The Architecture of Anti-Money Laundering Regulation in the People's Republic of China – Shortfalls and Requirements for Reform
Identifieur interne : 000F25 ( Istex/Corpus ); précédent : 000F24; suivant : 000F26The Architecture of Anti-Money Laundering Regulation in the People's Republic of China – Shortfalls and Requirements for Reform
Auteurs : Nicole Schulte-KulkmannSource :
- European Journal of Crime, Criminal Law and Criminal Justice [ 0928-9569 ] ; 2006.
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DOI: 10.1163/157181706780132832
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Recent Developments, forthcoming</title></host></json:item><json:item><host><pages><first>3</first></pages><author></author><title>Zhongguo fanxiqian baogao 200� [National Anti-Money Laundering Report 200�</title></host></json:item><json:item><host><author></author><title>Zhongguo fanxiqian xietiaojizhi'; Yahu caijing, 3.07.200�; available at: >http</title></host></json:item><json:item><host><pages><first>02</first></pages><author><json:item><name>Art </name></json:item></author><title>Whereas the Three Administrative Regulations only address credit institutions, the responsibilities of the PBoC laid down in art This means, as a consequence of the adoption of the Three Administrative Regulations and the revision of the Law on the People's Bank of China the authority to supervise commercial banks – which had been transferred to the newly established CBRC</title><publicationDate>2003-04</publicationDate></host></json:item><json:item><host><author></author><title>Fanxiqianfa lifa jiaodian zhi zheng [Controversial aspects of the Anti-Money Laundering Law]', loc. cit. The AML-Bureau is also referred to as the 'Security Bureau</title></host></json:item><json:item><author></author><host><author></author><title>Today, the JMC comprises the following members: PBoC (Chairmanship), Supreme People's Court Jinrong Shibao, 05.09</title><publicationDate>2005</publicationDate></host><title>Supreme People's Procuratorate, State Council Administrative Bureau [guowuyuan bangongting], Ministry of Foreign Affairs Ministry of Supervision, Ministry of Justice, Ministry of Finance, Ministry of Construction, MOFCOM, General Administration of Customs, State Bureau of Taxation, State Administration for Industry and Commerce, State Administration of Radio, Film and Television State Postal Bureau, People's Liberation Army General Staff Department ('2004 nian fanxiqian gongzuo dashiji [Record of important events in Anti-Money laundering 2004]', loc. cit.; 'Fanxiqiangongzuobujilianxihuiyi kai dierci gongzuohuiyi [Joint Ministerial Conference on Anti-Money Laundering holds second work meeting</title><publicationDate>2005</publicationDate></json:item><json:item><host><author></author><title>Zhongguo fanxiqian xietiaojizhi [Coordination of Anti-Money laundering in China</title></host></json:item><json:item><author></author><host><volume>22</volume><pages><last>0</last><first>22</first></pages><author></author><title>Ibid</title><publicationDate>2006</publicationDate></host><title>html> [visited: 07.2.200�] supra note �0. In October, 200�, the township of Chenzhou (Hunan province) established a JMC in reaction to a local money laundering case ('20 ge bumen lianshou " fanhei " [20 ministries join hands in the fight against " black money " ]' in: Fazhi Ribao</title><publicationDate>2006</publicationDate></json:item><json:item><author><json:item><name>H,B Paul</name></json:item><json:item><name> Godwin</name></json:item></author><host><pages><last>92</last><first>7</first></pages><author></author><title>China and the World. Chinese Foreign Policy Faces the New Millenium</title></host><title>Force and Diplomacy. China Prepares for the Twenty-First Century</title></json:item><json:item><host><author><json:item><name> Cf</name></json:item></author><title>Fanxiqiangongzuobujilianxihuiyi kai dierci gongzuohuiyi [Joint Ministerial Conference on Anti-Money Laundering convenes second work meeting</title></host></json:item><json:item><author><json:item><name>Cf. Jörn-Carsten Gottwald</name></json:item><json:item><name>/ Sarah Kirchberger</name></json:item></author><host><pages><last>3</last><first>2</first></pages><author></author><title>Pragmatischer Realismus. Chinesische Außenpolitik zwischen Hegemonialstreben und wirtschaftlichen Zwängen', 7 China Analysis</title><publicationDate>2006</publicationDate></host><publicationDate>2006</publicationDate></json:item><json:item><author><json:item><name> Cf</name></json:item><json:item><name> Feiling �ang</name></json:item></author><host><pages><last>4</last><first>2</first></pages><author></author><title>the Eyes of the Dragon. 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<p>European Journal of Crime, Criminal Law and Criminal Justice, Vol. 14/4, 408–439, 2006 © Koninklijke Brill NV. Printed in the Netherlands. Nicole Schulte-Kulkmann The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China – Shortfalls and Requirements for Reform 1. INTRODUCTION Since the inauguration of the Financial Action Task Force on Money Laundering (FATF) in 989, the crime of money laundering – i.e. ‘any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources’ 2 – has attracted more and more attention, nationally as well as internationally. The People’s Republic of China (PRC) 3 , which to date still has to be considered a ‘magnet’ for money laundering activities, has recently also become aware of this problem. For one, this development is owed to international pressure as well as to the determination of the Chinese government to * Nicole Schulte-Kulkmann, Ph.D., researcher with the Research Group on the Political Economy of China, headed by Sebastian Heilmann, Professor of Government, Trier University, Germany. In July, 989, G7 member states inaugurated the FATF during their summit in Paris. Today, the FATF is the leading organization in the field of Anti-Money laundering. The FATF ‘40+9 Recom- mendations’ on money laundering and terrorist financing constitute international standards which have to be considered as binding for FATF member states as well as for non-members. For more details on the FATF see: C. Kremer, Die FATF und der internationale Kampf gegen die Geldwäsche , REGEM Analysis (2004), available at: http://www.chinapolitik.de/studien/regem/regem_no. 0.pdf [visited: 30. 0.200�]. 2 �efinition by Interpol; available at: [visited: 02.02.2006]. 3 The term ‘PRC’ in this article refers to mainland China, exclusive of Hong Kong Special Administra- tive Region and Macao Special Administrative Region.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 409 act as a reliable partner in the fight against financial crimes in the regional context as well as on the international stage. Moreover, the PRC also considers the fight against money laundering as a device for reigning in related internal problems, particularly rampant corruption. 4 Therefore, the Chinese government considers the fight against money laundering as essential not only for safeguarding a healthy economic and financial environment but also for defending social stability in an encompassing sense. � Consequently, the year 200� had been declared the ‘Anti-Money Laundering Year’. 6 This article provides an overview about the current state of Anti-Money laundering regulation in the PRC. The Chinese government recently has enacted several legal norms and established some institutions in order to carry out effective Anti-Money laundering activities. But, as will be seen, legal as well as institutional arrangements are still plagued with deficiencies which hinder the fight against money laundering. At the same time, the Chinese government also actively participates in international Anti-Money laundering efforts. At the regional level, the PRC cooperated with central- Asian states as well as with the Russian Federation in establishing the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG). Furthermore, the PRC also makes efforts to harmonize national Anti-Money laundering legislation and institutions with international standards in order to be accepted as a full member of the FATF. 2. CHARACTERISTICS OF MONEY-LAUNDERING IN THE PR CHINA Regarding the ‘laundering’ of funds and assets originating from illegal sources, certain methods are applied with a considerably high degree of frequency in the PRC; 4 ‘Anti-Money Laundering in China: the status quo and prospects’ – Speech of Mr. Zhou Xiaochuan, Governor of the People’s Bank of China at the first meeting of the Ministerial Joint Conference on AML, 27.08.2004; available at: [visited: 28.09.200�]. � ‘Zhou Xiaochuan: fanxiqian shi wo zhengfu de yixiang zhongyao zhanlüe renwu [Zhou Xiaochuan: The fight against money laundering constitutes an important task for our government]’; in: Zhongguo Jingji Shibao , 29.08.2004; available at: [visited: 27. 0.200�]. 6 ‘Strengthening Domestic Coordination and Promoting International Cooperation to Improve Anti- Money Laundering Work’ – Speech of Mr. Zhou Xiaochuan, Governor of the People’s Bank of China at the 2nd working session of the Joint Ministerial Conference on AML, 02.09.200�; available at: [visited: 30.09.200�].</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 410 therefore, money-laundering has acquired certain ‘Chinese characteristics’ 7 which are to be explained below. For one, in the PRC money laundering is not only associated with crimes such as trade of drugs and weapons, organized crime, etc.; moreover, money laundering frequently is closely connected to corruption. 8 Thus, corrupt officials confront the problem of legalizing the assets obtained by embezzlement and fraud. Some Chinese scholars have conducted research on the methods most commonly applied by cor- rupt officials during the stage of ‘placement’. 9 It became obvious that insufficient implementation of even the most basic Anti-Money laundering (AML) prescriptions significantly facilitated the injection of high sums of money into the official financial system and thereby the legalization of these funds. One of the most common patterns involves officials who have gathered high amounts of bribes during their term of office. After their resignation, these former officials preferentially establish private businesses or put the ‘black money’ into the stock market. Thereby, the original source of the money is concealed and any revenues are disguised as profits from business activities or equity trading. 0 However, it has been stressed that – almost as a general rule – these officials make no secret of their ‘success’ in order to construct a plausible explanation for their sudden wealth and to dispel any suspicions that their funds might not originate from business activities but instead from corruption. Secondly, it has been observed that corrupt officials frequently use the strategy ‘one family, two systems’. This means, funds which have been amassed by officials during their tenure are transferred to businesses run by children or spouses. These funds then 7 Yang Song, ‘Money Laundering in China. A Policy Analysis’, 8 Journal of Contemporary Criminal Justice (2002) pp. 370-380, 37 ; ‘“Zhongguo tese” xiqian [Money laundering with “Chinese characteristics”]’; in: Epoch Times (Dajiyuan) , 23.03.200 ; available at: [visited: 30. .200�]. 8 ‘“Zhongguo tese” xiqian – [Money laundering with “Chinese characteristics”]’ loc. cit. 9 The process of money laundering involves three different stages: During the (1) placement stage , illegally obtained funds and assets are infused into the official financial system. This phase, which regularly involves high sums of cash, is the most critical during the process of money laundering. After the cash has been transferred onto a bank account, stage (2) layering follows suit. During this phase, a multitude of different national and cross-border financial transactions is executed in order to conceal the origin and the trail of the funds. Finally, during the (3) integration stage , criminals have to justify the high amounts of (laundered) funds now at their disposal. For example, these assets are described as profits from business activities, equity trading etc. (For more details see J. Madinger/S. Zalopany, Money Laundering. A Guide for Criminal Investigators (Boca Raton 999). 