Chinense Banks Warned to Step Up Compliance Efforts

China could be facing harsh consequences due to its lack of anti-money laundering (AML) compliance compared to international standards, warns Sven Stumbauer, Director of Financial Advisory Services at AlixPartners.

In a survey conducted by AlixPartners, results showed 32% of financial institutions falling short on having a proper AML and sanctions budget, and 20% felt that employees and boards were not receiving proper training regardless of new compliance regulations being continually updated and added.  Of the 361 financial institutions surveyed, six were institutions based in China and eight were based in Hong Kong.  Sven stated that past investigations, such as North Korea laundering money with the help of China, have shown just how much Chinese institutions are behind on compliance standards and need to focus on strengthening their AML and sanctions compliance efforts.

Stumbauer stressed the importance of the board of directors and how their role plays a large part in whether or not an institution meets proper compliance.  While institutions in the US and EU are increasingly cutting off relations with institutions deemed high risk, China has instead been creating new relations with such institutions. Stumbauer believes that directors and senior management need to assess all possibilities and determine if both local and international compliance regulations can be met if the relation is to be carried out.  The directors need to create an overall compliance strategy which would be implemented by senior management after ensuring all global compliance regulations are met.

According to Stumbauer, Chinese banks operating globally should strengthen and enforce the following:

  1. Risk assessments of customers and services
  2. Risk assessments of business partners, especially in the area of banking
  3. Customer due diligence
  4. Advanced monitoring systems to detect suspicious activity and transactions
  5. Advanced monitoring systems to detect possible sanctions violations
  6. Appropriately reporting all suspicious activity to law enforcement

Stumbauer stated that “the robustness of a bank’s AML/sanctions compliance structure is not only a matter of resources and headcount, but also a matter of the quality and effectiveness of the controls being implemented.”  While Chinese banks have been adding members to their compliance teams, it would be ineffective unless the regulations which are already in place are strong enough.  Having a board of directors and senior management who are educated in AML compliance is also an important step China can take in order to stand at the same compliance levels of other markets globally.


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