By Christine Duhaime | January 2nd, 2017

The questions and answers I’ve been asked the most in 2016 about China:

Q: How much money has been removed from China in proceeds of corruption?

A: According to the Bank of China, way over US$120 Billion or CAD$160 Billion between the years 1995-2008. China appears to have quit sharing data officially after 2011 because it said at that time that the outflows of proceeds of corruption was severe enough to threaten its economy and its political stability.

However, a Chinese Commission later said this:

The amount more than doubled in 2010 to US$412 Billion (CAD$553 Billion);

In 2011, it was at US$600 Billion (CAD$806 Billion);

In 2012, it was at US$1 Trillion (CAD$1.3 Trillion); and

By 2013, it was at US$1.5 Trillion (CAD$2 Trillion).

China also has something called “grey” income, which means income earned (or acquired off the books – basically handed to someone in the proverbial suitcases) in China that is not reported on income tax reports, and that is held by its richest families. By 2012, the grey income was CAD$1.3 Trillion according to the China Society of Economic Reform. Some of the grey income inevitably ends up in other countries.

Money Laundering

So, over $2,000,000,000,000 is missing from China and because China says it’s proceeds of corruption, it’s a $2,000,000,000,000 money laundering problem.

Bigger than the economies of most countries

If you want a sense of how come China said in 2011 that the illegal removal of $2 Trillion from corruption payments threatens its economy, note that, according to Wikipedia, there are only a few countries in the world that have an economy of $2 Trillion or more and they are: US, Japan, Germany, UK, France, China, Italy, Brazil and Russia.

Another way of looking at it is that the proceeds of corruption that flew out of China and landed in the US, Canada, Australia and the Netherlands is more than the entire economies of each of over 100 countries including the economy of Spain, Mexico, South Korea, Australia, Turkey or Switzerland.

Q: How many Chinese foreign nationals are involved in moving proceeds of corruption out of China?

A: According to the Bank of China, about 16,000 to 18,000 officials with ties to the public sector were involved in moving proceeds of corruption illegally from China to other countries.

Q: What are the 4 top countries where Chinese foreign nationals move proceeds of corruption?

A: According to the Bank of China, US, Canada, Australia and Netherlands. Those four countries accounted for CAD$160 Billion in proceeds of corruption being moved out of China as of 2011, the last date that China was willing to publicly talk about the issue with specificity.

There is no reason to believe that the new figure of $2,000,000,000,000 in capital flight from China has shifted to other than those 4 top destinations in any material way.

Q: In Canada, where does the money end up and why?

A: Vancouver is the preferred destination, by far, because of perceived more relaxed anti-money laundering on-boarding compliance and more importantly, easier access to better schools and lifestyle for children of Chinese foreign nationals.

Q: How is the money moved?

A: According to the Bank of China, foreign nationals from China create fake business transactions with private companies that acquire bank accounts and the funds are transferred as ostensible business investments to the US, Canada, Australia, and Netherlands and they also buy real estate.

Q: Is there anything wrong with taking proceeds of corruption from China in Canada?

A: In law, yes.

Public officials who are paid significant proceeds of corruption are almost 100% of the time, politically exposed persons from China who use private banking services. Our PEP laws require that banks, when on-boarding them, apply enhanced due diligence procedures to:

Determine the identity of all nominal and beneficial owners with access to the banking account (hard and expensive to do properly);

Subject them to e nhanced scrutiny to detect financial transactions that may involve the proceeds of foreign corruption;

to detect financial transactions that may involve the proceeds of foreign corruption; Determine the source of funds being deposited into the banking account and the purpose and use of such account;

being deposited into the banking account the purpose and use of such account; Review the activity of the account to guard against money laundering; and

Report suspicious activity that may involve proceeds of foreign corruption.

Whether we are dealing with PEPs or not, banks in Canada must close an account where proceeds of corruption from China are parked in the bank account because, firstly, it is an offence to import the proceeds of corruption into Canada from China (and a predicate offfence to money laundering, which makes the proceeds a reportable money laundering offence) and secondly, it is also an offence to transfer, send, deliver, dispose or deal with proceeds of corruption from China with intent to convert it believing it, or part of it, was proceeds of corruption.

It is the Criminal Code of Canada, in conjunction with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, that govern in respect of reporting and closing the bank account.

A: And in ethics, yes.

Exporting proceeds of corruption bankrupts countries and deprives the people who live there of wealth.

The most unfortunate example of how PEP laws are ignored when it comes to proceeds of corruption is Viktor Yanukovych, the former President of the Ukraine, who went from earning $2,000 per month to allegedly earning $200 million per month in five years, and is alleged to have parked over $12 billion in private bank accounts in the EU. That was more money than Bill Gates, the founder of Microsoft, was making and he’s the richest person in the world. Not one financial institution managing Mr. Yanukovych’s private bank accounts thought it was odd that he was earning more than Bill Gates running an impoverished country or took steps to confirm that his incredible newly earned wealth was not proceeds of corruption. They didn’t apply enhanced scrutiny – they applied no scrutiny.

Our thoughts here on why an extradition treaty with China will help Canada return the treasury of China back to its people.