I.                     Could you please explain why anti-money laundering has now become a hottopic internationally?

 

Thereare two major reasons. First, money laundering comes from and facilitates othercrimes, thus posing a serious harm to the whole society. With wide applicationof modern technology in financial sector, social credit system witnessedunprecedented development, of which was taken advantage by criminals for moneylaundering using various kinds of high tech channels and methods. In thisregard, money laundering has evolved from the criminal activity happening incertain areas occasionally to that with complex structure and posing harm onthe whole society. Second, given that money laundering usually involves crossboarder transactions, comprehensive international cooperation with frequentcommunication and discussions is important due to the difference in culture,system and policy at country level.

 

Atpresent, the definition of money laundering by some important internationalconventions and international organizations may vary from differentperspectives. But overall speaking, there are two common basic elements: first,money laundering refers to the transfer or conversion of the proceeds fromillegal activities with a purpose of hiding or covering the illegal source ofproceeds. Second, money laundering is related to predicate offences (e.g. drug trafficking,smuggling, ect). Since money laundering activities in practice are complicatedand changing fast, its definition should take into account the actual situationin different countries. For example, some countries regard legal funds (e.g.bank lending) for illegal purpose as money laundering, while some others definethe funds outside financial system or beyond financial regulation as moneylaundering.

 

Inearly 20^th century, drug trafficking groups in some American citiesincluding Chicago started to launder money in an organized way. They usedlaundries to report both drug proceeds and laundry income to tax authorities soas to circumvent strict taxation system and legalize their proceeds. Startingfrom mid 20^th century, with rampant spread of drug trafficking,smuggling and corruption and hence generation of huge amount of illegalproceeds, more and more complicated and specialized methods were used for moneylaundering, whose scale expanded day by day. Terrorist activities started toincrease since end 20^th century. But terrorist activities could notbe sustained without financing from money laundering. Therefore, fightingagainst terrorist financing (i.e. money laundering related to terrorism) caneffectively deter terrorist activities and international community regards AMLas an important task.

 

Countryexperience indicates that money laundering is of severe harm to the society.First, government reputation in countries with rampant money laundering is undoubtedlygreatly damaged, hence seriously jeopardizing social stability. Second, moneylaundering distorts resource allocation and disrupts normal market economicorder. Third, money laundering severely undermines social equity, andfacilitates corruption. According to the estimates by some internationalorganizations and experts, the amount of money laundered around the world eachyear stands at around USD1.5 to 3 trillion, around 2 to 5 percent of totalworld economic output. It is estimated by some Chinese experts that moneylaundered in China is no less than RMB200 billion yuan, around 2 percent ofChina's total annual output. Even though this figure is only an estimate forreference, it can call our attention to the fact that China, like othercountries around the globe, is also facing severe challenge of moneylaundering, and thus AML is of great significance and urgency to us.

 

II.                   What measures did international community take in terms of internationalcooperation for AML?

 

Themost important and effective AML measure is legal actions. Legislation candefine money laundering as criminal offence, and make clear the legal liabilitiestaken by judicial department, law enforcement agencies and relevant economicinstitutions. Law enforcement review and evaluation can be used to guaranteethe effects of AML laws in practice. There are several hallmark internationalAML conventions. The United Nations Convention against Illicit Traffic in NarcoticDrugs and Psychotropic Substances on Dec 19 1988 was the first landmarkinternational pact that required all the parties to define money laundering ascriminal offence and to crack down on violators. Our government signed thispact on Dec 20 1988 and the National People's Congress approved it on Oct 251989. The UNs convention against Transnational Organized Crime on Nov 15 2000required the parties to define all serious criminal offences as predicateoffences related to money laundering and called on the reinforcement of cooperationfor AML among all parties. Our government signed this pact on Dec 12 2000 whilethe National People's Congress approved it on Sep 23 2003. The UNsAnti-Corruption Agreement on Oct 31 2003 Oct 31 2003 required the parties todefine corruption as the predicate offence related to money laundering and setout detailed provisions on ALM execution and supervision, on questionablecapital flows monitoring, and on international cooperation for AML as well. Atpresent more than 130 countries signed this agreement, with China included.Besides, the UNs and other international organizations passed a series ofinternational AML agreements, including Statement on Prevention of Criminal Useof the Banking System passed by Basel Committee on Banking Supervision in 1988,Convention on Laundering, Search,Seizure and Confiscation of the Proceeds from Crime passed by Council of the EuropeanUnion in 1990, Council Directive onPrevention of the Use of the Financial System for the Purpose of MoneyLaundering passed by Council of the European Union in 1991, InternationalConvention for the Suppression of the Financing of Terrorism and Model Legislation on Laundering ,Confiscationand International Cooperation in Relation to the Proceeds of Crime passed by the UNs in1999, etc. To assist the implementation of these international AML agreements,the governments successively formulated national rules, which, together withthe international AML agreements, played an important role in international AMLactions.

