Countries/Jurisdictions of Primary Concern - China
According to Global Financial Integrity (GFI), China leads the world in illicit capital flows. GFI estimates that over $1 trillion of illicit money left China between 2003 and 2012. Massive outflows continue. Chinese foreign exchange rules cap the maximum amount of yuan individuals are allowed to convert into other currencies at $50,000 each year and ban them from transferring yuan abroad directly. A variety of money laundering techniques are used to circumvent the restrictions.
The development of China’s financial sector has required increased enforcement efforts to keep pace with the sophistication and reach of criminal networks. The primary sources of criminal proceeds are corruption, narcotics and human trafficking, smuggling, economic crimes, intellectual property theft, counterfeit goods, crimes against property, and tax evasion. Criminal proceeds are generally laundered via methods that include bulk cash smuggling; trade-based money laundering; manipulating the invoices for services and the shipment of goods; the purchase of valuable assets, such as real estate and gold; the investment of illicit funds in lawful sectors; gambling; and the exploitation of the formal and underground financial systems, in addition to third-party payment systems. Chinese officials have noted that corruption in China often involves state-owned enterprises, including those in the financial sector. While Chinese authorities continue to investigate cases involving traditional money laundering schemes, they have also identified the adoption of new money laundering methods, including illegal fundraising activity, cross-border telecommunications fraud, and corruption in the banking, securities, and transportation sectors. Chinese authorities also have observed that money laundering crimes continue to spread from the developed coastal areas such as Guangdong and Fujian provinces to underdeveloped, inland regions.
China is not considered a major offshore financial center; however, China has multiple Special Economic Zones (SEZs) and other designated development zones at the national, provincial, and local levels. SEZs include Shenzhen, Shantou, Zhuhai, Xiamen, and Hainan, along with 14 other coastal cities. As part of China’s economic reform initiative, China opened the Shanghai Free Trade Zone in September 2013.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: //2009-2017.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: NO
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: List approach
Are legal persons covered: criminally: YES civilly: YES
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES
KYC covered entities: Banks and credit unions, securities dealers, insurance and trust companies, financial leasing and auto finance companies, and currency brokers
Number of STRs received and time frame: 24,531,000 in 2013
Number of CTRs received and time frame: Not available
STR covered entities: Banks, securities and futures institutions, and insurance companies
money laundering criminal Prosecutions/convictions:
Prosecutions: 11,645 in 2013
Convictions: Not available
Records exchange mechanism:
With U.S.: MLAT: NO Other mechanism: YES
With other governments/jurisdictions: YES
China is a member of the FATF as well as the Asia/Pacific Group on Money Laundering (APG) and the Eurasian Group on Combating Money Laundering and Terrorist Financing (EAG), both of which are FATF-style regional bodies. Its most recent mutual evaluation can be found at: http://www.fatf-gafi.org/countries/a-c/china/documents/mutualevaluationofchina.html
Enforcement and implementation issues and comments:
While China’s October 2011 legislation has addressed some deficiencies in the implementation of the requirements of UNSCRs 1267 and 1373, some deficiencies must still be addressed. These include guidance for designated non-financial businesses and professions; delisting and unfreezing procedures; and the rights of bona fide third parties in seizure/confiscation actions. In early 2013, the People’s Bank of China published new regulations which require Chinese banks to rate clients’ risks based on a variety of factors, including a client’s location or nature of business. The guidance states banks must submit their plans for enacting the new customer assessments by the end of 2013 and put these systems in place by the end of 2014.
China should enhance coordination among its financial regulators and law enforcement bodies to better investigate and prosecute offenders. China’s Ministry of Public Security should continue ongoing efforts to develop a better understanding of how AML/CFT tools can be used to support the investigation and prosecution of a wide range of criminal activity.
The government should ensure all courts are aware of and uniformly implement the mandatory confiscation laws. In domestic cases, once an investigation is opened, all law enforcement entities and the public prosecutors are authorized to take provisional measures to seize or freeze property in question to preserve the availability of the same for later confiscation upon conviction. Although China’s courts are required by law to systematically confiscate criminal proceeds, enforcement is inconsistent and no legislation authorizes seizure/confiscation of substitute assets of equivalent value. The amended Criminal Procedure Law that came into effect in January 2013 gives Chinese prosecutors the authority to seek authorization from the courts to forfeit the properties of suspects who have fled or died, and where the case in question involves public corruption, terrorism, or exceptional circumstances. Information about the implementation of this provision remains scarce.
The United States and China are parties to the Agreement on Mutual Legal Assistance in Criminal Matters. U.S. agencies consistently seek to expand cooperation with Chinese counterparts on AML/CFT matters and to strengthen both policy- and operational-level cooperation in this area. U.S. law enforcement agencies note China has not cooperated sufficiently on financial investigations and does not provide adequate responses to requests for financial investigation information. In addition to the lack of law enforcement-based cooperation, the Chinese government’s inability to enforce U.S. court orders or judgments obtained as a result of non-conviction-based forfeiture actions against China-based assets remains a significant barrier to enhanced U.S.-China cooperation in asset freezing and confiscation.
While China continues to make improvements to its AML/CFT legal and regulatory framework and is gradually making progress toward meeting international standards, implementation and transparency remain lacking, particularly in the context of international cooperation. The Government of China should expand cooperation with counterparts in the United States and other countries, and pursue international AML/CFT linkages more aggressively. China should also cooperate with international law enforcement to investigate how indigenous Chinese underground financial systems and trade-based value transfer are used to circumvent capital restrictions for illicit outbound transfers and capital flight, and to receive inbound remittances and criminal proceeds for Chinese organized crime.