Graham Barrow, a British anti-money-laundering expert, says a huge underground money bank has arisen under China’s communist regime. (LIU JIN/AFP/Getty Images)
The recent passage of the National Defense Authorization Act by the U.S. Congress mentions the risk of money laundering from China. Some anti-money laundering experts and lawyers say that a huge underground money bank has been created under the Chinese Communist regime and that China’s money laundering problem has attracted international attention.
Analysis: Serious money laundering problem under the Chinese Communist regime
Voice of America reported on January 10 that Graham Barrow, a British anti-money laundering expert, said that while in the past international anti-money laundering efforts focused on Central and Eastern Europe and the former Soviet Union and its allies, “the international community now sees that China – the capitalist society under a communist regime – has created a huge underground money laundering and transferring assets offshore, which has become a big problem.”
The U.S. State Department lists China as a major money laundering country in its “2020 Annual Report on Global Drug Control. The report says, “Customary money laundering methods include smuggling of large amounts of cash, trade laundering, use of shadow companies, modification of invoices, acquisition of real estate, gambling, and laundering through illegal underground money banks.”
Expert: Diversification of money laundering methods
Barrow and Gao Guangjun, a lawyer practicing in New York, mentioned to Voice of America three main ways to launder money – bribing officials to launder money, buying luxury goods to ship money overseas, and laundering money through a large number of corporate entities.
Mr. Gao is familiar with the operations of the Communist Party’s Ministry of Public Security. He said some corrupt officials buy off bureaucracies to move money in the name of national security.
“People who do underground money transfers in China can be said to be black and white.” Gao Guangjun said, “That is, you can receive your cash immediately in the United States, or elsewhere, if you give RMB in China.”
In response to the use of brick-and-mortar companies for money laundering, Barrow said they have observed that in Western countries such as the U.K. and the U.S., some people have created shell companies using the same names as their Chinese companies, enabling them to be able to move money freely within the same company. “If I open a company in the U.K., that company has the exact same name as my Chinese company. When I open an account in Hong Kong, I use the name of (the) British company. But for the bank, it’s hard for them to tell whether the money that’s being credited is coming from my Chinese company or my British company.” “And once the funds are in Hong Kong, it’s much easier to transfer them because it’s a major financial center.”
Barrow added that the U.K. has identified 30,000 such companies whose legal entities are Chinese nationals and whose company names are the same as those of the people’s companies in China. “We found that all these British companies were dormant and I can’t really think why one person would need to set up so many companies.”
China’s Communist Party does less to fight money laundering without charging top officials
In its 2019 anti-money laundering regulatory assessment for China, the International Financial Action Task Force on Money Laundering (FATF) noted that China has made too few penalties for money laundering.
Lawyer Gao Guangjun said the current tough regulation is aimed more at ordinary people, while high-ranking officials remain difficult to control.
Of course the regulations are much tougher,” he said. But unfortunately this severity is only for the general public. It used to be that you could withdraw $50,000 to travel to the West and send your kids to school, but now it’s much tougher. Some people have to make several trips to the bank to withdraw $500.” “But for high-ranking officials, it’s not even a problem. They still launder money in their own variety of ways, and that’s why you see a lot of so-called high-ranking officials who are investing overseas, buying houses, all in very quick cash transactions.”
U.S. Passes Bill to Further Tighten Controls on Chinese Money Laundering
The U.S. National Defense Authorization Act (NDAA) requires the U.S. Secretary of the Treasury to conduct an assessment of China’s illicit financial risks based on data audited by the U.S. Government Accountability Office, examining the risks posed by the relevant Communist government and Chinese companies, including financial institutions, and whether the Communist government’s relatively weak regulatory measures have contributed to these financial crimes.
The Voice of America cited analysis that this highlights further scrutiny of China (the CCP) by the U.S. executive and legislative branches and the U.S. government’s concern that China (the CCP) is not transparent enough in structuring its financial regulatory system.
The National Defense Authorization Act, which includes a bill to amend anti-money laundering rules, was passed by the U.S. Senate on Jan. 1 of this year. The bill calls for a halt to the opening of anonymous shell companies in the United States.
The bill would require most companies to report their beneficial owners to the U.S. government, allow law enforcement and regulators access to more information, and permit the use of new tools to monitor suspicious behavior.
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