By Sun Shen
Like many other major economies, China has been operating in a global context and has seen a dramatic increase in inflow and outflow of funds in recent years. However, as it becomes more and more integrated into the global economy, the country is exposed to multinational money-laundering schemes. Despite recent measures by the Xi Jinping administration to monitor overseas transactions and crack down on money laundering, systematic vulnerabilities within China’s financial system and underdeveloped due diligence checks continue to facilitate global crimes.
China leads the world in illicit financial flows. The United States Department of State lists China among countries of primary concern of money laundering and financial crimes. Accordingly, criminal proceedings in China are laundered through purchase of real estate properties, art and gold, investment of illicit funds in lawful sectors, exploitation of third-party payment systems, and trade-based money laundering (TBML), such as trade misinvoicing. An article on New York Post estimated that $10 billion of China’s money is laundered every month.
The major source of illicit funds is likely from financial crimes and corruption, rather than drug or organized criminal gang activities. British Virgin Islands (“BVI”) has become a secret insider term for money laundering — wealthy Chinese individuals set up shell firms in offshore tax havens, claiming those companies generated part of their income while it may be from illegitimate sources. “White gloves”, on the other hand, refers to intermediaries who launder money for Chinese elites. British businessman Neil Heywood, for instance, used a BVI shell company and helped former high-ranking official Bo Xilai buy a French Riviera mansion worth of EUR 7 million and was caught up in the Chinese Communist Party’s huge political storm of bringing down Bo. Since corruption and bribery have gained recognition as being drivers of illicit financial flows, identifying politically exposed persons (PEP) becomes very important. Vcheck Global’s sanctions and watchlist screening help clients identify those who have heightened risks of corruption and associated crimes so that informed business decisions can be made. In-house Chinese-language analysts conduct these screenings to ensure comprehensiveness.
Another noteworthy aspect of money laundering in China is the challenges it poses to the real estate sector. Canada and Australia, in particular, are reportedly hotbeds of Chinese black money. The real estate sector is considered relatively lax in enforcing rules to catch money launderers – large sums of funds are required for purchase with less regulations in place makes real estate particularly vulnerable. In addition, ill-gotten money seeps into the sector through various means, including cash deposits, indirect payment via a third party, usage of “fake mortgage” to disguise funds, and successive selling. Vcheck Global conducts multijurisdictional due diligence checks to expose such potential risks. As the scale of financial crimes nowadays often expands across different countries, it is essential to choose the right background check products that offer comprehensive solutions for your business’s risk management.
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