Ethnic Networks and Illegal Immigration

Abstract

Illegal immigration through human smuggling originating from the Fujian Province, China, has become a global issue, affecting at least 30 countries. The empirical research on the financial element of illegal immigration suggests the important role of an underground banking system. This study examines the role of ethnic networks in sustaining the operation of Chinese-operated informal fund transfer systems in the United States. The primary source of data is from in-depth interviews with illegal immigrants in New York City and Philadelphia. The findings show that as opposed to lineage-based networks, the networks based on regional dialect allowed illegal Fujianese immigrants, as well as underground bank proprietors, to take advantage of social capital inherent in the expatriate ethnic community. The high levels of trust between underground bank proprietors and their clientele can be understood as resulting from ethnic solidarity and enforceable trust. These features are found to be troublesome at the community level because the research findings illustrate that a community of high ethnic interactions espouses a deviant culture or norms that encourage widely accepted but illegal practices. 1There is a lack of consensus on terminology relating to informal financial systems. The often used terms include “informal funds transfer systems,” “alternative remittance systems,” “underground banking,” “ethnic banking,” and “informal value system.” A more detailed description of these systems can be found in El Qorchi et al. (2003). Some scholars argue that a distinction should be made between “informal funds transfer systems” (IFTS) and “informal value transfer mechanisms” (IFTSM), two different types of informal remittance system. See El Qorchi et al. (2003), Maimbo (2003), Passas (2003). Both refer to “mechanism or networks of people facilitating the transfer of funds or value without leaving a trail of entire transactions or taking place outside the traditionally regulated financial channels” (El Qorchi et al. 2003). However, IFTS is mainly used for pure monetary value transfer carried out by ethnic businesses. The practice was widespread in sub-continental India and China and now their services are available across the globe. They are subject to financial regulations applicable to money services businesses. Examples of IFTS include the hawala system (prevalent in India and the Middle East) and Chinese underground banking systems (Qianzhuang in Chinese). IFTSM refers to the transfer of value in the form of goods, or a combination of goods and money, for their monetary value. Examples of IFTSM include in-kind transfers/payments, invoice manipulation, trade diversion, etc. They usually have interface with the formal banking institutions, but leave no money trail. See Maimbo and Passas (2004). The IFTS is used in this paper to stand for Chinese-operated informal remittance transfer systems.