Several agencies worked together on the case, which involved hundreds of millions of yuan in transactions.
The Shanghai Public Security Bureau, the People's Bank of China and the State Administration of Foreign Exchange yesterday released details of the operation, which was carried out in March.
Police arrested 15 suspects and charged them with carrying out illegal foreign currency transactions. They believe a man named Zou Xudong was in charge of the illegal operation.
The case extends to seven provinces such as Jiangsu, Zhejiang and Henan, and includes 90 local and foreign companies.
"This is the largest underground banking case in the Shanghai area to date," said Xiang Junbo, deputy governor of the People's Bank of China, yesterday.
"We will continue to take action against underground banking activities," said Xiang. "This successful sting gives us a good example."
More than 100 police officers worked on the operation, which lasted for two months.
"We informed the police and they took quick action," said Pan Xuebei, a spokeswoman for the People's Bank of China.
Underground banking is big business.
A survey by the Central University of Finance and Economics found that underground lending hit 750 billion yuan (US$92 billion) in 2003. The sum amounted to 30 per cent of the combined lending of China's legitimate financial institutions.
The survey also found that small and medium-sized enterprises obtain one-third of their funding from illegal channels.