Article: China emerging as a global hub for money laundering operations

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China emerging as a global hub for money laundering operations

Vaishali Basu Sharma, 18 September 2020

The Income Tax Department conducted raids in the National Capital Region in August and found that some Chinese individuals, with fake Indian passports, were engaged in large scale money laundering operations. In July, China’s presidency of the Financial Action Task Force (FATF) expired. With nearly one trillion dollars’ worth illicit financial outflows over a decade, China was hardly in a position to set the agenda for international anti-money laundering. Around the globe, multiple money-laundering operations reveal the systemic involvement of Chinese individuals and entities. In a sophisticated attempt to target competitive economies, the rich in China are channelling illicit cash through anonymous shell companies. They are engaging in wholesale money laundering, drug-smuggling, sanctions-busting, and market-distorting schemes. China has, in fact, emerged as the global hub for money laundering, not just for the Chinese but for criminals around the world.

General weaknesses in China’s anti-money laundering (AML) and counter-terrorist financing (CTF) systems were pointed out by the FATF early on in 2019. Suggesting that financial and non-financial institutions in China had an ‘incomplete understanding’ of the risks associated with money laundering and terrorist financing, the FATF’s Mutual Evaluation Report of China, pointedly expressed reservations on the operational independence of the nation’s financial intelligence unit. But since the Chinese themselves were setting the agenda on ML & ATF, this assessment of the FATF went unheeded. Chinese companies such as ZTE and Huawei were knowingly shipping US products to sanctioned jurisdictions. In January this year, the United States issued its National Strategy for Combatting Terrorist and Other Illicit Financing to tighten and modernize its AML/CFT regime. So, in the backdrop of heightened trade war, violation of US economic sanctions and export controls on Iran to nominate China on poor AML effectiveness to the grey list of FATF, is very likely and could bring China to its knees.

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