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)