0 ‘“Zhongguo tese” xiqian – [Money laundering with “Chinese characteristics”]’ loc. cit. ‘Tanguan xiqian zhaoshuo jiemi [Money laundering tricks used by corrupt officials unmasked]’ in: Fazhi Wanbao , �.09.2004; available at: .</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 411 are declared as revenues generated by the respective businesses and become ‘washed’ by infusion into the legal financial system. 2 Moreover, officials or managers of state-owned enterprises establish their own private businesses with the help of straw men. Then, in the course of fictitious business transactions funds are transferred from the accounts of the state-owned enterprise to the accounts of the private business; these funds are concealed as earnings of the private enterprise. By paying tax on these ‘earnings’, the ‘black money’ becomes legalized. 3 The two aforementioned strategies also exist in a transnational variety. This means, corrupt officials cooperate with relatives or bogus companies abroad in order to transfer bribes which have been converted into foreign currency onto foreign bank accounts. These payments are masked, for example, as payments for university tuition for children studying abroad. 4 Finally, one has to mention money laundering through so-called ‘underground banks’ ( dixia qianzhuang ) as a peculiarity of money laundering in the PRC. ‘Underground banks’ can be considered as a variety of ‘ethnic banking’ which is found throughout the entire Asian region. ‘Ethnic banking’ is also called ‘ hawala ’, ‘ hundi ’, ‘ feiqian ’/‘ dashu gongsi ’/‘ chop shop ’ and displays considerable sub-regional differences which can not be explained here. Nevertheless, all these varieties can be understood as ‘alternative remittance systems’ (ARS) or ‘informal value transfer systems’ and share some commonalities. � ARS have already been in use throughout the Asian region for several hundred years. Individuals belonging to the same ethnic group have employed ARS for the secure – and in most cases legal – transfer of cash across greater geographic distances. 2 ‘“Zhongguo tese” xiqian – [Money laundering with “Chinese characteristics”]’ loc. cit. ; ‘Tanguan xiqian zhaoshuo jiemi [Money laundering tricks used by corrupt officials unmasked]’, loc. cit. ; Yang Song, loc. cit. , p. 373-374. 3 ‘“Zhongguo tese” xiqian – [Money laundering with “Chinese characteristics”]’ loc. cit. ; ‘Tanguan xiqian zhaoshuo jiemi [Money laundering tricks used by corrupt officials unmasked]’, loc. cit. ; Yang Song, loc. cit. , p. 374. 4 ‘“Zhongguo tese” xiqian – [Money laundering with “Chinese characteristics”]’ loc. cit. ; ‘Tanguan xiqian zhaoshuo jiemi [Money laundering tricks used by corrupt officials unmasked]’, loc. cit. � For detailed information see L. C. Carroll, Alternative Remittance Systems. Distinguishing Sub- Systems of Ethnic Money Laundering in Interpol Member Countries on the Asian Continent , 2002 (available at: [visited: 29. .200�]); N. Passas, ‘ Hawala and Other Informal Value Transmittance Systems. How to Regulate Them? ’, 2003 (available at: [visited: 28. .200�]); FATF, Money Laundering and Terrorist Financing Typologies 2004-2005 , 200� (available at: [visited: 03.01.2006]), pp. 3-4 .</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 412 Originally, criminal purposes such as money laundering have not been the principal area of activity for ARS. 6 Close personal ties, based mainly on shared ethnicity and a high degree of trust as well as the reputation of individual ‘ethnic bankers’ are the foundations on which ARS rest. 7 Since personal relationships and trust are so prominent, ‘ethnic banking’ operates almost always with no written records of the transactions. Instead, ‘ethnic bankers’ and their clients use secret tokens as receipts for transactions which are difficult to identify as such by outsiders. This means, ARS leave no ‘paper trails’. 8 Furthermore, ARS are mainly used by clients in remote areas where no commercial banks offer their services. These peculiarities of ARS result, for one, in extreme difficulties for regulatory authorities which try to control ‘ethnic banking’; moreover, the high degree of secrecy connected with transactions processed through ARS facilitates criminal activities such as money laundering. 9 In the PRC, ‘underground banks’ as a variety of ARS operate mainly in the eco- nomically well developed eastern coastal regions. ‘Underground banks’ in these areas focus on illegal foreign exchange transfer with the purpose of money laundering. 20 However, ‘underground banks’ also offer their services to individuals, small private enterprises and township and village enterprises (TVE). Since lending in the PRC is in many cases still channelled to the large state-owned enterprises out of political considerations, private individuals and businesses face extreme difficulties in borrow- ing from commercial banks and therefore often have to turn to illegal organizations such as ‘underground banks’. This means, the high demand for credit facilitates the launder of ‘black money’ through ‘underground banks’. 2 Official estimates assume that ‘underground banks’ in the PRC annually launder funds amounting to 200 billion Renminbi Yuan (RMB). 22 Consequently, Chinese authorities emphasize the eradica- 6 L. C. Carroll, op. cit . pp. -2; FATF, op. cit ., pp. 3; 6. The FATF defines ARS as follows: ‘Any system used for transferring money from one location to another and generally operating outside the banking channels’ (FATF, op. cit. , p. 3). 7 L. C. Carroll, op. cit ., pp. -2; 9- 0; FATF, op. cit. , pp. 6- 3. 8 L. C. Carroll, op. cit. , pp. 3- 4. 9 N. Passas, op. cit . 20 ‘Fanxiqian baogao zhi xinwen beijing: “xiqian” yu “dixia qianzhuang” [Background information on Anti-Money laundering: “money laundering” and “underground banks”]’ in: News Guangdong , . .2004; available at: [visited: 02. .200�]. 2 Jian’an Guo, Situation of and Countermeasures Against Money Laundering Crime in China , n.d. (avail- able at: [visited: 24. 0.200�]), p. 8. 22 ‘Dixia qianzhuang meinian xichuqu 2000 yi [Funds laundered through underground banks amount to 200 billion yuan every year]’; in: Huanqiu Shibao , 09. 2.2003; available at: http://news.xinhuanet.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 413 tion of ‘underground banks’ as one important focal point in the fight against money laundering. 23 However, as long as lending is politically controlled, the demand for loans provided by ‘underground banks’ will remain high and such will the incentive for money laundering through ‘underground banks’. 3. THE LEGAL AND INSTITUTIONAL FRAMEWORk OF ANTI-MONEY LAUNDERING REGULATION IN THE PR CHINA In recent years, the PRC has adopted several legal provisions and made some institutional improvements in order to facilitate and advance the fight against money laundering. 3.1 Legal Framework In the PRC, national laws and regulations as well as provisions contained in inter- national conventions which have been signed and ratified by the PRC constitute the legal framework for the fight against money laundering. 24 3.1.1 International Law and Anti-Money Laundering Regulation in the PR China By the end of the 980s, the PRC became a party to several international conventions dealing with money laundering. Through the process of ratification, these bodies of international law also affect the national Chinese legal framework in the area of Anti-Money laundering (AML). For one, in September 1989, the PRC ratified the UN Convention against the Illicit Traffic of Narcotic �rugs and Psychotropic Substances (‘Vienna Convention’), fol- lowed by the ratification of the UN Convention against Transnational Organized Crime (‘Palermo Convention’) and the UN Convention against Corruption in September 2003 and October 200�, respectively. Recently, in February 2006, the National People’s Congress (NPC) also ratified the International Convention for the Suppression of the Financing of Terrorism. hese international conventions oblige the PRC to harmonize national legislation with international AML standards. com/world/2003- 2/09/content_ 22 37.htm [visited: 24. 0.200�]. 23 ‘Zhongguo meinian xiqian liang qian yi [In China, funds worth 200 billion Yuan are laundered every year]’; in: Beijing Qingnian Bao , 24.07.2004; available at: [visited: 24. 0.200�]. 24 Cf. Andreas Obst, ‘Der Rechtsrahmen für die Bekämpfung von Geldwäsche in China’, 2 Zeitschrift für chinesisches Recht (200�) pp. 0 - 09.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 414 Moreover, since the PRC has been granted observer status with the FATF in January, 200�, the FATF ‘Forty Recommendations on Money Laundering’ (plus ‘Nine Special Recommendations on Terrorist Financing’) are also binding for the PRC. Although the PRC has not yet become a full member of FATF, compliance with the ‘40+9 Recommendations’ lies in the interest of the Chinese government which intends to join the FATF as soon as possible in order to gain international prestige in the area of AML. 2� To date, the PRC has translated only the requirements of the Vienna Convention into national law; harmonization of the national legal framework with the other UN Conventions mentioned above is still pending. 26 3.1.2 The National Chinese Anti-Money Laundering Legal Framework 3. .2. Criminal Law As a direct consequence of the ratification of the Vienna Convention, the Standing Committee (SC) of the NPC promulgated the Decision on the Prevention of Narcotic Drugs [ guanyu jindu de jueding ] on December 28, 990. Art.4 of the Decision stipulates that ‘whoever covers up or withholds the illegal nature and source of property gained from selling of narcotic drugs shall be sentenced to fixed-term imprisonment of not more than seven years, criminal detention or public surveillance and may concurrently be sentenced to a fine.’ The �ecision only refers to the launder of funds derived from drug trading; nevertheless, it establishes punishability of money laundering for the first time in Chinese criminal law, even if the term ‘money laundering’ itself is not used explicitly. 27 The next step towards harmonizing national Chinese law with the Vienna Conven- tion was completed with the revision of the Chinese Criminal Law in March 997 to the effect that art. 9 now also refers to the offence of ‘money laundering’. 28 However, neither the Decision nor art. 9 Criminal Law establish money-laundering as an offence in itself; instead, money laundering is only punishable if other so-called ‘underlying crimes’ or ‘predicate crimes’ have been committed in advance. The revision of art. 9 Criminal Law brought about an expansion of the numeration of offences which qualify as predicate crimes for money laundering; now, in addition to drug 2� Ibid. p. 04. 26 Ibid. p. 03. 27 Jian’an Guo, op. cit ., p. 2. 28 Ibid.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 415 trading, organized crime and smuggle also constitute predicate crimes. 29 Finally, in response to the terrorist attacks from September , 200 , the NPC SC again revised art. 9 Criminal Law and included the offence of terrorist activities as an additional predicate crime. 30 However, as the catalogue of predicate crimes only comprises four different offences it can not be considered sufficiently comprehensive and, moreover, it does not match international standards established by the FATF ‘40+9 Recommendations’. ‘Recommendation One’, in particular, obliges states to ‘apply the crime of money laundering to all serious offences , with a view to including the widest range of predicate offences.’ 3 Furthermore, the FATF also itemizes a certain number of offences which should necessarily be considered predicate crimes. 32 In the PRC, legal experts agree on the necessity to broaden the catalogue of predicate crimes for money laundering. 