Money Laundering and Its Regulation in China Xue Bin Li (BSc. Criminology, BA Hons Community Justice, Diploma in Social Science Research Methods) This thesis is being submitted in fulfilment of the candidacy requirements for the degree of Doctor of Philosophy Cardiff University Cardiff School of Social Sciences December 2009 UMI Number: U585B55 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U585355 Published by ProQuest LLC 2013. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 Contents Abstract ............................................................................................................................. iv Declaration and Statements ............................................................................................. v Acknowledgements ........................................................................................................vii List of Abbreviations .................................................................................................... viii Chapter I: Introduction .....................................................................................................1 Chapter II: Literature Review Part 1 - An Historical Overview of Money Laundering in China ....................................................................................................... 13 2.1 Introduction ....................................... 13 2.2 Money Laundering Activities in Dynasty Periods ........................................14 2.3 Chinese Triads and Money Laundering .........................................................17 2.4 The Period between 1949 and the Beginning of Economic Reform ...........21 2.5 The Resurgence of Money Laundering after the 1980s ............................... 25 2.6 An Historical Review of Chinese Underground Banking System .............. 27 2.7 Conclusion ......................................................................................................... 34 Chapter III: Literature Review Part 2 - The Money Laundering ‘Problem’ and Contemporary Responses .............................................................................................. 35 3.1 Introduction .......................................................................................................35 3.2 The International ‘Problem’ and Pressures to Respond ............................... 35 3.2.1 Definitions of Money Laundering ...................................................... 35 3.2.2 Extent and Scope of the Problem .........................................................40 3.2.3 FATF Pressure.......................................................................................41 3.2.4 United States’ Demands ........................................................................50 3.2.5 Global Institutions’ Requirements .......................................................56 3.3 The Domestic ‘Problem’ and Response .........................................................58 3.3.1 Definitions of Money Laundering .......................................................58 3.3.2 Extent and Scope of the Problem .........................................................62 3.3.3 Prevention .............................................................................................. 65 3.3.3.1 Administrative and Regulatory Sanctions ................... 65 3.3.3.2 Regulation and Supervision ..........................................................67 3.3.3.3 Reporting .........................................................................................77 3.3.3.4 Customer Due Diligence ............................................................... 82 3.3.4 Enforcement ........................................................................................... 88 3.3.4.1 Predicate crimes............................................................................ 88 3.3.4.2 Investigation ..................................................................................107 3.3.4.3 Prosecution and Punishment ...................................................... I ll 3.3.4.4 Civil and Criminal Confiscation/Forfeiture ..............................115 3.4 Conclusion ....................................................................................................... 118 Chapter IV: Research Methods ....................................................................................120 4.1 Introduction ..................................................................................................... 120 4.2 Research Design ..............................................................................................121 4.3 Ethics ................................................................................................................124 4.4 Participants and Access ..................................................................................124 4.5 Primary D ata ...................................................................................................132 4.6 Secondary Data (government reports, Chinese university data) ................133 4.7 Conclusion ....................................................................................................... 134 Chapter V: Analysis of Contemporary Money Laundering Cases .......................... 136 5.1 Introduction ..................................................................................................... 136 5.2 Cases Examples .............................................................................................. 138 5.2.1 Predatory Offences .............................................................................. 140 5.2.2 Market-based Offences .......................................................................142 5.2.3 Commercial Offences .........................................................................158 5.3 Analysis of Laundering Methods and Predicates ........................................171 5.4 Predicate offences and money laundering methods ....................................182 5.4.1 The Banking Sector ............................................................................. 183 5.4.2 Non-Bank Financial Institutions ........................................................185 5.4.3 Non-financial Businesses or Professions .......................................... 186 5.5 Conclusion ....................................................................................................... 189 Chapter VI: The Impact of AML Regulation ............................................................ 192 6.1 Introduction ..................................................................................................... 192 6.2 Prevention ........................................................................................................ 194 6.2.1 Administrative and Regulatory Sanctions ........................................ 194 6.2.2 Regulation and Supervision ............................................................... 197 6.2.2.1 Structural effectiveness ............................................................... 197 6.2.2.2 Chinese FIU ................................................................................. 204 6.2.2.3 The Coverage o f the Supervision ............................................... 208 6.2.2.4 Converting Chinese Underground Banking .............................. 210 6.2.2.5 Anti- Money Laundering Media Influence, Training Programme and Conference ............................................................................................. 215 6.2.2.6 A Risk-based Approach to AML Compliance ........................... 218 6.2.3 Reporting .............................................................................................. 234 6.2.4 Customer Due Diligence .....................................................................241 6.3 Enforcement ....................................................................................................254 6.3.1 Predicate Offences .............................................................................. 255 6.3.1.1 The Impact on Drug Trafficking .................................................261 6.3.1.2 Impact on Underground Banking .............................................. 261 6.3.2 Investigation .........................................................................................263 6.3.3 Prosecution and Punishment .............................................................. 276 6.3.4 Civil and Criminal Confiscation/Forfeiture ......................................279 6.4 Conclusion .................................................................................................... 283 Chapter VII: Conclusion .............................................................................................. 284 7.1 Major Themes Emerging From this Work .................................................. 297 7.2 Recommendations for AML Policy .............................................................297 7.3 Recommendations for Further Research ....................................................