Countries/Jurisdictions of Primary Concern - China
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 (TBML); manipulating invoices for services and the shipment of goods; purchasing valuable assets, such as real estate, art, and gold; investing illicit funds in lawful sectors; gaming; and exploiting 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. According to Global Financial Integrity (GFI), China leads the world in illicit capital flows as measured by trade mis-invoicing – a form of TBML. GFI estimates that approximately $260 billion left the country in 2013.
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 private equity 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 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 2013 and Tianjin, Guangdong, and Fujian in 2015.
Chinese foreign exchange rules cap the maximum amount of yuan individuals are allowed to convert into other currencies at approximately $50,000 each year and restrict them from transferring yuan abroad directly without prior approval from the State Administration of Foreign Exchange. A variety of money laundering techniques are used to circumvent the restrictions, including structuring, using networks of family and friends, transferring value with the help of loved ones emigrating abroad, overseas cash withdrawals using credit cards, TBML, underground remittance systems such as fei-qian or “flying money,” and organized gaming junkets to Macau and elsewhere. Chinese organized crime is also involved. In addition to capital flight, a substantial amount of money is laundered through the purchase of overseas properties in places such as Vancouver, Sydney, London, San Diego, and New York.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.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 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 2013, the People’s Bank of China published new guidance requiring Chinese banks to rate clients’ risks based on a variety of factors, conduct internal risk assessments by the end of 2015, and commence implementation of new internal control rules by January 1, 2015. To improve monitoring and reporting on suspicious transactions through bank cards, China issued a Notice on Further Strengthening AML Work on Bank Card Business. In 2015, Chinese authorities issued guidelines for internet finance that include strengthened AML/CFT controls for internet finance operators.
In October 2015, the State Administration of Foreign Exchange (SAFE) published new rules to limit overseas cash withdrawals from credit cards, for the first time putting an annual cap on such overseas cash withdrawals through credit cards. In November, Chinese authorities arrested suspects for illegal foreign-exchange transactions totaling $64 billion and announced a crackdown on underground banks that assist in the evasion of capital controls and the transfer of funds offshore.
In domestic cases, once an investigation is opened, all law enforcement entities and 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. Information about the implementation of the 2013 Criminal Procedure Law remains scarce.
The United States and China are parties to the Agreement on Mutual Legal Assistance in Criminal Matters. 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 the People’s Republic of China should expand cooperation with foreign counterparts and pursue international AML/CFT linkages more aggressively. China’s Ministry of Public Security should continue ongoing efforts to develop a better understanding of how AML/CFT tools can be used, in a transparent fashion, to support the investigation and prosecution of a wide range of criminal activity. China also should 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. China should enhance coordination among its financial regulators and law enforcement bodies to better investigate and prosecute offenders. The government should ensure all courts are aware of and uniformly implement mandatory confiscation laws.