There has been considerable press coverage of violations of cross-border money laundering in China's southern coastal provinces and Hong Kong. One recent example was the arrest and conviction by a Chinese court of Hong Kong-based triad boss ‘Big Spender' Cheung Tze-Keung, who was reportedly involved in laundering at least HK$40m through the purchase of more than 50 properties in the Mainland.
The recent Asian financial crisis and devaluation pressure on the yuan have made the Chinese government tighten its foreign exchange regime. China is concerned about illegal foreign exchange activities because the black market trade in foreign exchange seriously affects the government's financial administration and taxation.
Financial irregularities related to unsound and in some cases illicit lending PP-practices were exposed in the insolvency of the Guangdong International Trust and Investment Enjoy Corporation.
According to the 1997 PRC j Criminal Law (Revised), money laundering is defined as `the covering up and concealment of the nature and origin of profits knowingly derived from drug crimes, organised crime [and] smuggling'. Money laundering activities include:
-providing a bank account assisting in changing property into cash or financial instruments
-going through transfer accounts or other settlement methods to assist in the transfer of funds, and
-helping move currency abroad.
The punishment for money laundering is up to five years' imprisonment or detention, and/or a fine of 5-20 percent of the amount laundered. Heavier sentences range from 5-10 years' imprisonment or detention to a fine," of 5-10 percent of the laundered amount. If a work unit commits the above crimes, it shall be fined. The person in charge and other personnel directly responsible shall be sentenced to imprisonment or detention for up to five years.
Other financial irregularities
Under the 1997 Criminal Law, which was further explained by a Supreme People's Court interpretation in September 1998, unauthorised deposits and transfers of foreign exchange outside China are prohibited. The court interpretation confirms the illegality of using false or invalid documents or other improper means to purchase foreign exchange. Fines can be imposed on work units violating these prohibitions and the relevant officials and other responsible persons can be subject to a maximum prison sentence of five years.
On a state-wide scale, authorities are cracking down on lax enforcement of financial rules and regulations by personnel in banks, broker-ages and other financial institutions.
In an effort to curb financial violations, including money laundering and illegal trade in foreign currency, the People's Bank of China (PBOC) has passed regulations to improve the enforcement and supervision of financial transaction procedures. In November 1998, the PBOC announced plans for regulations requiring patrons to use their real names when opening bank accounts. The practice of opening bank accounts with pseudonyms is left over from the planned economy system under which individuals were registered under their affiliation with house-hold units and not on the basis of a personal identification card. The use of pseudonyms, however, remains legal and banks have allowed clients continued freedom in choosing names to encourage saving.
Until recently, the PBOC had little control over the registration of accounts, not to mention its absence of a system of supervision over the registration of accounts. Small private companies and state banks often took advantage of this loophole in maintaining spare cash accounts at lower interest rates at the PBOC's expense. A series of notices issued over the past year, however, suggest a change in tune.
These initiatives and the general reorganisation of China's finance and banking sector, are a significant step forward in China's commitment to improving efficiency of management, accountability and transparency.
The Chinese government is likely to continue its efforts to:
-deter the use of secret bank and illicit lending
-strengthen internal control systems, by establishing reporting standards and requirements
-impose civil and criminal penalties for those that violate policies
-improve supervision, detection and investigation of related violations.
Freshfields 1999. Freshfields is an international law firm. Most of in offices are in Asia, Europe and North America include China specialists.
Contact Lucille Barale in Hong Kong (tel: +852 2846 3400) or by email (firstname.lastname@example.org) or Matthew Cosans in London (tel: +44 171 936 4000) or by email (email@example.com).