Financial Crime Haunts China’s Financial System: Tough Measures Ahead
A Long Way to Go: China’s Money Laundering Crackdown
China’s latest three-year action plan to combat underground money movements, led by the People’s Bank of China and the Ministry of Public Security, serves as a stern reminder that the country still has a long way to go in rooting out illicit financial flows. The joint statement from officials emphasizes the need to contain and solve money laundering crimes comprehensively.
Improving Anti-Money-Laundering Systems: A National Priority
Improving China’s anti-money-laundering system is crucial for safeguarding national security, social stability, and economic development. Analysts believe that financial stability and anti-corruption are high on the top leadership’s agenda ahead of the Communist Party’s 20th national congress.
New Regulations to Combat Money Laundering
The central bank has released a regulation ordering financial institutions to tighten due diligence on clients and transactions, particularly those involving overseas transfers. Commercial banks, policy banks, securities firms, insurers, wealth management companies, and other licensed financial institutions must keep client information for individual transactions exceeding:
- 50,000 yuan (US$7,900) in China
- US$10,000 internationally
Recent Efforts to Combat Money Laundering
In 2020:
- The PBOC fined 537 financial institutions a total of 526 million yuan.
- Its anti-money-laundering monitoring centre reviewed nearly 11.8 billion transactions from 4,319 institutions.
- Suspicious transactions totaled 2.6 million, up 58 per cent.
- Chinese courts heard 6,624 related cases in 2020, with 229 people convicted for money laundering and 15,988 convicted for covering up or transferring gains from crimes.
Impending Challenges
As China’s economy faces renewed threats of capital outflows due to an impending US Federal Reserve interest rate hike, regulators are on high alert for the impact of cross-border capital flows and changes in the yuan exchange rate. Authorities have stepped up scrutiny of underground banks and foreign casinos amid concern about overseas transfers.
The Road Ahead
The money laundering action plan comes as market analysts predict an aggressive rate increase could be made as early as March, with four hikes this year. The State Administration of Foreign Exchange has flagged risks such as bogus transactions through shell companies, cash trafficking, and transfers through bitcoin and other virtual currencies.
In a related move, dozens of financial cadres and executives at state-owned financial institutions were detained last year as part of a fresh anti-corruption drive, including Cai Esheng, former deputy chairman of the nation’s banking regulator, and China Life Insurance Group chairman Wang Bin. The crackdown highlights the severity of the issue and the need for continued efforts to combat money laundering in China.