Nothing highlights the level of international concern and challenges in AML/CTF more than the current situation in China which, to some degree, is being also experienced in most nations.

There is a growing investment by USA and European organisations in China as the country rapidly expands its economy; in 2006/2007 the increase in investment was more than 10%. This has created opportunities for corrupt banking executives and others to launder their illegally gained funds.

It is estimated that money laundering in the financial system of China is 3% to 5% of GDP, that is $90 billion in 2005. The total amount of money in the economy due to corruption is approximately 15% of GDP. The Chinese national Audit Office estimates that dishonest government officials embezzle or divert about $3 billion per month.
In 2005 the Chinese Government “disciplined” 47,036 government officials for bribery, embezzlement, misuse of public funds, money laundering and other financial crimes. More than 4,000 of these persons fled to other countries with significant funds; for example in 2006 40 officials fled whilst under active investigation for corruption. Nine took $1.1 billion and fled to the USA, five took $1.2 billion to Australia and 3 took $1.3 billion to Canada.

The fact that these, amongst many others, are known and that the funds were integrated into the new countries illustrates the enormous size of the problem and that it is an international issue.

Although the above figures are large and the fact that they are known illustrates that the Chinese government is seriously tackling the issues but, considering that they do not, yet, regulate real estate agents, lawyers, casinos or precious metal dealers indicates that the real situation is much larger.

There are now regulations and laws in many countries targeting AML/CTF as well as proper disclosure of business activities. These include Basel I , Basel II (EU), the Sarbanes-Oxley Act (USA), the Patriot Act 2001 (USA) and many others. Although they may have been introduced by one country or group of countries they usually have international effect due to the international nature of business.

In order to combat AML/CTF and meet the new international standards significant revisions of business practices, reporting and management controls, record keeping and information disclosure are being implemented in most financial institutions. The cost is high but there is simply no choice. Some requirements are onerous such as the “Know Your Customer” (KYC) (also referred to as Customer Due Diligence “CDD”) and financial reporting requirements on any organisation that deals with cash. To ensure that the customer database, of in many cases tens of millions of records, contains only legal persons or entities will be a significant task.

Similarly, the reporting of suspicious transactions and all cash movements over a threshold ($10,000 in the USA) to a nation’s Financial Intelligence Unit (FIU) is creating great challenges in the volumes of data and resulting analysis.

To be continued

© Roger L. Levy 2008 Forensic.Technology@Gmail.com

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