Zhou Xiaochuan: Anti-money laundering in China - the status quo and
prospects
Speech by Mr Zhou Xiaochuan, Governor of the People's Bank of China, at the first meeting of the
Ministerial Joint Conference on AML, Beijing, 27 August 2004.
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Approved by the State Council, the People's Bank of China (PBC), as the leading ministry in the
Ministerial Joint Conference on Anti-money Laundering (AML), invites today the member ministries to
review the current AML situation, to draw up the plan for the AML work in the next stage, to determine
the working procedure for the Ministerial Joint Conference on Anti-money Laundering (AML) and the
responsibilities of the relevant ministries.
I. The significance of AML
Money laundering is the practice of legitimizing the illegally obtained gains and proceeds through a
series of transactions, transfers or conversions in order to evade legal punishments. Money laundering
helps criminals to evade legal punishments as well as puts a premium to the spawning of new crimes,
distorts normal economic and financial orders, damages credibility of financial institutions and corrupts
public morality. With the deepening integration of China's economy into the world economy and new
changes in social conflicts, strengthening AML is of great significance.
First, sound AML work is an objective necessity for safeguarding China's national interests and the
fundamental interests of the masses. AML involves efforts in the diplomatic, economic, judiciary and
security fields etc. The performance of AML is closely related to the public image of China's
government both at home and abroad, to the economic stability and to the social justice. A sound
practice in AML also constitutes the concrete measure for safeguarding the order of China's socialist
market economy and the fundamental interests of the masses and for practicing the important
thoughts of "Three Represents". The work stands for an important move for honoring the
Commitments of the Chinese government to the outside world and for creating the image of a
responsible big country with respect to AML. It is also a necessary step for speeding up the opening of
the financial industry and promoting the internationalization of the Chinese banks. Therefore, we shall,
from the vantage point of "stressing political awareness" and based on the significance of
safeguarding China's economic and financial security, sharpen the awareness of the importance and
urgency of AML, establish effective AML system, and bring AML onto the track of standardization and
institutional arrangement.
Second, AML is a necessity for relentlessly cracking down on economic crimes. At the start of reform
and opening, Mr. Deng Xiaoping pointed out that, fighting economic crime "is a long-term continuous
struggle," is a protracted task calling for perseverance in the course of China's modernization
construction. With the deepening of marketization of China's economy, such crimes as smuggling, tax
evasion, tax rebate cheating, financial frauds, market manipulation and insider trading are on the rise.
The above crimes are catalyst to corruption like embezzlement and bribery taking, severely damaging
the health of national economy and corroding social and public morality. A sound practice in AML will
enable an effective monitoring of abnormal and suspicious fund movement, generate opportunities for
controlling the transfer and hiding of the illegally obtained gains and provide effective means for
recovering illegal funds transferred abroad, so as to fight economic crimes effectively.
Third, carrying out AML is a necessity for forestalling other grave criminal crimes. With China's
opening wider to the outside, international narcotics crimes and organized crimes with the nature of
underworld have picked up. In some part of the regions, there emerged the symptoms of terrorist
crimes by a small handful of extremists and separatists, creating grave social problems. Experience at
home and abroad suggests, the severe crimes are not possible without enormous financial support
and therefore often entail frequent money laundering. Cracking down on money laundering and
spotting and cutting off the funding chains on which crime organizations rely, will forcefully weaken,
break up and disintegrate the criminal activities, strictly forestall them from spreading and realize
ultimately the targets of combating crimes, protecting the fundamental interests of the masses and
safeguarding social stability.
Fourth, a sound practice in AML is also a necessity for safeguarding the credibility of financial
institutions and the financial stability. Money laundering is basically divided into three steps,
placement, covering up and integration. First, placement, i.e. placing unlawful proceeds into the
economic system, mainly the financial institutions. Second, covering up, i.e. covering the origin and
blurring the nature of illegal funds through complex transactions. Third, integration, i.e. using
"laundered" funds legally. The above features indicate that financial institutions, as the carrier of funds
activities, are objectively prone to become the channels for money laundering. Involvement of financial
institutions in money laundering, will not only damage the reputation of the financial institutions, but
also bring about formidable legal and operational risks. AML is of important and realistic significance
for safeguarding the reputation of financial institutions, forestalling financial risks, safeguarding the
stability of the financial system.
