UNIVERSITA’ DEGLI STUDI DI PADOVA DIPARTIMENTO DI SCIENZE ECONOMICHE ED AZIENDALI “M.FANNO” CORSO DI LAUREA MAGISTRALE IN ECONOMICS AND FINANCE TESI DI LAUREA “UNDERGROUND BANKING AND MONEY LAUNDERING: FOCUS ON CHINA” RELATORE: CH.MO PROF. ALBERTO LANZAVECCHIA LAUREANDA: MARGHERITA NORDIO MATRICOLA N. 1106050 ANNO ACCADEMICO 2015 – 2016 Il candidato dichiara che il presente lavoro è originale e non è già stato sottoposto, in tutto o in parte, per il conseguimento di un titolo accademico in altre Università italiane o straniere. Il candidato dichiara altresì che tutti i materiali utilizzati durante la preparazione dell’elaborato sono stati indicati nel testo e nella sezione “Riferimenti bibliografici” e che le eventuali citazioni testuali sono individuabili attraverso l’esplicito richiamo alla pubblicazione originale. Firma dello studente _________________ ACKNOWLEDGEMENTS I would like to thank my supervisor, Professor Lanzavecchia, who gave me precious suggestions to improve my thesis. I also thank my parents and my sister, who gave me the opportunity to study and stood by me whenever I felt disappointed or unsatisfied of my studies and results. I finally want to thank Gabriele, who has always encouraged me in pursuing my goals, and my host families abroad (in particular Seppo and Pirkko), who have opened my mind. INDEX INTRODUCTION…………………………………………………………………………….7 CHAPTER 1: DEFINITION OF REMITTANCES AND THEIR ROLE I. DEFINITION AND MAIN CHARACTERISTICS OF REMITTANCES ..................................... 9 II. DETERMINANTS OF REMITTANCES ..................................................................................... 13 III. IMPACT OF REMITTANCES ON RECEIVING COUNTRIES ............................................ 14 A. POLICY IMPLICATIONS ....................................................................................................... 17 IV. REMITTANCE SERVICE PROVIDERS (RSPs) .................................................................... 18 A. POLICY IMPLICATIONS ....................................................................................................... 20 CHAPTER 2: INTRODUCTION TO THE PAYMENT SYSTEM AND THE UNDERGROUND BANKING SYSTEM I. MONEY TRANSFER ACTIVITIES ............................................................................................ 22 A. INTRODUCTION TO THE PAYMENT SYSTEM ................................................................. 22 1. PAYMENT SYSTEM IN THE EU....................................................................................... 23 2. PAYMENT INSTRUMENTS ............................................................................................... 25 B. FUNDS TRANSFER ................................................................................................................ 25 1. WHOLESALE FUNDS TRANSFERS ................................................................................. 25 2. RETAIL WIRE TRANSFERS .............................................................................................. 26 II. FINANCIAL CHANNELS FOR MONEY TRANSFERS ........................................................... 27 A. FORMAL AND SEMIFORMAL CHANNELS ....................................................................... 30 B. INFORMAL CHANNELS: UNDERGROUND BANKING ................................................... 32 1. MAIN IFVS AROUND THE WORLD ................................................................................ 34 2. TRANSACTIONS FUNCTIONING .................................................................................... 36 3. WHY IVTS HAVE NOT BEEN SUBSTITUTED BY BANKS ......................................... 41 C. DIFFERENCES WITH TRADITIONAL BANKS/BENEFITS FOR USERS ......................... 42 CHAPTER 3: MONEY LAUNDERING ACTIVITES AND THEIR INFLUENCE ON THE REAL ECONOMY I. MONEY LAUNDERING DEFINITION ..................................................................................... 45 II. FORMS OF MONEY LAUNDERING ........................................................................................ 47 III. EFFECTS ON THE ECONOMY ................................................................................................. 49 CHAPTER 4: REMITTANCES TO CHINA AND THE COUNTRY'S FINANCIAL SYSTEM I. CHINESE FACTS AND FIGURES ............................................................................................. 73 II. CHINA MIGRATION FLOWS AND REMITTANCES ............................................................. 75 III. ALTERNATIVES FOR MONEY TRANSFERS ..................................................................... 78 A. THE CHINESE BANKING SYSTEM ..................................................................................... 80 IV. UNDERGROUND BANKING IN CHINA .............................................................................. 81 V. OTHER FORMS OF PAYMENTS AND MONEY TRANSFERS.............................................. 85 A. OPPORTUNITIES FOR GROWTH ......................................................................................... 87 CHAPTER 5: MONEY LAUNDERING ACTIVITIES BY THE CHINESE: CASE STUDY ON REMITTANCES FLOWS FROM ITALY TO CHINA I. MONEY LAUNDERING IN CHINA .......................................................................................... 90 II. AML/CFT REGULATION IN CHINA ........................................................................................ 93 III.MONEY TRANSACTIONS BETWEEN ITALY AND CHINA THROUGH MONEY TRANSFERS ........................................................................................................................................ 98 IV.OVERVIEW ON THE ITALIAN REMITTANCES MARKET ..................................................... 99 V. CASE STUDY ............................................................................................................................ 102 A. ANTI-MONEY LAUNDERING REGULATION IN ITALY ............................................... 102 B. THE CHINESE COMMUNITY IN ITALY ........................................................................... 107 1. CHINESE ENTREPRENEURS IN ITALY........................................................................ 107 2. MONEY LAUNDERING ACTIVITIES BY CHINESE IN ITALY .................................. 108 C. EMPIRICAL STUDY ............................................................................................................. 110 1. PAKISTANI COMMUNITY IN ITALY................................................................................ 115 2. MOROCCAN COMMUNITY IN ITALY.............................................................................. 118 CONCLUSION ................................................................................................................................... 122 REFERENCES .................................................................................................................................... 127 INTRODUCTION Migration flows around the world are incredibly increasing. Many worker expatriates move abroad alone or with their families looking for job opportunities; since most of them come from very poor areas, those who choose to leave the family in their origin countries send home part of their income in order to provide their relatives with economic support. These money transfers are known as remittances and, very often, both the remittances’ receivers and the national economy rely on those money transfers respectively to cover daily family expenses and the national trade deficit. Remittances move through financial channels, such as banks, Money Transfer Companies, post offices and so on; however, migrants often address to informal financial channels, which are quite risky just because of their informality. Conversely from conventional banks, the Informal Value Transfer Systems (also known as underground banking, Alternative Remittance System, or ethnic banking) allow migrants to easily access financial services thanks to their vast network covering also remote areas. On the other hand, unofficial banks may be subject to abuses connected to money laundering and terrorism financing activities because they are not as regulated as official ones: they agree to use cash without limits and do not often even ask for customers’ identification documents, which makes them attractive for irregular migrants. Hence, although Alternative Remittance Providers have been historically used for licit purposes, regulators have been trying to deter the use of informal channels for unlawful purposes since the amount of criminal activities have started increasing. As a result, authorities have encouraged formal operators to enter into the remittance market: some of them have launched mobile and online banking networks but, except for a few cases (e.g. Kenya and the Philippines), they are still far from succeeding as much as wished. Recently, Italy has been recording huge migration inflows and banks operating in the country have signed partnership with the biggest Money Transfer Companies in order to attract as many migrants as possible and discourage the use of unofficial agents to accomplish money transfers transactions. Investigations by authorities have however revealed that there are still many informal agents operating in the national territory. The Chinese individuals living in Italy constitute the foreign community who makes the largest use of underground banks and the last investigations revealed that the Chinese often address to informal systems in order to carry out money laundering activities rather than