China FATF bid to heat up war on dirty money

PUBLISHED : Monday, 10 January, 2005, 12:00am
UPDATED : Monday, 10 January, 2005, 12:00am


A bid by China to become a member of the global anti-money laundering body, the Financial Action Task Force (FATF), is likely to trigger a potent clampdown on illicit capital flows, observers warn.

The mainland is also currently drafting a new anti-money laundering law, a prerequisite for FATF membership, with stringent enforcement likely to be a key issue.

An inspection team from FATF visited the mainland last month, and an evaluation of the country is pending.

China is preparing to apply for formal membership, and has already sought observer status at the body, according to a Xinhua report last month.

A conference in March last year put the sum of cash leaving the country each year through illegal channels at 200 billion yuan, an amount equal to 2 per cent of the country's annual gross domestic product.

Suspect funds could include the proceeds of bribery, corruption, drug trading, smuggling, tax evasion and fraud.

China's central bank governor Zhou Xiaochuan in the autumn told a national meeting that the fight against money laundering was 'falling behind' and a law was to be presented to the standing committee of parliament early this year.

'The situation is developing rapidly and we cannot keep pace with it,' he said.

Risk managers such as Peter Gallo, director of Hong Kong-based Pacific Risk, read the FATF membership bid as a sign that China was looking seriously to crack down on these fund flows.

'We know they are dealing with the corruption and opening up the banking system; my guess is they want to push forward with anti-money laundering legislation and get into the inner circle as a means of dealing with the capital flow,' he said.

'This is them realising there's a way of plugging the hole, or at least restricting it.'

Legislation would be expected to adopt the 40 recommendations of the FATF; effective enforcement would however be crucial.

Hong Kong this year is also beefing up its anti-money laundering legislation, by enshrining the 'know your customer' principle in law. There is also a possibility of criminal sanctions for non-compliance.