China has unveiled its first anti-money laundering regulation in an
escalation on its war against the flow of "dirty" money, which
threatens the prospect of its fast growing economy.
The regulation, announced Monday by the central People's Bank of
China (PBOC), details
its regulatory responsibilities and the obligations of local and
foreign financial institutions. The regulation will come into
effect on March 1.
"It's very necessary because there are various irregular economic
activities as the system undergoes a transition (from a planned
economy to a market-oriented one)," said Qin Chijiang, deputy
secretary general of the China Society of Finance.
"If we don't tackle money laundering, there might be big trouble
and capital drainage."
Chinese officials and analysts widely acknowledge that money
laundering has been on the rise in the country over recent years,
largely tracking an uptrend in activities like embezzlement, drug
trafficking and smuggling.
Such illegal conduct, which analysts say is relatively concentrated
in China's better developed coastal areas, not only results in the
legalization of crime proceeds and drainage of State assets, but
threatens China's financial security.
A
government official, who declined to be named, said: "They (money
launderers) don't care about costs (in transferring money from one
place to another) and it's mostly moving rapidly. It's very likely
to disturb financial stability."
Insiders estimate the illegal outflow of foreign exchange from
China, a major form of money laundering that is better known as
capital flight, has totaled about US$150 billion since 1987 and
averaged US$20 billion annually in recent years.
The PBOC launched its anti-money laundering campaign in June by
establishing two departments to monitor suspicious transactions and
co-ordinate inter-ministry cooperation.
The campaign escalated Monday as the new regulation was
substantially broadened to also include illicit gains from
terrorist acts and "others," alongside smuggling, drug trafficking
and operations by criminal gangs.
Under the new regulation, financial institutions are required to
create their own anti-money laundering mechanisms and report
suspicious and certain large transactions, as well as decline
services to clients with suspicious identities.
Sources said the State Administration of Foreign Exchange (SAFE),
which was specified in the regulation as the supervisor to oversee
large and suspicious foreign exchange transactions, has already
submitted related draft rules to the central bank.
"As far as I know, the headquarters have hammered out a report and
submitted it to the PBOC," said an unnamed official with SAFE's
provincial office in Central China's Hunan Province.
According to experiences from nations with freely convertible
currencies, like France, the official said a threshold equivalent
to US$5,000 could be a reasonable limit to require forex (foreign
exchange) transactions to be reported.
The SAFE report contains a "fairly complicated" system for
identifying suspicious dealings that governs the source, use and
scope of the money concerned, the SAFE official said, "but
generally speaking, it's operable."
But Qin said Monday's regulation was probably not enough to corner
money launderers, as the prevalent use of cash in China may easily
help them escape the attention of regulators and banks.
"It's a step forward concerning big-sum transfers (made through the
financial system), but some (illegal cash) transactions just cannot
be tracked," Qin said.
(China Daily January 14, 2003)