Chinese official warns money laundering, online scams outpacing capacity for containment

As financial crimes, especially money laundering, grow more advanced, China’s system must evolve accordingly, central bank official warns. Combating scammers domestically will have positive effects for regions like South-East Asia, where gangs rake in billions each year. — SCMP

To properly grapple with money laundering – an increasing threat to the country and South-East Asia – China needs to remedy multiple shortcomings in its financial system, a senior central bank official has cautioned.

Chinese financial institutions currently lack the compliance management capability and regulatory technology to handle the increasingly complex nature of financial crimes and a rapidly expanding fintech sector, said Wang Jing, deputy head of the anti-money-laundering bureau of the People’s Bank of China, at a forum on Friday.

Taking a strong stance on money laundering, which has been on the rise in mainland China and South-East Asian economies at the same time as online scams, is “[important] to maintain national security and financial security”, Wang said at the 13th China Anti-Money Laundering Summit Forum in Shanghai.

Mainland China and Singapore both reported higher risks of money laundering and terror financing compared with last year – though also had slightly improved rankings – on the 2023 Anti-Money-Laundering Index by the Basel Institute on Governance non-profit organisation, indicating others had seen more substantial relative increases.

Hong Kong showed improvement in the global ranking and its own score for risk exposure during the same period of time.

China will also soon face stricter scrutiny of its anti-money-laundering efforts, as the inter-governmental Financial Action Task Force has scheduled a review of the country for next year after narrowly passing it through its fourth round of assessment in 2019.

Various financial crimes, including telecoms scams, online gambling and underground banks, are becoming more tightly intertwined with money laundering and pose new challenges for the country, Wang said.

“The amounts involved in the cases continue to rise, and financial risks are gradually increasing,” he noted.

However, Chinese financial institutions generally have a low level of risk management and carry vast individual differences in their risk control capabilities, Wang said.

They also lag behind fintech in terms of technology, especially in light of the rapid changes happening to the industry, he said. The rise of virtual assets, the digital economy and the platform economy, he added, has led to higher risks in turn.

“Increased efforts [against] money laundering from China are of great significance to curb crimes in Southeast Asia,” as the region is one of the world’s hardest hit areas for money laundering and illegal financial activities, said Han Dongping, a lawyer specialising in financial crimes at Yingke Law Firm in Beijing.

“Since money laundering activities often involve cross-border transactions, close cooperation between countries is required to effectively combat such crimes,” he said. “However, in some cases, cross-border cooperation may be hindered by political, economic and other factors.”

Scams in South-East Asia are earning criminal groups the equivalent of billions of US dollars. According to a policy report issued by the United Nations Office on Drugs and Crime in September, total profits for some criminal schemes are threatening to eclipse the GDP of the countries where they take place.

Apart from enlarging their own operations and bribing officials, the illicit profits are laundered typically through money transfers, legitimate businesses and various investment portfolios, it said.

In January last year, 11 Chinese ministries jointly announced an anti-money-laundering campaign that would last until 2024, linking the issue to “national security, social stability, economic growth as well as the public interest”.

Prosecutors across the country brought actions against over 1,700 people for money laundering in the first three quarters of the year, up by nearly 15% over the same period last year, the Supreme People’s Procuratorate said in a statement late last month.

Over 62,000 people sued for other offences – including concealment of criminal proceeds – were allegedly involved in money-laundering, up by over 90% compared to last year.

The surge is “closely related to the high frequency of telecoms scams and cross-border gambling”, it said.

More than 2.25bil yuan (RM1.45bil or US$312mil) in proceeds from telecoms scams and online gambling were laundered by a 21-person gang via cryptocurrency in five consecutive months between late 2020 and early 2021, according to a case recently made public by a court in western China’s Chongqing municipality.

The gang was paid over 22mil yuan (RM14.42mil) for its services, and last month all its members were sentenced to jail terms ranging between one year and six years, the court said. – South China Morning Post

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