II. International AML situation
After the mid-20th century, governments around the world were confronted with the grave situation
where the flooding of narcotics became a scourge, and they conducted in-depth examination on the
legal policies of preventing narcotics-related crimes. In 1970, the United States passed the Bank
Secrecy Act (BSA). BSA reformed on the traditional bank secrecy system, built up the AML foundation
in the US and instituted the AML working system led by one government department and participated
by various others. Meanwhile, AML was paid much attention by the majority of Western developed
economies and emerging economies. During 1980s-1990s, these countries and regions have
successively enacted AML laws. Switzerland, famous for its strict bank secrecy arrangements, also
accepts the international AML practices under international pressure. Starting from July 1 this year, for
those who transfer money above a certain amount through anonymous accounts with banks of
Switzerland, the banks should make known their true identity.
Faced with ever-raging money laundering, such international organizations as the Security Council of
the UN have responded actively as well. In 1988, the UN passed the United Nations Convention
against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, which criminalizes money
laundering related to narcotics. The Convention is the first international convention against crimes of
money laundering in the world. Since 1990s, the international community has paid ever closer
attention to money laundering. In 1990, the European Council passed Convention on Laundering,
Search, Seizure and Confiscation of Proceeds from Crime. In April 1995, the UN particularly drafted
guidelines on preventing money laundering activities, for reference of all countries in the course of
AML legislation. In December 1999, the UN General Assembly passed International Convention for
the Suppression of the Financing of Terrorism. In November 2000, the UN General Assembly also
passed Convention against Transnational Organized Crime, calling for all parties to institute AML
program. In October 2003, the UN General Assembly further passed Convention against Corruption,
stipulating stricter requirements for AML programs of the parties. Such international organizations as
the International Monetary Fund, the World Bank and the Basle Committee on Banking Supervision
have also developed an array of principles and guides.
Because of the transnational nature of money laundering, the G-7 Summit in Paris decided in July
1989 to establish the Financial Action Task Force (FATF), in a bid to examine the cooperative results
with respect to combating money laundering through banks and the financial system, to improve laws
and rules in AML and measures, and to strengthen preventive AML measures through multi-lateral
judiciary assistance. In February 1990, the FATF set out a set of Forty Recommendations on Money
Laundering ("Forty Recommendations"). First, each country should criminalize money laundering of
funds used in severe crimes. Second, governments of all countries should strengthen financial
supervision by urging financial institutions to develop and implement feasible internal AML control
system and to fulfill the obligation of customer identification, record-keeping of customer information
and transactions and detection and reporting of suspicious financial activities. Third, governments
should establish Financial Intelligence Unit (FIU) responsible for monitoring unusual and suspicious
transactions of funds, so as to achieve coordination and cooperation between appropriate ministries.
Fourth, countries should exchange intelligence on money laundering and conduct international
cooperation in AML investigation, search and freezing of illegal funds and extradition of suspects. The
Forty Recommendations by the FATF has become the most important guiding document in the current
international AML sphere, promoting AML legislation in all countries and regions and development of
the international AML system.
After 9/11 terrorist attack, anti-terrorism is combined with AML. Combating terrorist financing has
become an important field of AML. AML and combating terrorist financing have become important
issues of some international organizations and forums, occupying a significant niche in current
international relation. After 9/11 terrorist attack, the US congress wasted no time in passing the USA
PATRIOT Act, strengthening in an all-round way the rules for combating terrorist financing. The
legislature of all countries and regions reacted to the movement quickly as well. Besides some
international conventions passed by the UN with respect to combating terrorist financing, the FATF
drafted specifically 8 more recommendations for combating terrorist financing in October 2001. The
developed countries in Europe and America have rendered AML and combating terrorist financing a
focus of their foreign affairs, and have taken resolute measures to that effect.
III. The status quo of AML in China
1. AML legislation
China's criminal legislation with respect to AML almost synchronized with the international efforts.
After the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic
Substances went into effect in 1988, China's National People's Congress promulgated the Decision on
Ban of Narcotics, predicating "the crime of disguising and concealing the nature and source of funds
for narcotics". The Criminal Law was amended in 1997 with a specific article predicating the crime of
money laundering. After 9/11 terrorist attack, the highest legislative body stipulated in the Amendment
to the Criminal Law in December 2001 that terrorist crime be an upstream crime of money laundering.
