The gatekeeper of China's foreign exchange has moved to plug a loophole in the capital account by capping the value of overseas withdrawals on bank cards, amid rising concerns over capital outflows and illicit money transfers. The State Administration of Foreign Exchange has slapped an annual cap on overseas cash withdrawals for UnionPay cardholders at 100,000 yuan or its equivalent per card, effective next year, according to a circular sent to banks and seen by the South China Morning Post . The new rules are in addition to the 10,000 yuan equivalent daily cap per UnionPay cardholder. Between October 1 and December 31, overseas withdrawals will be limited to 50,000 yuan equivalent. SAFE requires banks to add accounts that exceed the cap to a watch-list and forbid further cash withdrawals outside of China. SAFE said the measures were designed to rein in potential money-laundering activities. A source familiar with Chinese banking and capital markets regulation said the move was "aimed at fixing one of the loopholes in the existing regulatory regime". Earlier this month, SAFE ordered banks to monitor "abnormal" accounts that register frequent cross-border fund transfers. Under current SAFE rules, Chinese nationals can apply to convert up to US$50,000 or equivalent every year, and carry cash up to 20,000 yuan or equivalent at border checkpoints. The absence of a stricter limit on cash withdrawals from overseas had been flagged as a problem. "Theoretically, you could withdraw 3.65 million yuan a year from outside of China, circumventing the US$50,000 cap," said the source. The cap follows circulars that SAFE issued earlier this month in which it ordered banks to step up vigilance on cross-border foreign exchange payments. Still, the withdrawal cap did not address another obvious escape route, the number of cards for which an individual can apply, a matter that falls in the jurisdiction of the People's Bank of China. "The central bank is unlikely to step in for now, as it already has a full plate of issues to deal with," the source said. Boaz Rottenberg, the chairman and founder of Maverick China Research, a consulting firm focused on payments in China, said banks had been clamping down on the number of cards that they issue to individuals, in an effort to rein in money laundering. "It is getting more difficult to hold many cards," he said "Not sure if there are any regulations on this but banks are stricter than they used to be." Bill Sims, a managing director at Stroz Friedberg (Asia), questions the effectiveness of the new limits on stamping out money laundering, the first step of which is to legitimise ill-gotten gains. "The argument that curbing the amount of overseas withdrawals as a way to rein in potential money-laundering activities doesn't really apply as by that stage the money has arguably already become legitimate," Sims said. "It would be far more effective to identify how the money got into the account, rather than to stop it leaving. This appears to be more about preventing capital outflows."