China cracks down on dirty money

PUBLISHED : Thursday, 17 February, 2005, 12:00am
UPDATED : Thursday, 17 February, 2005, 12:00am


Mainland moves against laundering of illicit cash in bid to join global task force

China hopes to be accepted as a member of the Financial Action Task Force (FATF) by the summer, according to People's Bank of China deputy governor Li Ruogu.

A new law to clamp down on illicit cash is imminent, a prerequisite for membership to the international body against money-laundering. China is also poised to introduce rules for non-banking sectors such as insurance, property and securities.

'If all goes smoothly, I would expect China could be a full member [of FATF] by mid-year,' Mr Li told a conference on money-laundering hosted by the Narcotics Division of the Security Bureau yesterday.

Legislation should be ready by June which would 'make it more difficult, if not impossible' for illicit fund flows, Mr Li said.

The law will also 'intensify the punishment'.

The mainland was given observer status at FATF late last year and was visited by members of the body for an on-site inspection in December. Before approval is given to join, it must pass the new law to meet technical requirements of FATF and go through a further evaluation process, conducted by members.

China's bid to gain membership began in February last year, after an attempt in 2002 failed. To many, the move is being read as an effort to gain recognition internationally and trigger a more potent fight against illicit cash flows at home.

FATF president Jean-Louis Fort, however, gave a broader timeframe on China's membership. 'Once the FATF and China come to an agreement, they will then look at the timing for China to become a member. I'm convinced that China will become a member very soon.'

The mainland is one of a few countries of 'geopolitical importance' FATF has sought to include in its list of members for a number of years. Mr Fort said China was, however, not ready to be accepted to the body in 2002 on the basis of its technical evaluation.

'It has been waiting for some years and China made very complete, very serious efforts during the last years to complete its action against money-laundering and terrorist financing,' he said.

Estimates of the extent of cash leaving China through illegal channels each year run to hundreds of billions, suspect funds including the proceeds of bribery, fraud, corruption and tax evasion.

Late last year, central bank governor Zhou Xiaochuan told a national meeting that efforts against money-laundering were falling behind. 'The situation is developing rapidly and we cannot keep pace with it,' he said.

The new law will have to follow the spirit of FATF's 40 recommendations, which give an outline of the scope of the criminal offence of money-laundering and the seizing of assets.

The recommendations cover measures that member nations are expected to have in place within their criminal and regulatory systems. They also include preventative steps to be taken by financial institutions and other businesses that can be vulnerable to laundering. These include an outline on customer due diligence and record-keeping, and the reporting of suspicious transactions.

Drawn up in 1990 and revised in 1996, the recommendations have been endorsed by more than 130 countries and are considered the minimum money-laundering standard.

Hong Kong is expected to unveil draft legislation soon that meets the FATF stipulation that basic 'know your customer' requirements are met. Client identification and familiarity currently required of financial institutions under Hong Kong Monetary Authority rules will be enshrined in law and extended to 'gatekeepers' such as lawyers and accountants.