China has progressively promulgated an array of administrative and financial rules and regulations to
legalize the arrangement of authentic names for individual deposits accounts, the management
system on banking accounts and the regulations for management on large-value cash. In March 2003,
the PBC promulgated Rules for Anti-money Laundering by Financial Institutions, Administrative Rules
for the Reporting of Large-value and Suspicious RMB Payment Transactions and Administrative Rules
for the Reporting by Financial Institutions of Large-Value and Suspicious Foreign Exchange
Transactions. The rules put forward clearly the AML supervisory requirements for the banking
institutions, and set up the basic framework for China's system of AML reporting and AML information
monitoring. The Law of the People's Bank of China amended at end-2003 stipulated that the central
bank is responsible for "guiding and planning AML work of the financial industry and monitoring of fund
movement with respect to AML".
The criminalization of money laundering and the formation of the basic system of AML in the financial
industry symbolize the preliminary establishment of the system of AML laws and rules.
2. Implementation of AML work
To carry out its duties on AML, the PBC set up, with the approval of the State Council, the AML
Bureau in September 2003, further established the China AML Monitoring and Analysis Center in April
2004 responsible for accepting and analyzing AML intelligence. In order to strengthen the coordination
within the financial industry, the PBC convened a Symposium of AML for financial regulatory
authorities in April 2004, and formed a coordinating mechanism for AML led by the PBC and
participated by China Banking Regulatory Commission (CBRC), China Securities Regulatory
Commission (CSRC), China Insurance Regulatory Commission (CIRC) and the State Administration of
Foreign Exchange (SAFE). In May 2004, the Ministerial Joint Conference on AML was, with the
approval of the State Council, re-organized and enlarged from the original 16 members to 23 with
scope of AML supervision widened. Thus, the coordinating mechanism at the national level and in the
financial industry has formed preliminarily and begun its operation, and China's AML system has taken
its initial shape.
Since the implementation of the three Rules in March 2003, the Head Office of the PBC has altogether
received 3,061 reports of suspicious RMB payment transactions through screening by its branches
while the SAFE has received 170,500 reports of suspicious foreign currency payment transactions
with an amount of USD9.720 billion. After cross-examination, suspect cases of money laundering have
been referred to the public security departments for investigation. The Ministry of Public Security, the
PBC and the SAFE have also joined in cracking down on underground money centers. Since 2002, in
operations of combating underground money centers, 73 cases have been solved, 57 underground
money centers and 96 underground banking outlets destroyed, 240 suspects detained or arrested,
illegal funds and assets equivalent to more than RMB80 million yuan confiscated. The total amount
involved in the cases was as high as several billion yuan, effectively holding in check the momentum
of money laundering through underground money centers. At present, there are still some pending
cases of money laundering referred by the PBC and the SAFE to the public security departments for
investigation.
Meanwhile, we shall realize clear-minded the difficulties and protraction of AML work. Due to late start
of AML and faced with the complex situation, the current AML in China is still falling short of the
requirements and changes of the situation. The deficiencies of AML are mainly as follows. AML laws
and regulations are far from perfect, leaving quite a gap from the perspective of the international
practices and AML requirements. The awareness of the importance of AML by financial institutions
has yet to be sharpened. The AML internal control system and the reporting system of suspicious
funds transactions have yet to be strengthened and improved. AML in non-financial industries has yet
to be reinforced either. With the changes of the economic environment, the means of money
laundering has become ever more sophisticated and specialized, there has already emerged money
laundering via the internet.
3. International AML cooperation
The Chinese government has all along attached importance to international AML cooperation. At
present, China has signed and approved the United Nations Convention against Illicit Traffic in
Narcotic Drugs and Psychotropic Substances and the UN Convention against Transnational
Organized Crime, and has signed the UN International Convention for the Suppression of the
Financing of Terrorism and the UN Convention against Corruption.
The Chinese government has been advocating the expansion of representation by developing
countries in international AML organizations. With the approval of the State Council, the PBC has
formally written to the FATF in April this year and applied for a membership in the FATF. Meanwhile,
China has contacted the preparatory committee of the Euro-Asia Group on AML and Combating
Terrorist Financing (EAG) through various channels. The PBC and the Ministry of Public Security
participated in the preparatory meeting of the EAG on AML held in Russia in June 2004. China will
make efforts to become the initiating member of "the EAG".
Making full use of international resources in beefing up in staff training constitutes an important part of
the international AML cooperation of China. In recent years, the PBC, the Ministry of Public Security
and the SAFE, in collaboration with the international organizations like the UN, the World Bank, the
IMF and the FATF, have held a series of seminars and training sessions. In the first half of 2004, the
PBC, jointly with related agencies and international institutions, organized four AML seminars and
training sessions, providing technical support for AML work in China.
