Understanding the risk associated with China Trade

Sanctions is one of the major aspects of the trade based money laundering. The EU arms embargo on China was imposed by the EU on China in response to its suppression of the Tiananmen Square protests of 1989. The troops with automatic rifles and tanks killed at least several hundred demonstrators trying to block the military’s advance towards Tiananmen Square. China has vastly developed its trade sector. So has unfortunately developed many trade based laundering techniques. As a response, European Union and United States stopped selling the Arms to China.

Generally all Military Items are included in the list as to restrict all type of exporters but the scope of this Arms Embargo defined by United Kingdom is-

In April 2018, US Department of Commerce imposed ban on Chinese telecommunications-gear maker ZTE. US Government alleged that ZTE violated trade sanction settlement against Iran. ZTE was previously fined for supplying telecommunication equipment to Iran and North Korea. ZTE also appreciated employees involved in illegal conduct. But this ban was soon lifted as ZTE said to have deposited $400 million in a U.S. bank escrow account as part of a settlement.

Though sanctions were imposed on China by the European Union, China have been the strongest trade partner of European Union. Chinese companies adopted under invoicing mechanism to flood the European markets with the Chinese Goods.

Globally, Chinese companies have dumped their goods by adopting the under-invoicing technique popularly used in Trade Based Money Laundering. When the exports are under-invoiced, it helps the companies to earn profit outside China and park the money in the countries which are comparatively stable and safer than China.

In China, artwork is often used to evade currency controls. The country is one of the fastest growing art markets in the world, and legal sales generated US$11.8bn in 2015. However, with legislation allowing citizens to send just US$50,000 overseas each year, misinvoicing is often used as a way around this.

Challenge before Compliance Professionals

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