#AceChinaNews says this post was courtesy of wuyiyao and his report, on how someone on his course asked ” Is there a way of laundering money `properly’ and this is his post.
During a financial orientation course at Shanghai Finance University, 19-year-old Li Jing raised his hand and asked if there is a way of laundering money “properly”.
A little later, another student said she had heard that even small coffee houses can launder cash. She asked for an explanation of how the practice works and how to spot financial crimes committed under the guise of daily business activity.
Dang Hue, Asia head of the Association of Certified Anti-Money-Laundering Specialists, said in response to the students’ questions, “There is no legal way to launder money, because the activity is intrinsically illegal, and anyone involved will be caught and punished.”
Li and his peers are the first undergraduates in China to major in Compliance and Anti-Money-Laundering, a course created to meet increasing demand from financial markets amid the country’s ongoing economic development.
Dang said the students’ questions are a sign that compliance and anti-money-laundering are still relatively new concepts.
“There’s a long way to go. When the students graduate from this undergraduate program, they will still need more hands-on experience and training to become qualified anti-money-laundering specialists,” Dang said.
Compliance, the adherence to business laws and policy, has become a buzzword after recent probes into alleged bribery, corruption and fraud at State-owned enterprises and multinational corporations, especially large pharmaceutical companies.
The students realize that what they learn will be crucial for the healthy development of China’s financial and economic system and that the demand for professionals in the field will surge in the next few years.
According to the International Monetary Fund, laundered money accounts for approximately 5 percent of the combined annual GDP of all the countries in the world, approximately $1.8 trillion. The figure is rising at a rapid rate, with annual growth of $100 billion.
Amid faster-than-ever global capital flows, dirty money, which finances crimes including drug dealing, human trafficking and terrorism, will be “washed clean” by laundering if effective action isn’t taken, said Dang.
“As the world’s second-largest economy plays an increasingly important role in global economic development and the internationalization of the yuan continues, China’s efforts to combat money laundering will have a growing impact on the global economic picture,” said Dang.
However, the gap between the supply of and demand for talent in compliance and AML work is wide.
“In Shanghai alone, about 2,000 professionals are needed for compliance and AML work,” said Chu Zhen, head of the Department of Finance at Shanghai Finance University. It’s likely that it will take a long time to fill all those positions, however, given that the school only can enroll around 50 students a year. The first majors in compliance and AML will graduate in 2017.
Ma Qing, a Shanghai-based head hunter who specializes in the financial sector, said some of the most difficult requests to fulfil come from companies looking for compliance officers.
In the past, many employers put compliance under the direction of other, unrelated departments, and the responsibilities often included a number of miscellaneous functions that had little to do with legal affairs.
“The job prospects were not attractive; the pay was low, the outline of the responsibilities was too vague and compliance units were given very few resources,” said Ma.
That may be about to change, though; salaries in the field may rise by 40 percent or even more, and compliance units are being given a say in a wider range of decisions.
“One client on our books told me that as a compliance officer, he feels more respected, involved, and indispensable in his workplace than before. He is not alone in thinking that,” said Ma.
The difficulty in finding talent lies in the current dearth of experienced professionals, he added.
“I’ve been working on filling a vacancy at a bank, but the employer is demanding at least five years’ experience in compliance. But that’s a very rare commodity because few people were willing to work in the sector given the poor conditions in the past, and very few remained in the field for five years to gain the necessary experience,” he said.
Some educational establishments realized the problem existed and began to take action. In 2009, Shanghai Fudan University established postgraduate-level programs in compliance and AML, and cultivated talent to meet the future market demand.
Shanghai Finance University and AML association have cooperated on the undergraduate program since autumn. Together, they are providing wide-ranging training, including basic AML courses that focus on regulatory requirements in China, the study of global standards and leading practices in the fight against money laundering.
Experts in compliance and AML from across the world will be invited to lecture and provide practical experience, and all the Shanghai Finance University lecturers have been trained by experts from the AML association, according to Dang.
