The People’s Republic of China recently introduced new money laundering rules to reduce the number of unwarranted suspicious activity reports relating to money laundering. The new rules now instruct banks to perform risk assessments on clients according to their location, type of business and level of openness, and report only suspect transactions made by the riskiest clients.
Global Financial Integrity, a Washington-based financial watchdog, estimated in December, 2012 that China accounted for almost half of the $858.8 billion of illicit funds flowing into tax havens and western banks in 2010 – more than eight times the amounts for runners-up Malaysia and Mexico. The report stated that, over an 11-year period from 2000, China was home to $3.8 trillion worth of illicit financial flows originating from corruption, crime or tax evasion. It should be noted, that these numbers cannot be verified.
The rules were not publicly announced, and banks and insurance firms have to implement them by December 2015, the accountants and bankers said.
A person at the central bank, which oversees China’s fight against money laundering, said the changes are intended to finesse regulations and improve monitoring efficiency. “One of the main goals is to change the method of regulation. Initial regulations were very cumbersome,” he said, declining to be named due to the sensitivity of the subject.
Financial institutions must now identify their riskiest clients and exercise discretion when reporting suspect deals. In the past, clients were rated against a checklist of money laundering traits without differentiating risk levels. That led financial institutions to inundate authorities with information and false leads that impeded checks, experts said.
Chinese banks are now engaged in designing their own risk assessment models, which must be submitted to the central bank by December and comply with official guidelines.