Chinese banks are an integral part of Beijing’s strategy for global outreach
through Belt and Road initiative and other investments across the globe for
building infrastructure. China had four banks among the top 10 banks
(asset wise) in 2020, namely the Industrial and Commercial Bank of China
(ICBC), China Construction Bank, Agricultural Bank of China (ABC) and
Bank of China. Apart from these, some other Chinese banks also figured in
the top 50 banks of the world, namely the Postal Savings Bank of China,
China Merchant Bank, China Minsheng Bank, Shanghai Pudong
Development Bank, China CTIC Bank and China Everbright Bank.
Notwithstanding dominance of Chinese banks in the global banking listing,
they are failing to comply with the regulations of host countries as well as
the Financial Action Task Force (FATF), especially anti-money laundering
(AML) controls as they venture abroad. Their weak regulatory standards
and failure in compliance is suspected to be misused by criminals and
terror outfits for money laundering. Recently, ICBC, China’s biggest statecontrolled bank was fined by Financial Transactions and Reports Analysis
Centre (FINTRAC) of Canada for alleged violation of Canada’s Crime and
Terrorist Financing Act. The Canadian regulators imposed a fine of
$701,250 on the ICBC. The ICBC has eight branches in Canada.
This is not the solitary case of failure in compliance by the Chinese banks.
Earlier, in 2016 New York’s banking regulator imposed a fine of $215
million on the ABC, due to violations of anti-money-laundering regulations
and attempts to “mask” suspicious transactions. In yet another such
instance, the Bank of China in Milan in June 2015, was accused of
laundering more than €2 billion through its branch during 2007-2010 for
Chinese criminals and sending the funds back to China via millions of small
transfers. In a similar case, the US Federal Reserve ordered (2016), the
China Construction Bank’s New York branch to enhance AML controls.
BRI’s CPEC is also being viewed with suspicion regarding lax and poor
regulatory systems as far as financing of the projects by the Chinese banks
is concerned. Chinese financial institutions are vulnerable to be used as
conduits to channel funds for the disruptive agenda of the Pakistan deep
state. However, Chinese banks, unlike several Pakistani banks, which have
come under scanner in a few Gulf countries, have so far not drawn any flak
in the region. However, the possibility of Pak based terrorist groups using
these Chinese banks, which have global presence for their nefarious
designs cannot be ruled out. As Pakistan is under the pressure of FATF’s
grey listing, it has no option but to explore new ways and routes to transfer
money for its covert activities.
In its report the FATF has pointed out several weaknesses in China’s antimoney laundering (AML) and counter-terrorist financing (CTF) regulatory
systems. The FATF report noted that both financial and non-financial
institutions in China had an incomplete understanding of the risks
associated with money laundering and terrorist financing, which
undermined the effectiveness of the country’s AML and CTF arrangements.
The report characterized China’s targeted financial sanctions related to
both terrorist financing and proliferation financing as poor.
Although the People’s Bank of China (PBOC) issued nearly triple the
amount of AML fines (Yuan 628 million, or £71 million) in 2020 as
compared to the previous year involving 417 institutions and their staff in 30
provinces, these measures are increasingly seen as inadequate. The
PBOC, therefore, promulgated (1 August 2021) new Measures for the
Supervision and Administration of Anti-Money Laundering and CounterTerrorist Financing of Financial Institutions. It remains to be seen how
Chinese policy meets the FATF standards in reality.