33 This shall be achieved, for one, by further revisions of the Criminal Law as well as by the enactment of the Anti-Money Laundering Law (AML Law). The draft revision to the Chinese Criminal Law has already been adopted by the NPC SC on June 29, 2006; as a result, art. 9 Criminal Law stipulates corruption and bribery, crimes against the order of financial administration, and financial fraud as additional predicate crimes (art. 9 ). 34 Albeit the revision to the Criminal Law constitutes a first step towards the harmonization of Chinese criminal legislation with international AML standards, the incorporation of a set of only four additional offences as predicate crimes falls far short of these standards and of FATF requirements in particular. 29 ‘Zhongguo fanxiqian fazhi jianshe [Establishment of an Anti-Money laundering legal framework in China]’; available at: [visited: 0�. 2.200�]. 30 Ibid. 3 The text of Recommendation One is available at: [visited 03.0 .2006]; author’s emphasis. 32 This list comprises the following offences: participation in an organised criminal group and racketeering; terrorism, including terrorist financing; trafficking in human beings and migrant smuggling; sexual exploitation, including sexual exploitation of children; illicit trafficking in narcotic drugs and psychotropic substances; illicit arms trafficking; illicit trafficking in stolen and other goods; corruption and bribery; fraud; counterfeiting currency; counterfeiting and piracy of products; environmental crime; murder, grievous bodily injury; kidnapping, illegal restraint and hostage-taking; robbery or theft; smuggling; extortion; forgery; piracy; and insider trading and market manipulation (‘Designated categories of offences’; available at: [visited: 3.0 .2006]). 33 ‘Fanxiqian zhongguo zheng mianlin san fangmian tiaozhan [China faces three challenges in the area of Anti-Money laundering]’ in: Fazhi Ribao , 29. .200�; available at: [visited: 30. .200�]. 34 The Chinese text of the draft revision to the Chinese Criminal Law is available at: [visited: 0 .08.2006]</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 416 3. .2.2 Anti-Money Laundering Law At the present time, the PRC has not yet enacted an AML Law. However, since the Chinese government is striving for deeper integration into the international AML regime as well as for full FATF membership, the harmonization of national legal provisions with international AML standards is indispensable. The enactment of the AML Law thus constitutes a vital part of this harmonization. Therefore, drafting of the AML Law already started in March 2004. Under the aegis of the Law Department of the Budgetary Affairs Commission of the NPC SC [ quanguo renda changweihui yusuan gongwei fa’anshi ] a ‘leading group’ has been formally established which is responsible for drafting the AML Law and for preparing all relevant political decisions which might occur during the legislative process. 3� Recently, membership of the ‘lead- ing group’ has been extended and now comprises 23 ministries and commissions. 36 Amongst the most important provisions of the new AML Law are the follow- ing: unequivocal discrimination of the elements of the crime ‘money laundering’; specification of the AML obligations of financial institutions (including banking institutions, insurance and securities branches) as well as non-financial institutions and professions (i.e. lawyers, notaries, real estate dealers, jewel and precious metal dealers, accountants). Furthermore, the new AML Law will provide for the establishment of a mechanism for coordinating the AML work of the relevant ministries and commissions as well as for the inauguration of a central intelligence agency (‘Financial Intelligence Unit’ – FIU) to support the fight against money laundering. Finally, the new law shall promote the deepening of international cooperation in the area of AML. 37 3� ‘Fanxiqianfa kuangjia chuding [Initial steps towards the establishment of an Anti-Money launder- ing legal framework]’ in: 21 Shiji Jingji Baodao , 28.07.2004; available at: [visited: 29. .200�]. The members of the ‘leading group’ described above also participate in the ‘Joint Ministerial Conference on Anti-Money Laundering’ which has been inaugurated by the State Council in order to facilitate inter-ministerial cooperation in the area of Anti-Money laundering. The Joint Ministerial Conference is described in more detail below, section III.2.3. 36 Amongst the members of the leading group are the following agencies: the Supreme People’s Court, Supreme People’s Procuratorate, Ministry of Public Security, Ministry of Finance, Ministry of Commerce (MOFCOM), Ministry of Foreign Affairs, General Administration of Customs, State Administration of Industry and Commerce, SAFE, China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), China Insurance Regulatory Commission (CIRC), PBoC (‘Zhongguo “fanxiqianfa” yi jinru fachengxu [“Anti-Money Laundering Law” has been put onto legislation plan]’ in: News Guangdong, 24.03.200�; available at: [visited: 25.10.2005]). 37 Ibid.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 417 In �ecember, 2005, a first draft of the AML Law was submitted to the NPC SC. Deliberation of the draft law started formally in April, 2006 38 and in August, 2006, the second hearing of a revised version of the draft AML Law started. 39 The first draft comprised prescriptions as to the tightening of supervision of bank accounts of politicians and other high-profile personalities; however, these stipulations are no longer contained in the second version now under consideration. 40 Moreover, the list of predicate crimes for money laundering has been expanded to cover the same range of offences as art. 9 Criminal Law. Finally, the importance of deepening international cooperation in the field of AML is stressed. 4 However, disputes about the specific contents of the draft time and again protracted the drafting process. As a result, the adoption of the AML Law – scheduled at first for the end of 200� 42 and then for August, 2006 43 – has been repeatedly postponed. 44 For one, the status of banking secrecy is disputed. While commercial banks emphasize the necessity of banking secrecy and plead for sustaining this institution, AML experts unequivocally point out that it is necessary to come to a trade-off between banking secrecy and the requirements of AML efforts which will necessarily result in a limitation of the former. 4� Furthermore, no consensus has so far been reached as to the 38 ‘Fanxiqianfa cao’an jiang shouci jinxing shenyi [Draft Anti-Money laundering law undergoes con- sideration fort he firts time]’ in: Zhongguo Zhengquan Bao , 8.04.2006; available at: [visited: 8.04.2006] 39 ‘Fanxiqianfa cao’an er shen linshi dongjie zijin bude chaoguo sishiba xiaoshi [Draft AML Law submitted for the second reading stipulates that funds must not be frozen for longer than 48 hours]’ in: Shanghai Zhengquan Bao , 23.08.2006; available at: [visited: 24.08.2006] 40 Ibid. 4 ‘Fanxiqianfa jiang yanguan guanyuan zhanghu [Anti-Money Laudering Law will establish strict control over officials’ bank accounts]’ in: Xinjing Bao , 20. 2.200�; available at: [visited: 22. 2.200�] 42 ‘Zhongguo “fanxiqianfa” yi jinru fachengxu [“Anti-Money Laundering Law” has been put onto the legislation plan]’, loc. cit. 43 ‘Fanxiqianfa qicaozu zuzhang: fanxiqian zhuguanbumen ying shi yanghang [Head of the Anti-Money laundering drafting group: The main regulatory institution in Anti-Money laundering must be the central bank]’; in: Xinjing Bao , 29.04.2006; available at: [visited: 02.0�.2006]. 44 ‘Fanxiqianfa’ 6 yue tijiao er shen you nandu [Submitting the Anti-Money Laundering Law for the second reading in June proves difficult] in: Zhongguo Zhengquanbao , 2.06.2006; available at: [visited: 2.06.2006]. 4� ‘Fanxiqianfa kuangjia chuding [The initial frame of the Anti-Money Laundering Law has been set]’, loc. cit. ; ‘Fanxiqian wenti zhuanjia cheng zhongguo ying jinkuai zhiding “fanxiqianfa” [Expert on Anti-Money laundering demands that China accelerates the adoption of the “Anti-Money Laundering Law”]’ in: Jingji Shibao , 27.0 .2003; available at: [visited: 23. .200�].</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 418 question of how to coordinate AML work at the national level, and the inauguration of a central AML information centre also remains controversial. 46 Members of the ‘leading group’ responsible for drafting the new AML Law still disagree about whether the responsibility for coordinating the AML activities of the relevant ministries and commissions should be assigned to the PBoC or to the State Council. Moreover, it is disputed whether the ‘Chinese Anti-Money Laundering Monitoring and Analysis Centre’ (‘AML-Centre’) directly subordinate to the PBoC 47 should continue with the collection of information about money laundering incidences or whether this task should be assigned to a newly established discrete institution. 48 The concentration of the responsibilities for the collection of information as well as for coordinating AML activities with the PBoC would endow the Central Bank with considerable competences and influence both with regard to the operative AML work and to the definition of political guidelines in the area of AML. 49 Such an expansion of the competences of the PBoC would, on the other hand, directly infringe on the influence on AML work of the relevant regulatory authorities CSRC, CBRC, CIRC as well as of the ministries and commissions. Therefore, since the draft of the AML Law has to address these controversies of competence and influence, the new Law will only be adopted after the actors involved have reached an amicable adjustment of their respective interests. 3. .2.3 Administrative Regulations To date, the AML legal framework mainly consists of executive order law (administra- tive regulations). �0 In January, 2003, the PBoC adopted three administrative regulations 46 ‘Fanxiqianfa lifa jiaodian zhi zheng [Controversial aspects of the Anti-Money Laundering Law]’ in: 21 Shiji Jingji Baodao , �.09.200�; available at: [visited: 06. .200�]. 47 For a detailed description of the AML-Center see below, section III.2. . 48 ‘Fanxiqianfa lifa jiaodian zhi zheng [Controversial aspects of the Anti-Money Laundering Law]’, loc. cit. 49 Ibid. �0 In the PRC, there exist different forms of legal norms: formal laws ( falu) (enacted by the NPC SC ( jiben falu ) or NPC ( falu )), administrative regulations ( xingzheng fagui , enacted by the State Council. These ‘administrative regulations’ can be divided into the following sub-categories: ‘regulation’ [ tiaoli ], ‘rules’ [ guiding ], ‘measures’ [ banfa ], ‘circular’ [ tongzhi ], ‘public announce- ment’ [ gonggao ], ‘official comment’ [ yijian ], ‘decision’ [ jueding ] etc.), local decrees ( difangxing fagui ), autonomous decrees ( zizhi tiaoli ), special decrees ( danxing tiaoli ) (enacted by the People’s Congress of a province, autonomous region, municipality directly under the central government and the Standing Committee thereof), departmental rules ( guizhang , enacted by the various ministries, commissions, the People’s Bank of China, the Auditing Agency, and bodies directly under the State Council exercising regulatory functions). For more details, see S. Heilmann/N. Schulte-Kulkmann/L. Shih, ‘Gesetzgebung in der VR China 998 bis 2004. Einführung und Übersicht über ausgewählte</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 419 which are the centrepiece of AML legislation in the PRC: Rules for Anti-Money Laundering by Financial Institutions, � Administrative Measure for the Reporting of Large-Value and Suspicious RMB Payment Transactions, �2 and Administrative Measure for the Reporting by Financial Institutions of Large-Value and Suspicious Foreign Exchange Transactions �3 ( henceforth: ‘Three Administrative Regulations’ ). Addressees of these Three Administrative Regulations (effective as of March , 2003) are banking institutions, i.e. policy banks, �4 commercial banks, urban and rural credit cooperatives and their unions, and postal savings institutions. The Three Administrative Regulations contain certain provisions which are also addressed by the FATF ‘40+9 Recommendations’, particularly Customer �ue �iligence (C��), �� reporting of suspicious transactions, �6 and record keeping. �7 In March 2000, the State Council adopted an administrative rule which obliged banking institutions to verify the identity of individuals and legal persons who aspire to open a bank account. �8 This provision – which mirrors the internationally accepted principle ‘Know Your Customer’ �9 – has been incorporated into the Three Administrative Regulations 60 and constitutes one of the most important prerequisites for AML. 6 Rechtsnormen’, 29 China Analysis (2004), available at: . See also: Legislation Law of the People’s Republic of China (English text available at: [visited 26.02.2006]). � ‘Jinrong jigou fanxiqian guiding’; available in English at: [visited: 28.09.200�]. �2 ‘Renminbi da’e he keyi zhifu jiaoyi baogao guanli banfa’; available in English at: [visited: 28.09.200�]. �3 ‘Jinrong jigou da’e he keyi waihui zijin jiaoyi baogao guanli banfa’; available in English at: [visited: 28.09.200�]. �4 In 994, three so-called ‘policy-banks’ were established: Agricultural Development Bank, State Development Bank, Chinese Im- and Export Bank. These banks are tasked with granting loans to industrial branches and projects which are politically favoured (D. Fischer/M. Schüller, ‘Banken’, in Brunhild Staiger et. al. ed., Das große China-Lexikon (Darmstadt 2003) pp. 67-70, 68). �� Cf. FATF Recommendations 4-9. �6 Cf. FATF Recommendations 3- 6. �7 Cf. FATF recommendations 0- 2. �8 ‘Geren cunkuan zhanghu shimingzhi guiding’; text available at: [visited: 0�. 