The Need To Prevent Money Laundering – Everywhere

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.

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