IV. Prospects for AML in China
Generally speaking, the situation of AML is good. The relevant AML policies and measures have taken
effect. The coordination and working mechanisms at various levels have been brought onto the right
track. And with the deepening of AML work, the effects will unfold further. As AML is an important
while arduous task that influences the overall society, all members of the joint conference shall
collaborate with concerted efforts in doing well the following work.
1. Continuing to reinforce the coordinating mechanism of AML
Efforts shall be made to continue to carry out directives by the Central Committee of the CPC and the
State Council on combating corruption, advocating honest and clean government and fighting
economic crimes. In order to effectively fend off and crack down on crimes of money laundering, to
safeguard the national economic and financial security and normal economic order, the Ministerial
Joint Conference on AML will, under the leadership of the State Council, be responsible for guiding the
national AML work, drawing up the important national AML principles and policies and the policies and
measures for international AML cooperation, and coordinating all departments and mobilizing
resources of the whole society to carry out AML work. As the leading ministry of the joint conference,
the PBC will commit to strengthening research on AML policies and measures, improving
management on AML, reinforcing supervision on AML of financial institutions, beefing up funds
monitoring and analyses for AML purposes. The PBC will, together with relevant government
departments, develop AML guidelines for such high-risk sectors as banking, securities and insurance,
spur financial institutions and other entities with high risk of money laundering to improve their internal
AML policies and procedures. The PBC will make efforts to detect clues of crimes in money laundering
and timely transfer them to public security and other departments for criminal investigation. The PBC
will collaborate with authorities of public security, state security, commerce, customs, industrial and
commercial administration and taxation in investigating, through AML monitoring system, cases of
unlawful practices and crimes.
2. Improving and strengthening AML legal system
The AML Law has been included in the legislation plan of the Tenth Standing Committee of the NPC.
In March 2004, the Budgetary Committee of the Standing Committee of the NPC convened the
inauguration meeting for the drafting group of the AML Law. The leading and working groups for AML
Law drafting have been established with the leadership of the NPC and the participation of 18 units
like the Supreme Court, the Supreme Procuratorate, the Ministry of Public Security, the Ministry of
Finance and the PBC. As planned, the draft AML law will be presented to the Standing Committee of
the NPC for deliberation in early 2005.
The drafting of the AML law will further define China's AML work mechanism, the relevant authorities
for AML and the responsibilities of relevant departments, and will stipulate the AML responsibilities of
financial institutions and other sectors with high risk of money laundering, so as to immensely improve
the AML work in China.
3. Establishing and improving the supervisory system for AML in the financial industry
The PBC will continue, in collaboration with the CBRC, the CSRC, the CIRC and the SAFE and other
supervisory authorities, improve and newly developed AML guidelines for all financial business,
implement in real earnest the information collection and analyses on as well as detection and
monitoring of suspicious large-value funds, encouraging financial institutions to build and improve
internal AML procedures by fulfilling conscientiously the AML responsibilities in verifying customer
identity, reporting of suspicious large-value funds and record-keeping of transactions, so as to forestall
financial risks and safeguard stability of the financial industry.
4. Further strengthening international AML cooperation
Strengthening international cooperation in the field of AML is necessitated by the developments of the
current international situation, China's active participation in the international economic cooperation
and the proceeding of AML in China. In the recent periods, we shall not only make efforts to join
international AML organizations but also establish bilateral cooperation with major countries and
regions in the areas of AML. We shall, within the multilateral and bilateral framework, carry out AML
intelligence exchange and training cooperation, and provide assistance in the investigation and
seizure of assets and extradition of suspects. By strengthening international AML cooperation, we will
forcefully crack down on and hold in check the momentum of transferring overseas illegal assets by
the criminal suspects, and will prevent the stripping of state-owned assets. We will provide assistance
to foreign law enforcement authorities on the basis of mutual benefits.
Ladies and Gentlemen, despite some achievements attained in China's AML work, we are still facing
very arduous tasks. We shall, from the vantage point of practicing the important thought of "Three
Represents" and fully implementing the guidelines laid by the Sixteenth Congress of the CPC, sharpen
our awareness of the importance and urgency of AML work, and strengthen our sense of responsibility
in this mission. We shall, under the leadership of the State Council, bring into full play the role of the
Ministerial Joint Conference on AML, and proceed in a practical, forward-looking and pioneering
manner to open a new chapter for China's AML work.
Thank you!