2.200�]. �9 Yang Song, loc. cit. , p. 377. 60 Art. (individuals), art. 2 (legal persons) Rules for Anti-Money Laundering by Financial Institu- tions; art. 4 Administrative Measure for the Reporting by Financial Institutions of Large-Value and Suspicious Foreign Exchange Transactions; art. 9, art. 0 Administrative Measure for the Reporting of Large-Value and Suspicious RMB Payment Transactions. 6 D. C. Becker/R. M. Strassberg, Know Your Customer. Designing an Effective Anti Money Laundering</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 420 Moreover, the Three Administrative Regulations oblige banking institutions to report any ‘large-value’ and ‘suspicious’ RMB- and foreign exchange transactions executed by individuals or legal persons to the PBoC and to SAFE, respectively. 62 ‘Large-value’ RMB-transactions are defined as single credit transfers between legal persons above one million RMB Yuan, single cash transactions above 200,000 RMB Yuan, and fund transfers among individual bank settlement accounts or between individual and corporate bank settlement accounts above 200,000 RMB Yuan. 63 Art.8 Administrative Measure for the Reporting by Financial Institutions of Large- Value and Suspicious Foreign Exchange Transactions defines ‘large-value’ foreign exchange transaction as follows: ‘Any single deposit, withdrawal, purchase or sale of foreign exchange cash above 0,000 US$ or its equivalent, or the accumulated amount of multiple deposit, withdrawal, purchase or sale transactions of foreign exchange within one day above 0,000 US$ or its equivalent.’ Furthermore, foreign exchange non-cash receipt and payment (single or accumulated) transactions above 00,000 US$ (individuals) and �00,000 US$ (legal persons), respectively, are to be considered as ‘large-value’ transactions which have to be reported by banking institutions. This means, ‘large-value’ RMB- as well as foreign exchange transactions are defined clearly by law since the Administrative Regulations explicitly specify the relevant amounts of funds. Adversely, the legal definition of ‘suspicious’ transactions is more opaque. For one, the Administrative Measure for the Reporting of Large-Value and Suspicious RMB Payment Transactions contains a list of thirteen examples for ‘suspicious’ RMB-transactions (art.8). However, this enumeration must be considered as non- conclusive since art.8, no. 4 and art.8, no. � state that ‘other’ forms of transactions might also be considered as ‘suspicious’, depending on the assessment of the PBoC or banking institutions – presumably on a case by case basis. Furthermore, the examples for ‘suspicious’ RMB-transactions enumerated in art.8 frequently employ opaque formulations such as ‘apparently’, ‘frequently’, ‘obviously’ etc. which offer considerable leeway for interpretation and in most cases constitute no reliable decision guidance for banking institutions and their staff. 64 Art.9 and 0 Administrative Measure for the Reporting by Financial Institutions of Large-Value and Suspicious Foreign Exchange Transactions also offer enumerations Plan , 2002, p. 67; available at: [visited: 0�.0 .2006]. 62 For a detailed description of the reporting mechanism see below, section III.2. . 63 Art. 7 Administrative Measure for the Reporting of Large-Value and Suspicious RMB Payment Transactions. 64 ‘Fanxiqian zhongguo zheng mianlin san fangmian tiaozhan [China faces three challenges in the area of Anti-Money laundering]’, loc. cit.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 421 of eleven and twenty examples for ‘suspicious’ cash and non-cash foreign exchange transactions, respectively. Compared to the list contained in the Administrative Measure for the Reporting of Large-Value and Suspicious RMB Payment Transac- tions, the latter enumerations have to be considered as conclusive. But, in this case, too, opaque wording is frequently employed. Finally, art. 2 and art. 3 also contain conclusive (art. 2) and non-conclusive (art. 3) lists of examples for cash (art. 2) and non-cash (art.13) foreign exchange transactions which are not explicitly defined as ‘suspicious’ but nevertheless are considered as high-risk. Therefore, these types of transactions, too, must be strictly monitored by banking institutions and, if necessary, be reported to SAFE. Albeit the Three Administrative Regulations requiring banking institutions to report large-value and suspicious financial transactions came into force already in March 2003, the PBoC established the ‘Chinese Anti-Money Laundering Monitoring and Analysis Centre’ ( zhongguo fanxiqian jiance fenxi zhongxin –‘AML-Centre’ 6� ) only in April 2004. The AML-Centre is a discrete agency directly subordinated to the PBoC and is responsible for collecting all transaction reports. Subsequently, in October 2004, an ‘Anti-Money Laundering Department’ ( fanxiqian chu ) was integrated into the SAFE Supervision and Inspection Department. 66 The SAFE AML-Department collects foreign exchange transaction records submitted by banking institutions and forwards these reports to the AML-Centre. 67 This means, data on large-value and suspicious RMB- and foreign exchange transactions has only been collected systematically since mid-2004. To date, 9 % of banking institutions subject to the legal reporting requirements have already been integrated into a uniform reporting network which serves as a channel for submitting information about large-value and suspicious financial transactions to the AML-Centre and the SAFE AML-�epartment, respectively. The remaining 9% of banking institutions are expected to participate fully in the network by the end of 2006. 68 Based on the information collected by the SAFE AML-�epartment and the AML-Centre from that time onwards, the first ‘National Anti-Money Laundering Report 2004’ was published by the PBoC in July, 6� For a detailed description of the AML-Centre see below, section III.2. . For more information, see also: [visited: 09. 2.200�] 67 For a detailed describtion of the reporting mechanism, see below, section III.2. 68 ‘Zhongguo fanxiqian baogao 200� [National Anti-Money Laundering Report 200�]’; available at: [foreword] and [main text] [visited: 28.08.2006], pp. 6- 7.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 422 200�, 69 followed by the publication of the ‘National Anti-Money Laundering Report 200�’ in August, 2006. 70 According to statistics presented in the two consecutive National Reports, in 2004, banking institutions reported a total of 4,60 million cases of large-value and 36, 00 cases of suspicious Renminbi (RMB)-transactions. In 200�, reports of large- value and suspicious RMB-transactions increased to 02 million cases and 283,400 cases, respectively. 7 In 2004, large-volume and suspicious RMB-transactions mainly occurred in Beijing, Shanghai, Guangdong, Jiangsu, Zhejiang (large-volume transac- tions), and Liaoning, Shandong, Shanghai, Guangdong, Jiangxi, Yunnan (suspicious transactions). 72 Contrary to the National Report 2004, the National Report 200� only roughly details the regional distribution of suspicious RMB-transactions which are said to have concentrated in the eastern and southern coastal regions of the PRC as well as in border areas in the north-west in 200�. 73 Regarding foreign exchange transactions, banking institutions in 2004 reported 4, � million cases of large-value foreign exchange transaction and 66,300 cases of suspicious foreign exchange transactions. In 200�, 9,3� million large-value foreign exchange transactions and .99 million suspicious foreign exchange transactions, which mainly occurred in the eastern and southern coastal regions as well as in the north-eastern and north-western border regions, have been reported by banking institutions. 74 However, the sharp increase in the number of large-value and suspicious financial transaction reports from 2004 to 200� is not owed to a de facto rise of money launder- ing activities in the PRC which manifest themselves in these kinds of transactions. Instead, as ‘AML propaganda and awareness rising campaigns’ became more frequent and virulent in 200�, 7� banking institutions developed a habit of ‘defensive’ or ‘wild’ reporting resulting from the conviction that in case of doubt it might be preferable to 69 ‘Zhongguo fanxiqian baogao 2004 [National Anti-Money Laundering Report 2004]’; available at: [visited: 0�. 2.200�]. 73 ‘Zhongguo fanxiqian baogao 200� [National Anti-Money Laundering Report 200�]’, loc. cit., p. 20. 74 ‘Zhongguo fanxiqian baogao 200� [National Anti-Money Laundering Report 200�]’, loc. cit., pp. 9-20. 7� On AML propaganda and awareness raising campaigns see ‘Zhongguo fanxiqian baogao 200� [National Anti-Money Laundering Report 200�]’, loc. cit., chap.VII .</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 423 submit a report than to abstain from doing so since there is no penalty for excessive reporting as there is for failing to report large-value and suspicious transactions. But, the more reports, the higher the difficulty for the recipient agencies of sieving the de facto money laundering incidents – as a consequence, the ‘signal-to-noise ratio’ is significantly lowered. 76 Finally, the Three Administrative Regulations also oblige banking institutions to record all financial transactions and to keep these records for a minimum of five years, commencing from the closure of a bank account or the execution of a RMB-transaction or a foreign exchange transaction. 77 As has been already mentioned, the scope of the Three Administrative Regulations only applies to banking institutions; financial institutions from the non-banking sector and other occupations such as securities traders, insurance companies, law firms, notaries, accountants, dealers in precious stones and metals, casinos etc. are not covered by the regulations. Consequently, the Chinese AML legal framework still features considerable loopholes since the services offered by the above-mentioned branches and occupations also get more and more involved with money laundering activities. Therefore, it is essential to establish legal obligations such as to CDD, reporting of large-value and suspicious transactions, and record keeping which address these non-banking and non-financial branches and occupations, too. The PBoC has already realized this exigency and since 2004 cooperates with securities and insurance corporations as well as with SAFE in order to formulate the required legal rules. As a result, AML regulations for securities and futures institutions as well as for insur- ance institutions have recently been drafted. 