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The central People's Bank of China (PBOC) announced rules yesterday requiring financial institutions to report suspicious and large foreign exchange transactions, the latest stage of its bid to battle money laundering.
The announcement followed Monday's unveiling of China's first anti-money laundering regulations, setting out financial institutions' obligations. The bank also published a similar regulation on Tuesday requiring financial institutions to report suspicious and large renminbi transactions.
Analysts warn that an increase in embezzlement, drug trafficking and smuggling has inflated the flow of "dirty" money in China over recent years, threatening to erode the health of its fast-growing economy.
The PBOC launched its anti-money laundering campaign in June with the establishment of two departments to monitor suspicious transactions and co-ordinate inter-ministry co-operation.
Under yesterday's regulation, financial institutions are required to report forex cash transactions exceeding US$10,000, non-cash transactions exceeding US$100,000 with individuals and non-cash transactions with corporations that top US$500,000.
The numbers are higher than a US$5,000 reporting threshold for cash transactions some officials had predicted, according to experiences from countries with freely convertible currencies, like France.
The regulation listed activities that are considered as "suspicious." Suspicious dealings are also listed in Tuesday's regulation, including abrupt rises in the frequency of commercial exchange with clients based in areas notorious for drug trafficking, smuggling and terrorism.
Qin Chijiang, deputy secretary-general of the China Society of Finance, said the issue caught the central bank's attention "quite some years ago" as the problems of financial risks, corruption, drainage of State assets and drugs-related crimes emerged. But it stopped short of taking concrete steps to deal with the problem, he said.
In an article published in a State Administration of Foreign Exchange magazine last year, officials provided a brief summary on money laundering in China. "Various money laundering activities by domestic and overseas money launderers are relatively concentrated in economically prosperous regions along the coast; dirty money that is involved in money laundering has a broad array of sources, including various economic crimes like embezzlement, bribery, forex flight and fraud, tax evasion and proceeds from illegal operations," they said.
The government broadened its campaign on Monday by also including illicit gains from terrorist acts in its definition of money laundering, alongside smuggling, drug trafficking and criminal gangs' operations.
The central bank also said financial institutions are subject to fines and other penalties if they fail reporting and other obligations or open accounts for clients with false IDs.
(China Daily January 16, 2002)
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