Anti-Money Laundering Regulation in the People's Republic of China

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Introduction to the research project

"Anti-Money Laundering Regulation in the People's Republic of China" is a research project supported by the Deutsche Forschungsgemeinschaft DFG. Initiated in June, 2007, the project is run by Sebastian Heilmann, Professor of Political Science and Nicole Schulte-Kulkmann, Ph.D. at Trier University, Germany.

Project Description

Since the inauguration of the Financial Action Task Force on Money Laundering (FATF) in 1989, the crime of money laundering has attracted more and more attention, nationally as well as internationally. The People's Republic of China (PRC), which to date still has to be considered a 'magnet' for money laundering activities, has also become more and more aware of this problem in recent years and accordingly has enacted several legal norms and established some institutions in order to carry out effective anti-money laundering activities. Finally, in June, 2007, the PRC gained full membership with the FATF after having already been accepted as an observer to that body in 2005.

The research project which is funded by the Deutsche Forschungsgemeinschaft (DFG) aims at analysing in detail the peculiarities of the Chinese national anti-money laundering regulatory regime and at explaining the regime's specific design.

Anti-money laundering regulation in the PRC in essence follows a 'command and control' model by imposing legal standards on certain - financial and non-financial - institutions vulnerable to money laundering activities and by designing governmental institutions responsible for supervising the implementation of these standards as well as for imposing sanctions in case of violations of anti-money laundering regulations and standards. However, the specific legal and institutional design of anti-money laundering regulation in the PRC is still in flux and subject to different, and sometimes conflicting, influences. This means, to date, it is not entirely certain 'who commands' - i.e. which government agency or agencies will authoritatively regulate anti-money laundering in the future - nor what the 'commands' will target in particular - i.e. the regulatory contents of anti-money laundering legal rules.

The first question - 'who commands' - takes into account the different governmental agencies involved in anti-money laundering regulation and their specific interests as well as their organizational capacity to further these interests and thereby emphasises a perspective of inter-agency interaction at the national level. The second question - 'what will the commands target' - alludes to an international perspective. This is so because anti-money laundering regulation is already subject to a set of broadly agreed standards which have evolved at the international level - most prominently the FATF '40+9 Recommendations' or several United Nations Conventions, namely the UN Convention against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances, the UN Convention against Transnational Organized Crime, the UN Convention against Corruption and the International Convention for the Suppression of the Financing of Terrorism. International organizations such as the FATF and, at the regional level, the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) (a FATF-style regional body), for example, advocate the implementation of these standards. This means, a state whishing to regulate anti-money laundering at the national level and seeking international cooperation in anti-money laundering is confronted with a set of internationally agreed standards which must be taken into account in the process of anti-money laundering regulation at the national level - lest the nation in question is not to be blemished as 'non-cooperative'. However, internationally accepted standards in anti-money laundering regulation might conflict with the aims and interests of specific agencies connected to anti-money laundering regulation at the national level. On the other hand, national agencies might also refer to international standards in order to legitimize and finally accomplish their particular vision of national anti-money laundering regulation. This means, whether the Chinese national anti-money laundering regime lives up to and how it adapts to international standards is in large part depending on the outcome of inter-agency contention at the national level and not alone on the discretion of the central national Chinese government.

Actually, the PRC more and more integrates into the existing framework of international regulatory institutions - in October, 2004, the PRC together with the Russian Federation and other Central Asian states co-founded the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG), and in June, 2007, the PRC became a full member of the FATF; furthermore, the Chinese Financial Intelligence Unit (FIU) "China Anti-Money Laundering Monitoring and Analysis Centre" (CAMLMAC) aspires to become a member of the Egmont Group, a coordinating body for national FIUs around the world. This means, in order to be considered a reliable partner in the fight against financial crimes in the regional context as well as on the international stage, the PRC needs to adapt more and more to the international standards set up by these anti-money laundering regulatory institutions.

However, participation in international anti-money laundering regulatory regimes will not only subject the PRC to certain internationally agreed regulatory requirements but also offers China the opportunity to become involved with the evolution of such standards herself and therefore to (re-)define the standards against which the Chinese anti-money laundering system they will be measured in the future. This means, on the whole, the peculiarities of the developing Chinese anti-money laundering regime are to be explained by referring to the national as well as the international "arenas" of anti-money laundering regulation and regulatory evolution - i.e. to the interplay of national forces, on the one hand, and the pressures exerted by internationally accepted standards.