78 Furthermore, existent regulations for AML in the banking sector have been revised. 79 The preliminary drafts of these new 76 P. Reuter, E. M. Truman, Chasing Dirty Money. The Fight Against Money Laundering . (Washington, D.C., 2004), p. 07. The National Anti-Money Laundering Report also mentions the problem of ‘defensive reporting’ by banking institutions (‘Zhongguo fanxiqian baogao 200� [National Anti- Money Laundering Report 200�]’, loc. cit., p. 2 ). 77 Art. 3 Administrative Measure for the Reporting of Large-Value and Suspicious RMB Payment Transactions; art.� Administrative Measure for the Reporting by Financial Institutions of Large-Value and Suspicious Foreign Exchange Transactions. 78 ‘Zhengquan, qihuo ye jinrong jigou fanxiqian guiding (zhengqiu yijian gao) [Rules for Anti-Money laundering by securities and futures institutions (draft soliciting comments from the public)]’; available at: [visited: 2.04.2006]; ‘Baoxianye jinrong jigou fanxiqian guiding (zhengqiu yijian gao) [Rules for Anti-Money laundering by insur- ance institutions (draft soliciting comments from the public)]’; available at: [visited: 2.04.2006]. 79 ‘Yinhangye jinrong jigou fanxiqian guiding (zhengqiu yijian gao) [Rules for Anti-Money laundering by banking institutions (draft soliciting comments from the public)]’; available at: [visited: 2.04.2006].</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 424 regulations were published by the PBoC on April 2, 2006 for public discussion 80 and are expected to come into force by the end of 2006. 8 3.2 Institutional Framework In order to facilitate the implementation of the AML obligations for banking institu- tions laid down by the Three Administrative Regulations as well as to improve the coordination of national AML activities, correspondent institutional arrangements have been adopted in the PRC in recent years. 3.2.1 Anti-Money Laundering Regulation in the Banking Sector In May, 2003, the State Council appointed the PBoC as the leading institution in the fight against money laundering; 82 correspondingly, after a revision in December, 2003, the Law on the People’s Bank of China states that the PBoC will ‘guide and arrange Anti-Money laundering work in the financial sector and monitor fund move- ment for Anti-Money laundering purpose.’ 83 Furthermore, the PBoC also supervises the compliance of financial institutions with AML regulations (art.32, no.9) and is authorized to impose sanctions (i.e. warning, fines, confiscation of illegal gains) on financial institutions in case of non-compliance (art.46). In order to fulfil these functions, the PBoC established an ‘Anti-Money Laundering Bureau’ [ fanxiqianju –‘AML-Bureau’ ] in September, 2003. 84 The AML-Bureau is 80 For a detailed analysis of the new draft administrative regulations, see Nicole Schulte-Kulkmann, Anti-Money Laundering regulation in the People’s Republic of China. Recent Developments, forthcoming 8 ‘Zhongguo fanxiqian baogao 200� [National Anti-Money Laundering Report 200�]’, loc. cit., p. 3. 82 ‘Zhongguo fanxiqian xietiaojizhi’; Yahu caijing , 3.07.200�; available at: [visited: 27. 0.200�]. 83 Art. 4, No. 0 Law on the People’s Bank of China. Text available at: [visited: 28.09.200�]. Whereas the Three Administrative Regulations only address credit institutions, the responsibilities of the PBoC laid down in art. 4, no. 10 Law on the People’s Bank of China extend to all financial institutions (Andreas Obst, loc. cit. , p. 02). This means, as a consequence of the adoption of the Three Administrative Regulations and the revision of the Law on the People’s Bank of China the authority to supervise commercial banks – which had been transferred to the newly established CBRC in April 2003 – has been retroceded to the PBoC as far as the supervision of compliance with AML is concerned (‘Fang yanghang fanxiqianju juzhang [A visit to the Director of the Anti-Money laundering Bureau of the Central Bank]’, loc. cit. ). 84 ‘Fanxiqianfa lifa jiaodian zhi zheng [Controversial aspects of the Anti-Money Laundering Law]’, loc. cit. The AML-Bureau is also referred to as the ‘Security Bureau [baoweiju]’.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 425 responsible for monitoring the compliance of banking institutions with AML regula- tions. 8� In case that the AML-Bureau discovers offences against these regulations, sanctions can be imposed on the banking institutions in question. 86 Should there be reason to entertain the suspicion that a banking institution or its employees deliberately violated the relevant regulations in order to engage in money laundering, the AML- Bureau has to call in the police and justice authorities. 87 As a next step, the ‘Chinese Anti-Money Laundering Monitoring and Analysis Centre’ [ zhongguo fanxiqian jiance fenxi zhongxin – ‘AML-Centre’ ] was established in April, 2004 as a separate agency directly subordinated to the PBoC. 88 The AML- Centre fulfils different tasks. For one, the Centre is responsible for the collection and subsequent analysis of information about all sorts of money laundering activities. Insights derived therefrom are submitted to the relevant AML authorities. Moreover, the AML-Centre collects, analyses and files all reports about large-value and suspicious RMB- and foreign exchange transactions which are submitted to the Centre by banking institutions according to AML regulations. 89 On this informational basis, the Centre also conducts research on developments and trends in money laundering activities; the findings are used as a guideline for political decisions on AML measures. Finally, the AML-Centre serves as a liaison for international cooperation in the area of AML as well as for information exchange with other foreign ‘Financial Intelligence Units’ (FIU). 90 The AML-Centre started operational work on August 6, 2004. Together, the AML-Bureau of the PBoC and the AML-Centre constitute the central institutions of a complex system which is designed to ensure proper reporting of money laundering activities by banking institutions and the implementation of relevant countermeasures. 9 According to the Circular on the Improvement of Reporting Large- 8� ‘Fang yanghang fanxiqianju juzhang [A visit to the Director of the Anti-Money Laundering Bureau of the Central Bank]’, loc. cit. 86 Art. 46 Law on the People’s Bank of China; art.20 Rules for Anti-Money Laundering by Financial Institutions; art.23, art.24 Administrative Measure for the Reporting of Large-value and Suspicious RMB Payment Transactions. 87 Art. 46 Law on the People’s Bank of China. 88 ‘Fanxiqianfa lifa jiaodian zhi zheng [Controversial aspects of the Anti-Money Laundering Law]’, loc. cit. 89 ‘Fanxiqian jiance fenxi [Anti-Money laundering monitoring and analysis]’; Y ahu Caijing , 3.07.200�; available at: [visited: 0�. 2.200�]; for a detailed description of the reporting mechanism see below. 90 Ibid. 9 If not indicated otherwise, all information is taken from the following source: ‘Fanxiqian jiance fenxi [Anti-Money laundering monitoring and analysis]’, loc. cit.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 426 Value and Suspicious Transactions adopted by the PBoC on December 4, 2004, 92 all banking institutions are obliged to appoint selected personnel in their branch offices who are responsible for monitoring financial transactions on site and for identifying ‘large-value’ and ‘suspicious’ transactions according to the stipulations of the Three Administrative Regulations. As the next step, ‘large-value’ RMB-transactions are reported directly to the AML-Centre whereas ‘suspicious’ RMB-transactions are reported to the respective local branches of the PBoC. After subsequent analysis, the local branches of the PBoC submit these reports to the AML-Centre. Banking institu- tions directly report ‘suspicious’ and ‘large-value’ foreign exchange transactions to the SAFE Supervision and Inspection Department which since September, 2004 forwards these reports to the AML-Centre. However, in August 200� the PBoC decided to unify the two systems for reporting RMB- and foreign exchange transactions in the near future; 93 this regulatory change is already mirrored in the new draft Regulations for Anti-Money Laundering in the Banking, Securities and Futures, and Banking sector, respectively, which have been mentioned above. These Regulations stipulate that reports about large value and suspicious RMB as well as foreign exchange transactions are all to be submitted to the AML-Centre and no longer to SAFE. As a result, all information about large-value and suspicious RMB- and foreign exchange transactions merged at the AML-Centre. The Centre then scrutinizes all reports. Those cases which are considered as suspicious of money laundering are submitted to the AML-Bureau of the PBoC. Should the suspicion of money laundering be confirmed, the Bureau communicates the relevant information to the Ministry of Public Security. 94 92 ‘Zhongguo renmin yinhang guanyu zuohao da’e he keyi jiaoyi baogao shangbao youguan gongzuo de tongzhi’. 93 ‘Zhongguo fanxiqian baogao 200� [National Anti-Money Laundering Report 200�]’, loc. cit., pp. 9- 0 94 Cooperation between the AML-Bureau of the PBoC and the Ministry of Public Security is based on the mutual ‘Rule on the Cooperation between the Ministry of Public Security and the People’s Bank of China in the area of investigating suspicious transactions [ gonganbu zhongguo renmin yinhang guanyu keyi jiaoyi xiansuo hecha gongzuo de guiding ]’ (‘Gonganbu he zhongguo renmin yinhang jiang lianshou xiezuo fanxiqian [Ministry of Public Security and People’s Bank of China will cooperatively fight against money laundering]’ in: Renmin Ribao , 2�.03.200�; available at: [visited: 2�. 0.200�]). The reporting mechanism for large-value and suspicious RMB- and foreign exchange transactions described above rests on the stipulations of the ‘Circular on the Improvement of Reporting Large- Value and Suspicious Transactions’ adopted by the PBoC on December 4, 2004 (see above, note 98) and therefore differs from the reporting methods described in art. 6, 7, 20 ‘Administrative Measure for the Reporting of Large-Value and Suspicious RMB Payment Transactions’ and art. , 4, 6 ‘Administrative Measure for the Reporting of Large-Value and Suspicious Foreign Exchange Transactions’, respectively.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 427 The AML-Centre is thus designed to fulfil the functions of a ‘Financial Intelligence Unit’ (FIU). The inauguration of the AML-Centre also signals the determination of the PRC to fulfil FATF requirements which recommend the establishment of a FIU (Recommendation 26). However, to date the AML-Centre does not yet fulfil all the requirements set forth for FIU by the Egmont Group. 9� For one, the Centre is not yet established as a ‘central, national agency responsible for receiving, (and as permitted, requesting), analysing and disseminating to the competent authorities, disclosures of financial information’ 96 by law; Furthermore, the AML-Centre to date only collects information about suspicious transactions submitted by banking institutions whereas the Egmont Group requires FIU to collect such information from all sorts of financial institutions. Finally, at this point in time, the AML-Centre does not exchange informa- tion on financial transactions with foreign FIU on a regular basis as required by the Egmont Group. 97 Only in November, 2005, the AML-Centre signed, for the first time, a Memorandum of Understanding with the FIU of the Republic of Korea in order to strengthen bi-lateral cooperation in collecting, using and analysing information about money laundering and financial transactions. 