Macau police have arrested 17 people in a raid on five pawnshops thought to be using China UnionPay point-of-sale terminals to illegally get cash out of the mainland. The raid comes amid efforts by the mainland to curb illegal money flows and clamp down on underground banks as the falling stock market and uncertainty in the global economy fuel concerns over capital flight. Police seized 11 mainland POS devices in the raid on Monday – two days after a pact was announced between the People’s Bank of China and the Macau Monetary Authority to prevent money laundering. Police said the shops had used the internet to bypass standard procedures for over 4,500 cross-border credit card transactions involving more than 350 million patacas in total. The shops are thought to have made commissions when the cards were used. The Ministry of Public Security said on Monday that illegal financing in the markets and money laundering were being targeted in an operation that would last until late November. “Grey funds” were being transferred into and out of the country through underground money shops, posing a risk to foreign exchange management, disturbing the markets, and threatening the country’s financial safety, said Meng Qingfeng, vice-minister of public security. Chen Xingyu, a banking analyst at Phillip Securities, said there was a fear that underground banking could be used to channel funds out of the country if the mainland’s stock market woes triggered capital flight. “So far we don’t see substantial capital outflows despite the recent sell-offs as I believe some investors are still there for bottom-fishing,” Chen said. The central bank devalued the yuan by 1.86 per cent on August 11, while the stocks slump has sent the exchange rate down further in the offshore market. Chen said the move to clamp down on illegal capital flows might also be aimed at stemming the grey market financing sector, which has channelled margin loans to inflate the stock bubble. Zhao Xijun, of Renmin University, said pressure from the yuan depreciation, economic uncertainty, and the tumble in the 8A-share market were factors affecting capital flows. “Investors will seek other investment opportunities for their funds amid an unstable market on the mainland,” Zhao said. A similar campaign, targeting underground banks and offshore companies, has been in operation since April. The joint effort, by the police, central bank and the State Administration of Foreign Exchange has discovered 66 underground banks handling assets of about 430 billion yuan (HK$520.billion) and arrested more than 160 suspects. Regions targeted include Guangdong, Liaoning and Zhejiang.