 

Withthe strengthening of the international cooperation for AML, the internationalorganizations for AML were established, the most influential one among which isFinancial Actions Task Force (FATF). The FATF is an international organizationestablished by the G-7 in 1989, with 33 members including 31 countries orregions and 2 territorial international organizations (Council of the EuropeanUnion and Gulf Cooperation Council), and 23 advisors including 5 AML territorialinternational organizations and 18 international organizations as World Bank,IMF, Asian Development Bank, African Development Bank, etc. The FATF FortyRecommendations against Money Laundering and Terrorists Financing and FATFEight Special Recommendations on Terrorist Financing were widely accepted bymore than 130 countries and regions and had been regarded as the international criterionfor AML and anti-terrorists financing. To facilitate information exchange and cooperation, the FinancialIntelligence Units (FIU) in each country build up an informal internationalorganization named Egmont Group, with members including 69 countries andregions. The Statement of Purpose of the Egmont Group of Financial IntelligenceUnits offered the guideline for developing the information exchange and cooperationand effectively improved the international exchange on AML information.Moreover, to strengthen the self-discipline of commercial banks on AML, 12world-class multinational banks including CitiBank and HSBC set up aninternational AML organization in 1996, which is Wolfsberg Group. It passed theWolfsberg Anti-money Laundering Principles, Wolfsberg Statement on TheSuppression of the Financing of Terrorism and Wolfsberg AML Principles forCorrespondent Banking that provided international standard for the self-controlof commercial banks on AML and hence enhanced the self-discipline on AML formultinational banks.

 

III.                  What measures did China take on AML?

 

Thegovernment has taken various active actions on AML. In the legislation, we notonly actively join in international AML conventions and undertake the requiredresponsibilities but also set out a series of national laws in respect to AML.The newly enacted Criminal Law in 1997 clearly defined money laundering relatedto drug, gangdom, and smuggling offence as criminal offence while the amendmentof Criminal Law defined the terrorist actions as the predicate offence relatedto money laundering at the end of 2001. In January 2003 the State Councilpromulgated Rules on Real Name System for Personal Bank Account and confirmedthe illegality of money laundering with anonymous account. In 2003 the PBCpromulgated the Rules for Anti-money Laundering Efforts by FinancialInstitutions, the Administrative Rules for the Reporting of Large-Value andSuspicious RMB Payment Transactions, and the Administrative Rules for theReporting of Large-Value and Suspicious Foreign Exchange Transactions byFinancial Institutions, which clearly prescribed that financial institutionsshall monitor and report any large-value and/or suspicious transactions and cooperatewith the judiciary and/or administrative departments to fight against moneylaundering. It also issued the classification of the reporting of large-valueand suspicious fund transactions and the punishment for any contravention.

 

Interms of the institutional organizations, the State Council confirmed theleadership of PBC in AML operation of financial institutions and itsresponsibility in fund monitoring. The AML responsibility of PBC has beencleared in Law of People's Bank of China that amended at the end of 2003. To fulfillthis responsibility, the PBC set up the AML Bureau and the AML monitoring andanalysis center. To improve the AML in financial industry, the PBC formed asthe leading institution the AML coordination mechanism for financial regulatoryand supervisory sector jointly with CBRC, CSRC, CIRC and SAFE, which is broughtinto full play in AML in financial industry.

 

Interms of preventing and cracking down money laundering, the commercial bankshave formed the internal AML system based on the clients information,transaction reports and records. For the first reporting year of 2003, therewas a report of more than 2,600,000 deals of large-value or suspicious fundtransaction amounted to USD600 billon in the foreign exchange transaction. Thejudiciary and law enforcement departments strongly combated money laundering.The public security authorities struck illegal underground financing activitiesand closed 62 underground banks with the seize of RMB130 million yuan worth ofillicit funds and the capture of more than 200 suspects, which effectively awedthe rampant money laundering crimes.

 

Interms of training and education efforts in AML, various kinds of internationalor national seminars and workshops were held in different departments and atdifferent levels through the cooperation with international organizations andrelated countries, which increased understandings on the importance ofanti-money laundering actions and built up a AML team.

 

Interms of international cooperation, China examined more than 30 domesticbanking accounts opened by foreign criminal organizations and individuals whichgreatly facilitated the AML work in related countries and internationalorganizations. Similarly, with the help of judicial departments in relatedcountries, China investigated into and cracked many cross-border moneylaundering offenses by Chinese organizations and individuals.

