may soon become operational in Costa Rica.

A couple of years ago, the largest state-sponsored bank in Costa Rica quietly announced its integration with the Chinese government-supported payment network UnionPay. In late 2102, Costa Rica became one of the nine Latin American countries that currently interact with the UnionPay debit card, which operates in similar fashion to cards on the Visa or MasterCard networks. In fact, only Visa handles more global transactions than UnionPay.

Chinese Money in Costa Rica

UnionPay cardholders can now withdraw their renminbi (RMB or yuan, the official currency of the People’s Republic of China) at the automated teller machines (ATMs) operated by Banco Nacional in Costa Rica. Since RMB is not commonly used in Costa Rica, at least not yet, UnionPay customers must settle for United States dollars or colones.

Banco Nacional has been working on enabling UnionPay at the merchant level so that hotels, restaurants and stores in Costa Rica can begin accepting these Chinese cards as if they were Visa or MasterCard products, which is how money is currently being smuggled out of China into Macau. A special report by Reuters from a few months ago provides a glimpse into this thriving and illicit operation:

Growing numbers of Chinese are using the country’s state-backed bankcards to illegally spirit billions of dollars abroad […] This underground money is flowing across the border into the gambling hub of Macau […] And the conduit for the cash is the Chinese government-supported payment card network, China UnionPay.

The report continues to detail how jewelry stores in Macau are ringing up cashback transactions of $50,000 for UnionPay cardholders with no goods being exchanged. For the most part, UnionPay ATM withdrawals cannot exceed $3,000 per day, but the Macau jewelry shops scoff at these amounts. The Reuters report indicates that Chinese regulators are well-aware of the situation in Macau since they keep very close tabs on the movement of their citizens and their RMB abroad.

In the first quarter of 2012, more than $16 billion were withdrawn by UnionPay cardholders in Macau, ostensibly for gambling purposes. Chinese authorities know that a lot of this money has been effectively smuggled out for other purposes; in fact, UnionPay cashbacks are rumored to be the preferred method used by dissidents, corrupt politicians, Chinese triad members, and other shadowy characters to smuggle money out of the PRC.

Why haven’t Chinese authorities taken action against money smuggling in Macau? James Pomfret of Reuters mentions the PRC’s desire of globalizing the RMB and pitting it against the dollar and the euro, and there’s also the fact that Chinese banks are making money on each cashback transaction (about one percent). International debit card money smuggling may also be difficult to control.

Once retail merchants are able to ring up UnionPay transactions in Costa Rica, it will probably not take long before the cashback smuggling of RMB begins at hotspots such as Chinatown in San Jose -unless Banco Nacional and the PRC agree to anti-smuggling measures. Although these underground transactions are mostly considered victimless, there are some concerns about Asian triads potentially moving in to exert control.