Thursday, July 31, 2014


In case you are not up on the latest news, China has taken into custody Zhou Yongkang, its former chief of security, and his immediate family, on what appear to be corruption  charges. It seems that his son,  Zhou Bin, has amassed a fortune, in industries where his father was involved. No former senior PEPs are immune, it appears, to corruption charges, in line with a growing anti-corruption drive by the current national leadership.

How does this affect me, as a compliance officer at an international bank that may have some affluent mainland Chinese depositors ? Plenty, for there is a major investigation in progress, seeking illicit funds  secreted abroad. Have you thoroughly eliminated your clients as PEPs ?

The latest wrinkle brings us closer to home. China is telling its ambitious PEPs that they will not be promoted, so long as their immediate family lives abroad. The reason: immediate family are the prime players in any money laundering scheme, for the goal is always to move the proceeds of bribes and kickbacks out of China, or to take the money outside the country, and to place it in safe jurisdictions.

Therefore, this would be a good time to initiate, early on, enhanced due diligence investigations upon all your clients with PRC passports, irrespective of the present size of their accounts, for they may be holding small balances, pending receipt of large amounts of criminal proceeds. PEPs not otherwise identified by your staff now pose a potential future threat; they could quietly slip substantial funds into accounts previously judged to be low-risk. What if China locates these illicit funds and seeks their seizure or forfeiture ? You could suffer substantial reputation damage, should there be negative media coverage. Thus,  you may conclude that they represent a level of risk that your bank does not want to assume.

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