 

IV.               Is there any gap between our AML activities and the international practiceand how to narrow the gap?

 

Asa developing country, China still has a lot to do in AML. First, the AML rulesneed to be improved. The current AML rules are dispersed in dozens of laws andregulations. Therefore, a systematic AML law is called on that can broaden thedefinition of predicate offence related to money laundering and further developthe AML actions. Second, the division of AML responsibilities among departmentsis not clear, and the cooperation mechanism is still under construction. Thecomplex characteristics such as trans-industry and trans-region transactions ofmoney laundering make AML unaffordable by only one department and hence thecooperation among different departments becomes vital. Third, furtherdevelopment of the AML monitoring and analysis system is in necessity. Thelarge-value and suspicious fund transactions are reported in domestic andforeign currency separately, which, if not unified as soon as possible, wouldimpede the monitoring and analysis of money laundering. Also, thecomputer-based reporting and analyzing approach awaits to be advanced.Currently some financial and non-financial institutions vulnerable to moneylaundering are not included in the AML reporting system, thus rules must bepromulgated to extend reporting entities. Fourth, the internal AML system isstill weak. Some financial institutions have not fully realized the threat ofmoney laundering and mistakenly think that the establishment of internal AMLsystem will not be paid off and may affect their business. Fifth, the AMLtraining is called for reinforcement. The inexperience and unqualified AML teammade the training quite necessary, especially for the front line stuff infinancial institutions who engage in daily business and undertake theresponsibility of identifying and reporting suspicious fund transactions.

 

Measureshave been taken to strengthen and improve the AML work. First, advancing theAML legislation. Drafting and enacting Law of Anti-money Laundering is in greatnecessity. Hence, the National People's Congress set up the drafting groupconsisting of the PBC and other over a dozen of government ministries on Mar22, 2004. The drafting group will enact a practical law which complies withinternational conventions and China's reality. The introduction of this lawwill greatly foster our AML activities. Second, improving the coordinationmechanism for AML. The State Council approved to adjust and reinforce theoriginal AML coordination mechanism, and to strengthen the responsibility ofrelevant departments on AML so as to effectively prevent and crack down moneylaundering crime. The improvement and reinforcement of this coordinationmechanism will play a significant role on AML. Third, upgrading the AMLmonitoring and analysis system. With the assistance of other departments, thePBC has been studying the transaction characteristics of security industry,insurance industry and high-risk non-financial industry as well. And the PBCwill hereby specifically formulate rules for reporting and expand the reportingrange with the consideration of the characteristics of these industries. Italso makes efforts on establishing the AML monitoring and analysis center so asto monitor and analyze the unification report of domestic and foreign currency,and on computer-based deal of data so as to improve the monitoring and analysisof the report. Fourth, strengthening the internal AML system of financialinstitutions. The commercial banks all over China have carried out the AMLexamination since this May according to Rules for Anti-money Laundering Effortsby Financial Institutions, while the PBC will examine the AML activities of commercialbanks from this July. Only through the examination, can China realize and hencesolve the problems in AML actions, and consequently facilitate theestablishment of internal AML system. Fifth, promoting the AML training. Theprevious trainings are proved to be so effective that the training on AML iscalled for further development. At present, the AML training is extended fromthe general training to specific training aiming at the characteristics ofdifferent departments and institutions. Sixth, actively involving in internationalcooperation on AML. Now the negotiation of our entry to AML internationalorganizations is going smoothly and our entry will not only create a newplatform for international cooperation on Chinese AML, but also add impetus forAML efforts all over the world.

 

V.                 Would you please give us a prospect of Chinese AML future?

 

Iam confident that as the measures for improving AML put into effect, we willmake a significant progress on AML in the coming days, with advanced legalsystem, effective monitoring and analysis mechanism and professional working staffas well. However, there remain many tasks to do and many problems to solve.Particularly, considering the disparity in economic and finance developmentamong different countries, and cultural and institutional differences, weshould take the AML actions suitable to China's situation on the basis ofinternal experience on AML. For instance, the AML requires cooperation amongmany departments, while the ways of cooperation are different among countries.Some are guided by one department, some combine the departments into oneinstitution, and some form an independent department. Since there is nostandard cooperation way, our task is to select one in accordance with China'sreality. Also, the fund transaction report is fundamental for AML monitoringand analysis, however, some countries only requires the reporting of suspiciousfund transaction while some other countries requires the reporting oflarge-value fund transaction as well. In relevant international conventions,the reporting of suspicious fund transaction is a must while the reporting oflarge-value fund transaction is optional. Under this circumstance, ourestablishment of reporting system should depend on China's reality. Therefore,to further develop our AML activities, we should fully consider the specificcircumstances in China.