Student will gain hands-on experience through internships at insurers, stockbrokers, financial institutions, auction houses and property developers, according to Chu.
In addition to courses in economics, finance and other compulsory studies for Chinese college students, the first undergraduate compliance and AML majors at Shanghai Finance University will learn by studying cases of illegal financial behaviour.
“Wherever there is significant cash flow, there is soil for compliance and AML work. Students will use case studies to understand how money laundering works, but personal integrity will also be key to their future success – we hope students equipped with that sort of knowledge won’t get involved in improper deeds,” said Chu.
Circumstances can also play a role, however. A report published by Ernst & Young’s Fraud Investigation & Dispute Service in August 2013, said: “We are beginning to see a slowdown in growth. Companies are faced with budget cuts and are struggling to meet their targets. Business risks are often heightened in economically hard times.”
Weak controls, a tough business environment – which may prompt enterprises to take “shortcuts” to achieve sales or business-growth targets – the use of technology to detect bribery and fraud, and an established, but as yet, immature whistle-blowing program all contribute to compliance risks.
In the Asia-Pacific region and other emerging markets, poor regulatory frameworks and a lack of effective channels for reporting illegal behaviour have provided an environment in which illegal financial activities, such as fraud and corruption, are able to flourish.
“The key question for companies in the (Asia-Pacific) region is how to effectively minimize the risk of fraud and corruption in high-risk markets with weak control environments, given the restricted resources,” said the E&Y report.
The authorities and businesses have strengthened measures to combat illegal behaviour in economic activity, and funding has been increased to help achieve that goal.
Chinese banks already rate their clients’ risk of criminal conduct on a scale of one to five as part of efforts by the People’s Bank of China to curb laundering and fraudulent transactions, according to a post on the central bank’s official website.
Financial institutions must identify their riskiest clients and use their own discretion to report suspect deals. The accounts of clients assessed as high-risk must be checked frequently and not once every six months, as is the normal practice, the PBOC website said.
In December 2012, the PBOC issued new anti-money laundering rules to all domestic financial institutions, requiring lenders to rate clients based on their location and the nature of their business, including their levels of transparency. A number of insurers and stockbrokers have also implemented the system.
So far the PBOC has yet to set a deadline for companies to comply with the guidelines.
“In the past, clients were rated against a checklist of money laundering traits, but the list failed to differentiate risk levels. That led financial institutions to unwittingly inundate the authorities with information and false leads that impeded the checks,” said a source with a Shanghai-based commercial bank who declined to be named because of the sensitivity of the issue.
The source said that as the PBOC’s anti-money laundering rules are implemented, a greater number of professionals are becoming involved in training programs to learn more about AML and the prevalent practices.
Businesses are becoming more attuned to, and knowledgeable about, AML and bribery, according to market insiders.
Foreign businesses were once regulated by the laws of their home countries, but an increasing number are now better prepared and aware of the fact that they need to ensure they have good “know-your-customer” policies to tackle AML issues and effective anti-corruption and bribery policies in place, said Dang.
A large number of financial professionals have undertaken intensive training in the relevant programs.
Approximately 190,000 professionals work in the AML field in China’s banking, insurance and securities sectors, but most of them are new to the field, according to a report published by the PBOC, which acts as the banking regulator in China.
Crucially, however, self-regulation is a growing trend as companies acknowledge the benefits that can accrue from being seen as squeaky clean.
Research undertaken in 2013 by the consultancy services provider A.T. Kearney, which conducted in-depth interviews with compliance executives at 40 top companies worldwide, showed that most of the interviewees said they expect to expand their compliance systems. Furthermore, 57 percent of those interviewed said they will most likely seek external help, especially in staffing departments with experts in issues such as anti-corruption, data protection and product safety.
“Today’s regulatory pressure doesn’t stop with the external authorities. Many firms understand that compliance can lead to a competitive advantage and are making their suppliers commit to compliance standards that go far beyond those required by law,” said the report.
Thanks to the Author wuyiyao for supplying this post.