Money Laundering in China and Anti-Money Laundering Activities - Case Study Example

Money laundering in Сhinа and аnti-mоnеy laundering асtivitiеs Name Subject Professor Date Money laundering in Сhinа and аnti-mоnеy laundering асtivitiеs Introduction Money laundering is a serious issue and a punishable offence. It is the process through which individuals masquerade the original ownership as well as control of the proceeds of corruption and crime by making the proceeds seem genuine and to have been got from legitimate processes. There are various ways through which property that has been criminally derived can be laundered. The financial sector is usually at the centre of money laundering activities. China is one of the nations that face a higher risk of money laundering and various cases has been brought to the limelight (He, 2010, p. 17). This paper will examine the issue of money laundering in China as well as the anti-money laundering activities that have been put in place to deal with the problem. Money laundering scandals in China Money laundering takes various forms. However, most of the offences have comparable characteristics internationally. A money laundering offence has two major elements; the basic act of laundering, which entails the provision of fiscal services and an indispensable degree of suspicion or knowledge with regard to the conduct of the client or the source of funding. Money laundering is considered illegal and thus it is usually criminalised as a way of taking the profit out of crime (Ping, 2006, p. 106). Criminalization is based on the fact that it is wrong for people or institutions to help criminals to gain from their criminal undertakings. There are many scandals of money laundering in China. Big Chinese banks have in one way or the other participated in money laundering activities. One of them is the Agricultural Bank of China. Among other money laundering activities, its employees were involved in a scam that led to 3.9billion Yuan loss. Two employees from the bank’s Beijing branch invested money got from illegitimate sale of bills of exchange, which were eventually lost. The employees used a large amount they got from the sale of the bills to venture in the Chinese stock market. This is just an example of such scams in the country. The Agricultural Bank of China was also caught up in an embezzlement case amounting to $578m. An investigation by the China’s National Audit Office showed 51 cases of criminal undertakings that involved about 157 individuals in 2004. Illegal loans amounting to $3.5b and $1.8 b in inappropriately handled deposits were also revealed (Ping, 2006, 108). Loan frauds are also prevalent in Chinese banks. For instance, the Bank of Liuzhou was involved in fraudulent loans amounting to $4.9bn. This is quite a large amount, more than 40 percent of its total assets by the end of 2014. China Citic Bank was also involved in money laundering and an investigation of $147m fraud is ongoing. It involved a financing agent taking advantage of a banker’s acceptance to get cash and invest in China’s stock market (Weinland, 2016). The bank of China cannot go unmentioned when it comes to the problem of money laundering. The bank faces different allegations in cases related to counterfeit-goods. The bank was required to strengthen its money laundering safeguards in the U.S with respect to allegations of deficiencies that involved one of the biggest global lenders. The lender based in Beijing is also linked to corruption issues. The Bank of China was pursued by prosecutors in Italy on allegations that they assisted in moving billions of dollars for customers dealing in prostitution and counterfeiting. The other bank is the Industrial and Commercial Bank of china, the Madrid branch. It is deemed to have helped many Spanish and Chinese criminal syndicates carry out financial fraud (Minder, 2016). There is also the issue of money laundering with regard to underground Chinese activities. Despite there being the well-known banks and other financial institutions involved in money laundering in China, there are also other underground activities especially those propagated by underground banks. According to Xinhua (2016), a crackdown on underground banks has identified many cases of money laundering as well as illicit funds transfers amounting to over 800b Yuan. A good example is an illegal money transfer that involved approximately 410 billion Yuan being moved overseas via non-resident accounts, while evading oversight and exploiting regulatory loopholes. The Chinese police have uncovered illicit backing activities that are worth $30 billion. This includes 158 cases associated with underground banks and money laundering. According to Xinhua (2016), the police have managed to resolve 158 key cases of money laundering and underground banks. They have also arrested 450 suspects on the same. About 192 locations engaged in unlawful banking services were identified. These statistics show how rampant the issue of underground money laundering is in China. Underground banks and financial institutions in various areas work together thus spreading crime to more areas. They have become major channels of transferring illegal funds acquired through different illicit activities. The underground money laundering activities have negatively affected the country’s foreign exchange management system. In a way, it has also disrupted that nation’s economic and capital markets order. The unlawful activities of underground banks in China are rapidly spreading and the situation is still bad. This is despite the fact that the crackdown has