There are signs China's finance authorities are heating up the war
on money laundering, a murky world that economists say is growing
at a disturbing rate that could undermine the country's financial
strength and security.
In
the latest development, the People's Bank of China (PBOC), the
central bank, said last month it had set up two departments to
monitor suspicious transactions and coordinate inter-ministry
anti-money laundering efforts.
There was a prior move when the bank set up a team to deal with
money laundering last year, headed by a deputy governor.
The PBOC is drawing up guidelines for commercial banks and rules on
reporting suspicious activity, sources say. The resulting
regulation would join existing legislation on cash, foreign
exchange, bank accounts, and payments of large amounts to form a
preliminary legal framework to support the largely invisible battle
against money launderers, analysts have said.
"It is the right time. Especially after the WTO accession, (given
the task of) capital account convertibility, if we don't tackle
money laundering, there could be big trouble and a serious capital
drain," said Qin Chijiang, deputy secretary-general of the China
Finance Society.
Qin said the matter caught the central bank's attention "quite some
years ago" because the problems of corruption, losses of
State-owned assets and drugs-related crimes, all related to money
laundering, began emerging. But it stopped short of doing
anything.
"Now the problems are getting more obvious," said Qin.
Other government agencies like the Ministry of Public Security and
the State Administration of Foreign Exchange (SAFE) are closing
ranks in the fight against the increasingly sophisticated money
launderers. And they are drawing up regulations, according to one
SAFE official who gave no details.
No
one seems able to draw even the faintest picture of money
laundering in China, but most government officials and analysts
agree that it's been on the rise in recent years, thanks to
corruption, drug trafficking, and smuggling.
Some economists say China's reinforced crackdown on corruption in
recent years, including a ban on using false names for bank
accounts, has forced corrupt officials to launder their ill-gotten
gains.
China's Criminal Law defines money laundering as proceeds from only
three types of illegal activity -- smuggling, drug trafficking and
criminal group activities. The Bank of China (BOC) says that
terrorist-related crimes were included recently.
Many people fear that the integration with the world economy after
China's World Trade Organization entry could bring an influx of
dirty money. SAFE's director, Guo Shuqing, said: "With the
increased foreign economic exchanges and the growth in cross-border
capital flow, money laundering may well increase."
One government official, who declined to give his name, said: "They
don't care about the costs of transferring money from one place to
another, and it's mostly moving rapidly. It's very likely to
disturb financial stability."
Insiders say that money launderers mostly transfer proceeds from
illegal businesses to foreign countries, rather than using the
domestic financial system for greater safety and returns. That is a
key reason for the growing illegal outflow of foreign exchange.
That capital flight has amounted to about US$150 billion since 1987
and has averaged US$20 billion annually in recent years, insiders
say.
"Look at the errors and omissions on the international balance of
payments," one insider said, "there must be money laundering,
although it's hard to tell how much."
When industrialized countries began cracking down on money
laundering in recent years, international launderers started
shifting to developing countries that were eager to get foreign
investment to help growth and that had many loopholes in their
financial systems.
But the Finance Society's Qin said that China's financial system,
with its capital controls and restrictions on carrying cash, makes
it an unlikely place for foreign money launderers to stash large
sums of illegal money.
"There is presumably not too much (dirty) money entering China,"
Qin said. "The uniqueness of China's banking system tells us that
it won't be considered a haven for money laundering
internationally."
China's financial institutions are required to give law enforcement
departments account information in criminal cases, which is a key
factor in criminals opting for banks with restricted account
information like in Europe.
All major Chinese commercial banks have their own money laundering
control mechanisms, insiders say, although only the BOC, the
country's largest foreign exchange dealer, has publicized its
efforts.
When Western banks were accused of assisting money laundering, the
BOC, which has more than 30 overseas branches, vowed to fight dirty
money. "Fighting money laundering doesn't mean refusing to do
business," a BOC spokesperson said. "Instead, we can do business
better, and without worrying."
China's war on money laundering is, like everywhere else, a long
term struggle, as lawmakers have yet to focus on money laundering
legislation and financial controls need to be improved, as does
coordination between government agencies and international
counterparts, and the dependence on cash needs to be reduced.
"We are just getting started on that," Qin said.
Lawyers have also called for stiffer penalties for money laundering
and broader legislation. One start would be to include proceeds
from corruption in the definition of money laundering.
(China
Daily August 5, 2002)