AML Across Borders: the US and China Join Forces to Stop Financial Crime
On April 6th, 2024, the United States and China agreed to start a forum to cooperate on anti-money laundering (AML) efforts in the two countries’ financial systems. The agreement came after two days of talks in China's southern export hub of Guangzhou, where Treasury Secretary Janet Yellen met with Chinese Vice Premier He Lifeng.
The move will see Treasury and the People’s Bank of China – the nation’s Central Bank and main AML regulator – work together to stop money laundering. The initiative is largely driven by the threat of a deadly predicate crime: drug trafficking. The US says that almost all the ingredients needed to make fentanyl, an opioid fifty to a hundred times more potent than morphine, are coming from China to the US and Mexico.
The Importance of Cross-border Collaboration
Collaboration between China and the US in combating financial crime holds immense potential to foster global stability and prosperity. Together, these economic powerhouses represent approximately 43% of the world's GDP, exerting significant influence on international markets and financial systems.
China and the US are also economies with influential AML regimes. In 2023, the two countries were responsible for collectively issuing around $6.4 billion in fines to financial institutions for AML breaches – the lion’s share of the $6.6 global total for the year.
The US, as the world's largest consumer economy, and China, renowned for its manufacturing prowess, possess complementary strengths that, when combined, could yield substantial benefits in the fight against financial crime. By leveraging their collective economic weight and expertise, both nations can enhance efforts to detect, prevent, and prosecute illicit financial activities such as money laundering, corruption, and fraud.
With a combined population representing 22% of the global populace, the collaborative efforts of China and the US in combatting financial crime can impact regions worldwide. By sharing intelligence, resources, and best practices, they can establish more robust regulatory frameworks, strengthen enforcement mechanisms, and improve international cooperation in tackling transnational financial crimes.
Combatting the Threat of Trade-based Money Laundering
Trade-based money laundering (TBML) poses a significant threat to the global financial system, allowing criminals to disguise illicit proceeds through legitimate trade transactions. By collaborating, China and the US can develop and implement advanced monitoring and detection mechanisms to identify suspicious trade activities, such as over- or under-invoicing, and strengthen enforcement efforts to disrupt TBML networks. By sharing intelligence and coordinating enforcement actions, they can create a more robust defense against this form of financial crime, safeguarding the integrity of international trade and commerce.
Compliance Vulnerabilities in Correspondent Banking
Correspondent banking relationships are vital for facilitating cross-border transactions, but they also present opportunities for illicit actors to exploit vulnerabilities in the financial system. Working together, China and the US can improve due diligence practices and risk assessment frameworks for correspondent banking, ensuring that financial institutions maintain high standards of transparency and compliance. Strengthening regulatory oversight and information-sharing mechanisms can help mitigate the risks associated with correspondent banking, enhancing the resilience of the global financial network against illicit financial flows.
Closing the Gaps in the Global Economic System
Collaboration between China and the US in combating TBML and managing correspondent banking relationships can serve as a model for international cooperation. By demonstrating the effectiveness of coordinated action, they can encourage other countries to adopt similar strategies and standards, thereby promoting a more consistent and unified approach to combating financial crime on a global scale.
The estimated amount of money laundered annually worldwide is estimated at $3.1 trillion as of 2023. The significance of concerted action by China and the US cannot be overstated. Mitigating the flow of illicit funds across borders through this agreement means they could safeguard the integrity of the global financial system, bolster investor confidence, and promote sustainable economic development.
Unifying efforts between China and the US in combatting financial crime not only serves their respective national interests but also contributes to the broader goal of fostering a safer, more transparent, and equitable global economy for the benefit of all nations and peoples.
Find out more about how the global AML framework is shifting in our global AML fines research report.