made some positive progress (Cassara, 2016, p. 86). For this reason, there is dire need to come up with effective strategies that are meant at dealing with underground money laundering activities. This requires combined effort of various parties including the government through its various channels, financial bodies as well as the general public. Anti-money laundering measures should also focus on the underground activities in an effort to have an overall deal of the problem of money laundering in China. Аnti-mоnеy laundering асtivitiеs in China The fact that money laundering has been a big problem in China has necessitated the development of strategies aimed at curbing the problem. Anti-money laundering involves legal controls that necessitate financial organizations and other entities to avert, identify, and finally report activities that are related to money laundering. To guard against the rising threat of financial crimes faced by China’s economy, the nation must uphold its robust anti-money laundering system. Muller, Kalin and Goldsworth (2007, p. 707) assert that as from 2006, China has taken positive measures towards enhancing its anti-money laundering regime. For instance, a series of anti-money laundering regulatory strategies for financial institutions was developed by the State Administration of Foreign Exchange and the People’s Bank of China. Rules for anti-money laundering by financial institutions came into effect in 2007. The legislation aims at averting money laundering and standardizing anti-money laundering regulatory activities and anti-money laundering activities of financial organizations (Tang, Ai, 2010, p.218). Another major aim is to protect the financial industry. Another strategy is the issuance of “Financial Institutions to Enhance Classification and Risk ranking Model for anti-money laundering purpose” by the Central bank in 2012 (The Edcomm Group, 2015). It necessitates financial organizations to append money laundering risk scoring to all their clients. "Measures on the Administration of Freezing Assets Related to Terrorist Financing" was also issued by the Chinese government in 2014 as a way of handling the problem of money laundering (The Edcomm Group, 2015). The People’s Bank of China is the major enforcement unit and is involved in doing inspections and applying fines in case of violations. The China Banking regulatory commission also plays a great role in controlling money laundering. Training on anti-money laundering is also an activity that is worth noting. All financial organizations in China are required to execute training programs to avoid illegal transactions from being done within the nation (Cheng & Ma, 2009, p. 172). If these measures are implemented in an effective manner, things are definitely going to improve for the better. A practical example of activities aimed at dealing with money laundering is the sanctioning of the Agricultural bank of China Ltd by Federal Reserve over money laundering safeguards. The bank is required to overhaul its safeguards against money laundering as a way of dealing with deficiencies. The lender, which is one of the China’s leading banks is expected to produce a written plan that is supposed to fix deficiencies in handling risks in the New York branch, as a way of getting better control over suspicious activity. In 2011 for example, the Agricultural bank was said to be strictly compliant with anti-money laundering laws in China as well as in all the nations it operates in. Last year, Yang Kun, a vice president of the bank was charged a life imprisonment for taking bribes (Hamilton, 2016). This is a positive move towards curbing the problem of money laundering. Conclusion From the above discussion, it is evident that the issue of money laundering is quite prevalent in China. Various institutions have been involved in money laundering scandals for instance the Agricultural bank of China and the Bank of China. Some of the anti-money laundering activities in China include training programs on anti-money laundering, rules on money laundering, inspections and application of fines among others. In a way, the activities have helped in dealing with this problem. However, more strategies could be developed as a way of stopping and effectively dealing with the individuals and institutions involved with money laundering in the country. References Cassara, J.A., 2016. Trade-based money laundering: the next frontier in international money laundering enforcement. London: Wiley & SAS business series. Cheng, H. and Ma, L., 2009. “White collar crime and the criminal justice system: Government response to bank fraud and corruption in China.” Journal of Financial Crime, vol. 16 no. 2, pp.166-179. Hamilton, J. 2016 (Sept 29). Chinese Bank Sanctioned by Fed over Money-Laundering Safeguards. News. 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Journal of Money Laundering Control, vol. 13 no.3, pp.215-225. The Edcomm Group. 2015. Anti-Money Laundering (AML) in China. Banker’s Academy. Available [online] from http://bankersacademy.com/resources/free-tutorials/57-ba-free-tutorials/666-aml-china [accessed 8 October 2016] Weinland, D., 2016. Chinese bank hit by $4.9bn loan fraud: One of China’s biggest bank scandals emerges at Bank of Liuzhou. Financial Times. Available [online] from https://www.ft.com/content/31fd750e-d06d-11e5-831d-09f7778e7377 [accessed 8 October 2016] Xinhua, 2016. 450 Chinese nabbed for suspected involvement in underground banks, money laundering. Available [online] from http://news.xinhuanet.com/english/2016-08/17/c_135604593.htm[accessed 8 October 2016] Read More