Saturday, November 9, 2013


The news this week, that a major media organization has apparently killed the publication of a hard-hitting article on corrupt Chinese PEPs, and on the hiring of the children of PEPs by foreign financial institutions, is bad news for compliance officers conducting due diligence investigations on prospective Chinese clients. There are allegations that such articles have resulted in the denial of entry of foreign journalists, or the renewal of licenses to practice journalism in China.

If this becomes a widespread practice, then where will one go to find the blunt truth ? The underground, or alternative sources of negative information about mainland China, especially those from Hong Kong, or blogs, are not mainstream, generally do not vet the accuracy of their information, and do not qualify as authoritative sources.

How will compliance know whether that new Chinese businessman client is, in truth and in fact, a corrupt PEP who runs a state-owned corporation, where he accepts bribes and kickbacks for steering business to Western companies, if the articles exposing his crimes in the media no longer are written or published ? Those poses a serious risk management problem for international banks located in countries where anti-bribery and anti-corruption laws are strictly enforced.

Will compliance officers now be required to engage China specialists, multi-lingual investigators who will go into China, from Hong Kong or even Taiwan, and bring back the answers that are needed ? Such measures could be prohibitively expensive, add to completion time, and force compliance dependency upon external resources, who may not be able to produce results on a real-time basis.

Whenever access to negative information is denied, compliance is ineffective. The consequences of lack of access to critical information from China are greatly increased risk levels, meaning that there will be recommendations, in the future, to avoid those who could possibly be PEPs from China.

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