98 Later on, in March 2006, the PBoC and the Russian FIU signed a correspondent agreement which stipulates closer cooperation between the two nations in the areas of information exchange, vocational training, organizational development and research in order to combat money laundering and the financing of terrorism more effectively. 99 As long as the AML-Centre does not fulfil the criteria set up by the Egmont group for FIU, it is not possible for the Centre to join the Egmont Group. However, the future evolution of the AML-Centre will depend on the provisions contained in the new AML Law. 9� The Egmont Group defines a ‘FIU’ as follows: ‘A central, national agency responsible for receiving, (and as permitted, requesting), analysing and disseminating to the competent authorities, disclosures of financial information: (i) concerning suspected proceeds of crime and potential financing of terrorism, or (ii) required by national legislation or regulation, in order to combat money launder- ing and terrorism financing.’ (‘Interpretive Note Concerning the Egmont �efinition of a Financial Intelligence Unit’; available at: [visited: 09.0 .2006]). 96 Cf. Egmont Group definition of FIU (note 85). 97 See also: Interpretative Note to FATF Recommendation No.40 (available at: [visited: 09.0 .2006]). 98 ‘China, ROK to cooperate in Anti-Money laundering and terrorism financing’; in: People’s Daily , 6. .200�; available at: [visited: 8. .200�]. 99 ‘Russia, China Sign Multibillion-dollar Contracts During Putin’s Visit’; RIA Novosti , 2 .03.2006; ‘Yanghang wancheng fanxiqianfa cao’an [Central bank completes draft of the Anti-Money Launder- ing Law]’; Dongfang Zaobao , 23.03.2006; available at: [visited: 2�.03.2006].</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 428 However, the draft AML Law in its current form does not explicitly state that the AML Centre established in 2004 is to be considered as the FIU. This means, for the time being it remains unclear which institution is legally entitled to exercise the respective competences contained in the draft legislation. Particularly, the draft AML Law does not elaborate further on the specific legal warrants of the FIU and their limitations. Furthermore, the draft AML Law fails to address the issue of compensation in cases of power abuse or misconduct by FIU staff. 00 But, it is also not likely to see the flawed provisions revised in future versions of the draft AML Law since the explanation given for the equivocal terminology employed with regard to the FIU are explained as inevitable consequences of the ongoing government restructuring in the PRC. Governmental agencies involved with drafting the AML Law state that due to this restructuring for the time being it is not possible to come to a final decision as to which agency should be responsible for fulfilling the responsibilities assigned to the FIU. If in the future responsibilities will be transferred from one institution to another, the wording of the law need not be changed in each such case because only ‘generic terms’ for the responsible agencies in question and not their specific titles are employed. This is meant to contribute to legal constancy. 0 But, it seems to be more plausible that the opaque wording employed in the draft legislation is owed not so much to the necessities of government restructuring but to inter-departmental conflicts of competence. 02 Finally, besides legislative problems at the national level, there is the additional difficulty on the international stage that to date the Taiwanese FIU – the Taiwan Money Laundering Prevention Center – has already become a member of the Egmont Group. Since the government of the PRC does not accept the Taiwanese FIU as a national FIU due to the still unsolved Taiwan Question, simultaneous membership of both the mainland and Taiwanese FIU will not be possible. Thus, prior to an accession of the PRC FIU to the Egmont Group, the status of the Taiwanese FIU will have to be clarified. 00 ‘Weiyuan jianyi mingque fanxiqianxinxizhongxin de falü zeren [Members of the NPC Standing Committee suggest clarifying the legal duties of the FIU]’ in: Fazhi Ribao , 28.04.2006; available at: [visited: 30.08.2006] 0 ‘Fanxiqianfa’ cao’an tijiao shenyi [Draft Anti-Money Laundering Law submitted for deliberation] in: Caijing , Nr. �8 (0 .0�.2006); available at: [visited: 30.08.2006] 02 Cf.: ‘Zhuanfang: fanxiqianfa qicao gongzuo xiaozu zuzhang Yu Guangyuan jiaoshou tan fanxiqian yu fanfubai [Special report: Prof. Yu Guangyuan, chairman of the Anti-Money Laundering Law drafting group talks about Anti-Money laundering and the fight against corruption and bribery]’; Internet discussion staged on ‘Justice Net’ (zhengyiwang), 28.04.2006; available at: [visited: 8.0�.2006]</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 429 3.2.2 Initial Steps to the Establishment of Anti-Money Laundering Regulation in Non-Banking Financial Sectors and in Non-Financial Sectors As has been mentioned above, AML regulations to date only address financial institu- tions from the banking sector and cover neither non-banking financial institutions nor the non-financial sector. In the same vein, there exists no supervision mechanism for AML in the insurance and securities sector. However, since according to the Law on the People’s Bank of China the AML regulatory authority of the PBoC also covers non-banking financial institutions, the Central Bank recently started preparatory work for the inauguration of such a supervision mechanism. In April, 2004, a ‘leading group’ was established under the chairmanship of the PBoC; the CBRC, CSRC, CIRC and SAFE as the relevant regulatory bodies participate in this ‘leading group’ 03 which collects information about money laundering activities in the financial sector. On this informational basis, the ‘leading group’ develops policy proposals for AML. 04 As a result, the above-mentioned draft AML regulations for securities and futures institutions as well as for insurance institutions have recently been worked out. Furthermore, existent regulations for AML in the banking sector have been revised. Corresponding regulations addressing non-financial institutions and professions such as real estate firms, casinos, dealers in jewels and precious metals, law firms, notaries, and accountants will be adopted later. 0� 3.2.3 Inter-Agency Coordination of Anti-Money Laundering Regulatory Efforts In addition to the PBoC and financial regulatory authorities, several of the ministries and commissions of the State Council are also involved into AML and have therefore established AML departments. Due to the variety of different actors involved in AML, it has been considered as necessary to establish a coordinating mechanism in order to provide for more uniformity and efficiency in AML. Thus, in May, 2002, the State Council established the ‘Joint Ministerial Conference on Anti-Money Laundering’ [ fanxiqian gongzuo buji lianxihuiyi zhidu – JMC ]. At the beginning, the JMC was headed by the Minister of Social Security and was comprised of 6 ministries and commissions under the State Council. 06 One year later, in May 03 ‘2004 nian fanxiqian gongzuo dashiji [Record of important events in Anti-Money laundering 2004]’; Yahu Caijing , 3.07.200�; available at: [visited: 0�. 2.200�]. 04 ‘Zhongguo fanxiqian xietiaojizhi [Coordination of Anti-Money laundering in China]’, loc. cit. 0� ‘Fanxiqianfa chutai jianxingjianjin [Adoption of the Anti-Money Laundering Law gradu- ally approaches]’, in: Zhongguo Jingji Zhoukan , 0�. 2.200�; available at: [visited: 4. 2.200�]. 06 ‘Zhongguo fanxiqian xietiaojizhi [Coordination of Anti-Money laundering in China]’, loc. cit.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 430 2003, the State Council assigned the Chairmanship to the President of the PBoC; this corresponds to the later formal appreciation of the PBoC as the ‘leading’ AML institu- tion by the revision of the Law on the PBoC (December 2003). In July 2004, the State Council expanded membership of the JMC to 23 ministries and commissions upon the suggestion of the PBoC. 07 By establishing the JMC as a coordinating mechanism for the AML work of the various governmental ministries and commissions, the PRC also lives up to FATF demands which suggest the establishment of such an institution (Recommendation No.3 ). Furthermore, the JMC also participates in the drafting process of the AML Law. Thereby, the relevant ministries have the opportunity to infuse their respective experiences with AML directly into the drafting process. The JMC convened the first working meeting on August 27, 2004, in Beijing. On this occasion, the JMC decided to establish a ‘Secretariat’ [ bangongshi ] which has been set up with the AML-Bureau of the PBoC. The Secretariat is responsible for implementing the AML decisions taken at the working level of the JMC, i.e. by the respective members of the JMC as well as for conducting the general day-to-day work. In order to provide for a reliable information exchange between the JMC and the member organizations, each ministry/commission sends a liaison person to the secretariat. The respective Director of the AML-Bureau of the PBoC also acts as the director of the Secretariat. 08 Furthermore, as decided in early 2004, mechanisms resembling the JMC are estab- lished at the provincial and township level in order to improve the coordination of AML efforts of local governments and financial regulatory authorities. 09 Analogue to the 07 Today, the JMC comprises the following members: PBoC (Chairmanship), Supreme People’s Court, Supreme People’s Procuratorate, State Council Administrative Bureau [ guowuyuan bangongting ], Ministry of Foreign Affairs, Ministry of Public Security, Ministry of State Security, Ministry of Supervision, Ministry of Justice, Ministry of Finance, Ministry of Construction, MOFCOM, General Administration of Customs, State Bureau of Taxation, State Administration for Industry and Commerce, State Administration of Radio, Film and Television, State Council Office of Legislative Affairs, CBRC, CSRC, CIRC, SAFE, State Postal Bureau, People’s Liberation Army General Staff Department (‘2004 nian fanxiqian gongzuo dashiji [Record of important events in Anti-Money laundering 2004]’, loc. cit. ; ‘Fanxiqiangongzuobujilianxihuiyi kai dierci gongzuohuiyi [Joint Ministerial Conference on Anti-Money Laundering holds second work meeting]’; in: Jinrong Shibao , 05.09.2005; available at: [visited: 27. 0.200�]). 08 ‘Zhongguo fanxiqian xietiaojizhi [Coordination of Anti-Money laundering in China]’, loc. cit. 09 Ibid.; ‘Fang yanghang fanxiqianju juzhang [A visit to the Director of the Anti-Money launder- ing Bureau of the Central Bank]’ in: Caijing , 3.07.200�; available at: [visited: 07. 2.200�] supra note �0. In October, 200�, the township of Chenzhou (Hunan province) established a JMC in reaction to a local money laundering case (‘20 ge bumen lianshou “fanhei” [20 ministries join hands in the fight against “black money”]’ in: Fazhi Ribao , 22. 0.200�; available at: [visited: .04.2006]); in early 2006, a provincial level</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 431 central level JMC, these regional/township level JMC are composed of governmental ministries and commissions at the respective regional levels and fulfil the same tasks as their counterpart at the central level. 0 Moreover, in 200�, the PBoC and the Ministry of Public Security increased coor- dination of their AML efforts. Based on the ‘Ministry of Public Security and People’s Bank of China Rule on Cooperation in the Area of Investigating Traces of Suspicious Transactions’, the Ministry of Public Security dispatched liaison personnel to the PBoC in order to ease and improve the exchange of information and intelligence on money laundering instances. Furthermore, both agencies closely cooperate in analysing suspicious transaction reports as well as in AML investigations. 2 However, the coordination of AML in the PRC has still to be considered as in its preliminary stage. 