China is toughening its money laundering prevention by

taking a closer look at many more business sectors. Aziz Rahman explains the

thinking behind this – and what it means for everyone trading abroad.

The authorities in China can usually be relied on to make

bold statements about the country. But the latest announcement regarding money

laundering will have major implications for many who do business there.

In recent years, the Chinese government has been keen to be

seen to take a tough line on money laundering. It has often reiterated its

desire to crack down on any form of corruption; even if much of it has

allegedly involved figures within the state machinery.

It has now said that it will dedicate resources to tackling

money laundering and terrorist funding – which it sees as being linked to

laundering – in the country’s non-financial sectors. While previously, the war

against money laundering has been largely waged in its financial institutions,

the government now believes it has to go beyond this.

"Money laundering and terrorist financing activities

are gradually spreading to some non-financial sectors," the People's Bank

of China (PBOC), the country's central bank, said in a statement. PBOC has

already mentioned that sectors such as real estate and jewellery are among

those set to come under scrutiny. It is also set to work with the relevant

government departments to devise and enforce anti-money laundering rules in the

non-financial sector.

There is little doubt that prevention has improved in

China’s financial sector since its anti-money laundering law was introduced in

2007. Banking, securities, insurance, non-banking payment institutions and bank

card clearing agencies all now appear to be less vulnerable to money

laundering.

What there can also be little doubt about, however, is that

Chinese authorities will expect similar success as they extend this scrutiny to

other commercial sectors. It is likely that those sectors will already be

popular with those who either invest in China or do any kind of business in

that country. That is why anyone with such a relationship needs to think long

and hard about how they ensure they are not participants in money laundering in

China.

Prevention

So what should they do? The simple answer is prevention. It

always is. China is a country with many unique characteristics. It differs from

other nations in many ways. But ensuring you do not become embroiled in money

laundering in any country involves the same precautions: assess the risk of

criminal behaviour, introduce measures to prevent it and make sure those

measures are effective in preventing it.

Whatever the country you trade in and whatever the sector of

business you are in, if you fail to take those steps you will be vulnerable to

the money launderers – and will have little or no defence should the

authorities start investigating.

China may be a country with an identity all of its own. But

it is just one of many that is taking a tougher stance on preventing and

prosecuting money laundering. One example closer to home is the Fourth EU Money

Laundering Directive (4MLD), which came into force in June this year. This places

more obligations on banks and other financial institutions, removes certain

customers’ exemption from due diligence checks, demands greater scrutiny of

people and organisations from “high risk’’ countries and requires increased

transparency on beneficial ownership.

China’s actions and 4MLD are just two legal developments

worldwide that indicate a tightening of the loopholes that have allowed money

laundering to flourish and place a duty on those in business to prevent it.

Recognition

If those in business are to prevent money laundering, however,

they need to know what it is and be able to recognise it (or at least the signs

of it).

Money laundering is the disguising of the origins of money

that is the proceeds of crime. A person can launder their own criminal proceeds

or have it done for them by another person.

In the UK, money laundering carries a maximum sentence of 14

years under the Proceeds of Crime Act 2002 (POCA): Section 327 makes it an

offence to conceal, disguise, convert, transfer or remove criminal property

from the jurisdiction, Section 328 makes it illegal to enter into or become

concerned with an arrangement to acquire, retain or use the proceeds of crime,

while Section 329 makes it an offence to possess criminal property. Sections

330 to 332 of POCA make it an offence to fail to disclose knowledge or

suspicion of money laundering. Suspicion, in such cases, was defined in Da

Silva (2006) as “a possibility, which is more than fanciful, that the relevant

facts exist’’.

Preventing money laundering does not involve a one-off

action that will magically protect you from it. It involves recognising the risk

of it in your business, creating procedures that are designed specifically to

reduce that risk and then making sure those procedures are introduced and

executed effectively. It is an ongoing process.

If you create proper, well thought-out procedures, you

massively reduce the chances of your company being involved in money

laundering. Even if, for whatever reason, money laundering does still happen,

you do have a strong defence against the allegations as you can show that you

did everything possible to prevent it.

If a company is not sure how to devise such procedures,

seeking specialist legal help is an option. What is not an option is doing

nothing or throwing together preventative procedures that are little more than

an afterthought or a box ticking exercise.

Your procedures have to be a genuine, intelligent effort to

remove the money laundering risks that you have identified.

They should include:

* Scrutiny of any potential client, investor or trading

partner’s identity and background.

* Checks on anyone who has expressed an interest in moving

money into, out of or around the business.

* Research on who stands to gain from a deal – the true

beneficiaries – and the exact relationships between all the parties.

* A proper system for anyone to report concerns about a

deal. For example, somebody being unclear or reluctant to disclose exactly who

or what amounts are involved in a transaction, asking for unusual conditions to

be adhered to or suddenly suggesting a deal for no obvious reason.

* A no-cash policy on transactions of a certain size.

* Careful examination of the funding that has been brought

into a deal.

* Restrictions on access to, and use of, company bank

accounts.

* Keeping all financial records up to date and filed

correctly.

* Training of staff so they are all aware of the legal

obligations to identify and report possible money laundering.

Anything less than this can mean problems if the authorities

suspect money laundering – wherever in the world you are trading.