VZCZCXRO2285
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0259 0350236
ZNR UUUUU ZZH
P 040236Z FEB 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 2064
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHEHNSC/NSC WASHDC

UNCLAS BEIJING 000259 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EAP/CM AND E/YON 
TREASURY FOR OASIA/DOHNER/WINSHIP 
TREASURY ALSO FOR IMFP/SOBEL/MOGHTADER 
NSC FOR LOI 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL CH
SUBJECT: Illicit Financial Activities in China: Potential 
for Bilateral Cooperation 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET 
DISTRIBUTION. 
 
¶1. (SBU) Summary:  On December 30, Director General Tang 
Xu of the PeopleQs Bank of China (PBOC) Anti-Money 
Laundering Bureau (AMLB) outlined recent efforts to 
combat illicit financial activities in China, including 
Penal Code revision and expanded on-site examinations. 
He suggested USG agencies could work with ChinaQs 
Ministry of Public Security (MPS) on trade-based money 
laundering (TBML) cases.  For potential bilateral 
cooperation with PBOC, Tang listed repatriation of 
embezzled funds, underground banking, and information 
sharing as possible focuses.  According to Tang, over the 
past year PBOC increasingly has focused on cross-border 
money movements via underground banking channels.  End 
Summary. 
 
¶2. (SBU) During a December 30 meeting with Finatt, 
PeopleQs Bank of China (PBOC) Anti-Money Laundering (AML) 
Director General Tang Xu outlined recent efforts to 
combat illicit financial activities in China.  The 
National PeopleQs Congress (NPC) is conducting additional 
readings of judicial interpretations of Penal Code 
articles on the offenses and definitions included under 
AML/CFT laws, a process Tang expected would take a few 
more months to conclude.  (Comment:  Draft laws require 
three readings before they become law.)  In addition, 
PBOC has expanded its on-site examinations this year, not 
only in the banking sector but also within the securities 
and insurance industries.  Tang noted that the regulators 
of those sectors currently do not participate in those 
examinations, which Tang believes are most effective when 
done by the local PBOC branches. 
 
¶3. (SBU) Finatt briefed Tang on U.S. concerns regarding 
trade-based money laundering (TBML), noting that U.S. law 
enforcement agencies are open to working with the 
PBOC/AML Bureau and other Chinese entities on 
transnational schemes that launder international drug 
money.  Tang responded that the AML system in China is 
still new; with only 30 staff members, the AMLB has 
limited capacity to engage intensively on international 
initiatives.  Tang also observed that the United States 
and China have different priorities on illicit finance: 
while the U.S. seems focused on combating terrorist 
financing and money laundering in foreign countries, 
China concentrates on money laundering in China.  Tang 
suggested the USG could work with the Ministry of Public 
Security (MPS) on TBML issues; while the PBOC has limited 
legal authority to freeze assets at risk of leaving China 
(48 hours), the MPS probably enjoys more comprehensive 
authority for asset seizures. 
 
¶4. (SBU) Asked about areas of possible bilateral 
cooperation between PBOC and the USG, Tang suggested 
several possibilities.  One area would be repatriation to 
China of funds corrupt officials may have stripped from 
state-owned enterprises and sent to the United States.  A 
second topic could be underground banking, where funds 
are moved either in cash or electronically from illegal 
private banks.  Finally, the PBOCQs AMLB would like to be 
able to share information with TreasuryQs Financial 
Crimes Enforcement Network (FinCEN) and others, on a case 
by case basis. 
 
¶5. (SBU) Tang said over the past year PBOC increasingly 
has focused on cross border money movements via 
underground banking channels: in 2008, PBOC worked with 
MPS on 45 underground banking investigations, six of 
which were money laundering cases.  Before 2008, Tang 
said the PBOC had only seen four such cases over the last 
10 years.  He added that the illegal underground banks 
being targeted for prosecution differ from the informal 
banks that provide financing to Chinese private sector 
companies, largely in southern coastal provinces, and 
which the PBOC is encouraging to become regulated finance 
companies. 
 
PICCUTA