3 In particular, no consensus has yet been reached as to the final structure of the AML coordination mechanism. To date, there exists three distinct strands in AML, each headed by the PBoC: ( ) supervision of AML in the sector of banking institutions executed by the AML-Bureau of the PBoC and the AML-Centre; (2) the ‘leading group’ for AML in the non-banking financial sector, and (3) the JMC. All leading financial regulatory institutions – i.e. PBoC, CBRC, CSRC, CIRC, SAFE – mutually participate in the JMC as well as in the ‘leading group’; moreover, the PBoC and the JMC are closely interconnected through the Secretariat of the JMC. This interwoven structure, for one, supports information exchange and coordination between all participating organizations; but, moreover, mutual participation also helps the respective organizations to stay informed about the course of action of the PBoC JMC took up work in Sichuan (‘Jianli fanxiqianlianxihuiyi zhidu [Establishing a joint Anti-Money laundering conference mechanism]’; in: Jinrong Shibao , 06.0 .2006; available at: [visited: 09.0 .2006]); on March, 28, 2006, a municipal JMC has been inaugurated in Shanghai (‘Shanghai jianli fanxiqianlianxihuiyi zhidu [Shanghai estab- lishes a joint Anti-Money laundering conference mechanism]’; available at: [visited: 29.03.2006]). Moreover, the townships of Yueyang (Hunan), Yichun (Jiangxi), Xinxiang (Henan), Simao (Yunnan), Huangshi (Hubei), Huanggang (Hubei), Tongling (Anhui) and Zhenjiang (Jiangsu) have also established JMC. 0 ‘Jianli fanxiqianlianxihuiyi zhidu [Establishing a joint Anti-Money laundering conference mecha- nism]’, loc. cit. ; ‘Shanghai jianli fanxiqianlianxihuiyi [Shanghai establishes a joint Anti-Money laundering conference]’, loc. cit. ; ‘20 ge bumen lianshou “fanhei” [20 ministries join hands in the fight against “black money”]’, loc.cit. ‘Gong’anbu, zhongguo renmin yinhang guanyu keyi jiaoyu xiansuo hecha gongzuo de hezuo guiding’; text (Chinese) available at: [visited: 29.08.2006]. 2 ‘Zhongguo fanxiqian baogao 200� [National Anti-Money Laundering Report 200�]’, loc. cit., p. 7; 43. 3 ‘Fang yanghang fanxiqianju juzhang [A visit to the Director of the Anti-Money laundering Bureau of the Central Bank]’, loc. cit.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 432 in AML and to participate in decision making. On the whole, through establishing the AML-Bureau and the AML-Centre as well as through presiding over the ‘leading group’ on AML in the financial sector and over the JMC, the PBoC succeeded in winning over a leading position with regard to legislation, information collection (AML-Centre) and abatement (AML-Bureau which is authorized to sanction bank- ing institutions) in the area of AML. This exposed position may result in the PBoC usurping competences originally assigned to other financial regulatory institutions or governmental ministries. As a result, contention amongst the various organizations involved in AML might easily occur. Thus, to date it is still disputed whether coor- dination of AML work will stay with the JMC which is headed by the PBoC – itself a commission under the State Council – as primus inter pares , or whether a new coordinative mechanism headed directly by the State Council will be established. 4 This latter institutional design would work against a domination of AML work by the PBoC and secure more influence for the other ministries and commissions involved. Interestingly, the draft AML Law does not mention explicitly the PBoC as the leading institution in the area of AML but refers to the ‘administrative department of the state council responsible for Anti-Money laundering work’ [ guowuyuan fanxiqian xingzheng zhuguan bumen ]. � This is indicative of members of the ‘leading group’ responsible for drafting the new AML Law still disagreeing about whether the responsibility for coordinating the AML activities of the relevant ministries and commissions should be assigned to the PBoC or to the State Council. 6 Accordingly, the position of the PBoC as the leading supervisory institution in AML is not yet secured. 4. SHORTFALLS OF ANTI-MONEY LAUNDERING REGULATION IN THE PR CHINA To date, AML work in the PRC is still confronted with a variety of obstacles which result from insufficient legal foundations as well as from problems with the imple- mentation of existent regulations. As far as the legal foundations are concerned, it has already been mentioned that the catalogue of predicate crimes to money laundering as outlined in art. 9 Criminal Law is by far too narrow. This complicates the AML work of the authorities and as 4 ‘Fanxiqianfa lifa jiaodian zhi zheng [Controversial aspects of the Anti-Money Laundering Law]’, loc. cit. � ‘Fanxiqianfa’ cao’an tijiao shenyi [Draft Anti-Money Laundering Law submitted for deliberation] loc. cit. 6 ‘Fanxiqianfa lifa jiaodian zhi zheng [Controversial aspects of the Anti-Money Laundering Law]’, loc. cit.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 433 a result, money laundering crimes actually become charged as such only in a few cases. 7 Furthermore, existing legal regulations only comprise provisions for AML in the banking sector; the securities and insurance sector as well, as non-financial institu- tions and occupations are not covered by the regulations. However, recently money laundering activities concentrated more and more on the securities and insurance sector as well as on casinos. 8 This means, AML measures which address these sectors are urgently required. Implementation of existing AML regulations by banking institutions is also insufficient. This became clear when the AML-Bureau of the PBoC conducted a first nation-wide inspection from April to July, 2004. �uring this inspection, 182 branches of commercial banks were examined randomly; in 200�, the AML-Bureau continued monitoring the compliance of commercial banks with AML regulations on a broader basis. As a result, throughout the year 200� the Bureau penalized about 600 commercial banks because of breach of AML provisions; fines imposed amounted to a total of �6,29 million Yuan. 9 The inspections revealed that the banks’ branch offices are overstrained with the implementation of AML regulations. This is especially true with regard to the three core obligations CDD, reporting of suspicious Transactions, and record keeping. Personnel particularly in minor branches and in more remote regions in many cases is not able to verify customer particulars and the authenticity of ID-Cards presented to them; thus, violations of CDD obligations frequently occurs. 20 As far as financial transaction reports are concerned, it has already been mentioned that the Three Administrative Regulations contain unequivocal definitions (i.e. upper limits for funds involved) only with respect to large-value RMB- and foreign exchange transactions; for ‘suspicious’ transactions such clear-cut definitions are lacking. As a result, branch personnel often is not sure as to which transactions in particular qualify 7 ‘Fang yanghang fanxiqianju juzhang [A visit to the Director of the Anti-Money laundering Bureau of the Central Bank]’, loc. cit. ; ‘Fanxiqian zhongguo zheng mianlin san fangmian tiaozhan [China faces three challenges in the area of Anti-Money laundering]’, loc. cit. 8 ‘Lifa tisu: zhengquan, baoxian, qihuo jiang cheng fanxiqian zhongdian [Accelerating the legisla- tive process: securities, insurance and futures branches will become focal points for Anti-Money laundering]’ in: Beijing Xiandai Shangbao , 7.08.200�; available at: [visited: 0�.0 .2006]; ‘Laundering legisla- tion to spread net wider’; in: China Daily , 30.09.200�; available at: [visited: 30.09.200�]. 9 ‘Yanghang wancheng fanxiqianfa cao’an [Central bank completes draft of the Anti-Money Launder- ing Law]’ in: Dongfang Zaobao , 23.03.2006; available at: [visited: 2�.03.2006]. 20 ‘Fanxiqian zhongguo zheng mianlin san fangmian tiaozhan [China faces three challenges in the area of Anti-Money laundering]’, loc. cit.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 434 as ‘suspicious’ and therefore often fails to report the transactions in question. This confusion is also mirrored by the statistics about financial transactions which indicate a significantly lower number of reported ‘suspicious’ transactions, compared with the number of reported ‘large-value’ transactions. 2 Again, small branches in remote regions are especially vulnerable to these problems since they lack high-qualified personnel who are experienced in AML work and in the correct implementation of the respective legal regulations. 22 Finally, banking institutions’ branches are in many cases also disregardful of their obligation to record keeping. Here the problem may be found in the inadequate attitude of the personnel involved as well as in a lack of technical equipment which allows the electronic processing and storage of data. In order to cope with the problem of violation of AML regulations due to a lack of experienced personnel, the PBoC has started to conduct vocational training on a regular basis. These measures aim at raising the general knowledge of AML regulations as well as improving the skills necessary for implementing these rules. Moreover, it is also important to raise the awareness of the importance and indispensability of AML. 23 Thus, in 200�, the PBoC, banking institutions as well as member agencies of the JMC conducted a total of more than 4,000 training measures aimed at the improvement of AML proficiency and awareness; more than 436,000 staff of the said institutions participated in these training measures. 24 However, most violations of AML regulations do not result from unawareness or inexpertness but are conducted deliberately. For one, opaque stipulations induce personnel to delegate AML obligations to other departments or colleagues; as a result, the often complex and laborious tasks are not carried out at all. 2� Furthermore, many banking institutions consider the implementation of AML regulations as too expensive and time-consuming and therefore neglect CDD, reporting and record keeping. This problem is aggravated by a lack of awareness of the highly negative consequences of money laundering on the financial and economic system as a whole; instead, many 2 ‘Fanxiqian zhongguo zheng mianlin san fangmian tiaozhan [China faces three challenges in the area of Anti-Money laundering]’, loc. cit. 22 ‘Fanxiqianfa chutai jianxingjianjin [Adoption of the Anti-Money Laundering Law gradually ap- proaches]’, loc. cit. ; Jian’an Guo, op. cit. , p. 9. 23 ‘Fanxiqianfa chutai jianxingjianjin [Adoption of the Anti-Money Laundering Law gradually ap- proaches]’, loc. cit. ; ‘Anti-Money Laundering in China: the status quo and prospects’ – Speech of Mr. Zhou Xiaochuan, Governor of the People’s Bank of China at the first meeting of the Ministerial Joint Conference on AML, 27.08.2004, loc. cit. 24 ‘Zhongguo fanxiqian baogao 200� [National Anti-Money Laundering Report 200�]’, loc. cit. , p. 64 (table 7.2) 2� ‘Fanxiqianfa chutai jianxingjianjin [Adoption of the Anti-Money Laundering Law gradually ap- proaches]’, loc. cit.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 435 banking institutions consider money laundering as a peccadillo and are therefore not prepared to implement AML regulations rigidly. 26 Equally important, AML obligations more often than not collide with the banking institutions’ notion of self-interest. Since most banking institutions have a strong demand of capital inflow needed to guaranty liquidity in the face of high amounts of non-performing loans, CDD in particular is often neglected in order not to deter potential customers or to prevent existing customers from transferring their deposits or accounts to other institutions. This negligence also frequently occurs in cases where obvious discrepancies strongly entertain the suspicion of the customer’s money laundering intentions. 27 Finally, bribery also easily seduces personnel not to imple- ment AML regulations strictly. 28 On the whole, improvement of the implementation of AML regulations is urgently needed since the implementation status is also part of the forthcoming FATF evaluation of the Chinese AML system. 29 On the whole, insufficient legal foundations, inadequate qualification of personnel as well as a lack of awareness of the overall financial and economic harm of money laundering and, finally, structural problems in the banking sector seriously hamper the fight against money laundering in the PRC. The adoption of the new AML Law will only be able to cure the legal insufficiencies; however, problems of implementation which are not directly related to those will likely remain. 5. INTERNATIONAL COOPERATION OF THE PR CHINA IN THE AREA OF ANTI-MONEY LAUNDERING The Chinese government attributes high importance to joining the FATF as a full member. In January, 200�, the PRC was already granted observer status. 30 To date, preparations for the FATF evaluation of the national Chinese AML system are 26 ‘Fanxiqianfa kuangjia chuding [The basic legal framework for Anti-Money laundering has been established]’, loc. cit. ; ‘Fang yanghang fanxiqianju juzhang [A visit to the Director of the Anti-Money laundering Bureau of the Central Bank]’, loc. cit. 27 ‘Fanxiqian zhongguo zheng mianlin san fangmian tiaozhan [China faces three challenges in the area of Anti-Money laundering]’, loc. cit. ; Jian’an Guo, op. cit. , p. 7; ‘Fang yanghang fanxiqianju juzhang [A visit to the Director of the Anti-Money laundering Bureau of the Central Bank]’, loc. cit. 28 Jian’an Guo, op. cit. , p. 9. 29 ‘Fanxiqiangongzuobujilianxihuiyi kai dierci gongzuohuiyi [Joint Ministerial Conference on Anti- Money Laundering convenes second work meeting]’, loc. cit. 30 ‘FATF welcomes China as an observer’; available at: [Visited: 09.0 .2006].</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 436 under way; the JMC and its members are responsible for the preparatory work. 3 The adoption of the AML Law constitutes the most important pre-condition for full FATF membership. 32 However, albeit the PRC intends to improve its international reputation as a reliable partner in AML by officially joining the FATF, 33 the drafting process seems to lack the required high-level political support since inter-ministerial conflicts of competence as well as disputes about the specific contents of the AML Law still hamper discussions about the draft to the result that the adoption of the Law in 2006 seems unlikely. 34 At the regional level the Chinese government and the governments of the Russian Federation, Kyrgyzstan, Republic of Belarus, Kazakhstan, and Tadzhikistan founded the ‘Eurasian Group on Combating Money Laundering and Financing of Terrorism’ (EAG) in October, 2004. It is the main objective of EAG member states to coopera- tively fight against money laundering, corruption and terrorism in their region. 3� Furthermore, particular emphasis is laid on mutual assistance with the implementation of the FATF ‘40+9 Recommendations’ as well as on carrying out evaluations of the member states’ national AML regimes. 36 Finally, the EAG also plans to conduct a variety of measures of technical cooperation together with partners such as FATF, World Bank, IMF, the United States etc. 37 The PBoC, too, is engaged in technical cooperation with different states and inter- national organizations. To date, several training measures for PBoC personnel involved with AML work have been implemented together with foreign partners, mainly with the IMF and World Bank as well as with the U.S., Great Britain, Canada, Australia, 3 ‘Wo guo jiang jianli luoshi fanxiqian gongzuo zerenzhi [China will establish a practicable Anti-Money laundering responsibility system]’ in: Jinrong Shibao , 0�.09.200�; available at: [visited: 27. 0.200�]. 32 ‘Fanxiqianfa lifa jiaodian zhi zheng [Controversial aspects of the Anti-Money Laundering Law]’, loc. cit. 33 ‘Anti-Money Laundering in China: the status quo and prospects’ – Speech of Mr. Zhou Xiaochuan, Governor of the People’s Bank of China at the first meeting of the Ministerial Joint Conference on AML, 27.08.2004, loc. cit. 34 Cf.: ‘Zhuanfang: fanxiqianfa qicao gongzuo xiaozu zuzhang Yu Guangyuan jiaoshou tan fanxiqian yu fanfubai [Special report: Prof. Yu Guangyuan, chairman of the Anti-Money Laundering Law drafting group talks about Anti-Money laundering and the fight against corruption and bribery]’; Internet discussion staged on ‘Justice Net’ (zhengyiwang), 28.04.2006; available at: [visited: 8.0�.2006]. 3� ‘Declaration on the Establishment of the Eurasian Group on Combating Money Laundering and Financing of Terrorism’; available at: [visited: 0.0 .2006]. 36 ‘EAG Action Plan for 200�’; available at: [visited: 0.0 .2006]. 37 Ibid.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 437 Russia, Belgium, and Italy. 38 In the area of legislation, the German ‘Gesellschaft für Technische Zusammenarbeit’ GTZ (German Corporation for Technical Cooperation) is advising the Budgetary Affairs Commission of the NPC SC on drafting the AML Law. 39 On the whole, the decision to join the FATF as well as the cooperation with the EAG mirrors more general foreign policy principles followed by the Chinese government. For one, the PRC favours multi-lateral cooperation with more informal, working-level or expert-level international bodies which are only weakly institutionalized. 40 Since the FATF should not be strictly considered as a formal International Organization but more as a ‘transnational regulatory organization’, 4 it fits the Chinese preferences for more informal multi-lateral cooperation. In particular, the FATF is characterized by a relatively high degree in informality of structure and modes of cooperation; i.e. the FATF is not founded upon a Charta and does not dispose of a formal organizational infrastructure. 42 Moreover, substantial work is carried out mainly at the working level and involves experts from member states rather than high-ranking political officials. This means, participants are not constrained by diplomatic pressures in elaborating AML policies. 43 Consequently, FATF prescriptions such as the ‘40+9 Recommendations’ do not unfold bindingness as sources of international law but must instead be considered as ‘soft law’. The authority of soft law depends mainly on the voluntary subjugation of member states – and increasingly also non-member states – due to the organization’s reputation as well as the peer pressure amongst member states. 44 Thus, because of the informal organizational structure of the FATF, the issuance of prescriptions which are not legally binding (at least in the formal sense of the word) as well as, finally, a consensual decision mode, 4� the PRC does not perceive FATF membership as limiting national decision making leeway and national sovereignty; this, in turn, constitutes a vital precondition for the participation of the PRC in multilateral cooperation schemes. In 38 ‘Zhongguo fanxiqian baogao 200� [National Anti-Money Laundering Report 200�]’, loc. cit., chap. VII. 39 Information available at: [visited: 0.0 .2006]. 40 Cf. Jianwei �ang, Managing Conflict. ‘Chinese Perspectives on Multilateral �iplomacy and Collective Security’, in Yong Deng/Feiling Wang, eds., In the Eyes of the Dragon. China Views the World (Lanham 999) pp. 73-96, 89. 4 C. Kremer, loc. cit. , p. 0. 42 Ibid.: 6. 43 Ibid.: 8- 0. 44 Ibid.: 4, note 7. 4� Ibid.: 7.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, 2006 – 4 Criminal Law and Criminal Justice 438 the same vein, participation in FATF as well as in EAG evaluations is acceptable to the Chinese government only because these evaluations are carried out as ‘peer reviews’ under the condition of equality. Thus, the evaluation mechanism does not violate the notion of ‘equality’ which as part of the Five Principles of Peaceful Coexistence still exerts a high degree of influence on Chinese foreign policy making. 46 Furthermore, the PRC also values the establishment of multi-lateral cooperation schemes as a counterweight to American political influence in the East Asian region which is perceived by the Chinese government as potentially hegemonic and thereby threatening. 47 This means, PRC involvement with the EAG mirrors the desire of the Chinese government to secure the opportunity to influence to process of international norm making in the area of AML according to Chinese national interests and require- ments and not to completely surrender this area to the already strong American influence. 48 Furthermore, the close cooperation with the Russian Federation in establishing the EAG manifests the good Sino-Russian bilateral relationship which is also cultivated by both governments as a potential counterweight to American regional influence. 49 Finally, support for the establishment and work of the EAG also mirrors the self- perception of the PRC as a regional power. As such, the PRC is prepared to assume responsibility for regional security in a most comprehensive sense which also includes the fight against money laundering and the financing of terrorism; �0 on the other hand, as a regional power the PRC also claims a prominent position in the process of rule making. 46 ‘‘Five Principles’ guiding national relations turn �0’, People’s Daily , 29.06.2004; available at: [visited: 0.0 .2006]. 47 Paul H.B. Godwin, ‘Force and Diplomacy. China Prepares for the Twenty-First Century’, in Samuel S. Kim, ed., China and the World. Chinese Foreign Policy Faces the New Millenium (Boulder, CO 998) pp. 7 - 92, at 73. 48 Cf.: ‘Fanxiqiangongzuobujilianxihuiyi kai dierci gongzuohuiyi [Joint Ministerial Conference on Anti-Money Laundering convenes second work meeting]’, loc. cit. 49 Cf. Jörn-Carsten Gottwald/Sarah Kirchberger, ‘Pragmatischer Realismus. Chinesische Außenpolitik zwischen Hegemonialstreben und wirtschaftlichen Zwängen’, 7 China Analysis (200 ), pp. 2- 3; available at: [visited: 07.0 .2006]. �0 Cf. Feiling �ang, ‘Self Image and Strategic Intentions. National Confidence and Political Insecurity’, in: Yong Deng/Feiling Wang, eds., In the Eyes of the Dragon. China Views the World (Lanham 999) pp. 2 -4�, 37/38.</p>
<p>The Architecture of Anti-Money Laundering Regulation in the People’s Republic of China European Journal of Crime, Criminal Law and Criminal Justice 2006 – 4 439 6. CONCLUSION To date, money laundering in the PRC is spreading inexorably; the progressive international integration and opening up of the Chinese financial services sector as a consequence of the WTO accession of the PRC will likely aggravate the problem. Therefore, the Chinese government has introduced a number of legal and institutional adjustments at the national level in order to curb money laundering activities. However, deficiencies remain in both areas. In particular, since a variety of actors with often conflictive interests is involved in AML, the coordination of counter measures is difficult. Therefore, the new AML-Law is expected to remedy these deficiencies by improving the legal as well as the institutional foundations of AML. However, it must be kept in mind that successful AML also depends on deeper reforms of the banking sector as a whole in order to abolish structural shortcomings which facilitate and also encourage money laundering in the first place. At the international level, too, the PRC is supportive of cooperation in the area of AML. The establishment of the Eurasian Group on Combating Money Launder- ing and Financing of Terrorism (EAG) as well as the determination of the Chinese government to become a full member of the Financial Action Task Force on Money Laundering (FATF) in 2006 indicate the disposition of the PRC to adapt to as well as to exert influence on the creation of international AML standards. Consequently, increased international cooperation should give positive momentum to the legal and institutional architecture of the national Chinese AML regime. Such a development can only be welcomed since the success of international AML efforts highly depends on the successful integration of the PRC as a strategically important actor.</p>
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