By Davis Buyondo
Kampaa-Uganda. The People’s Republic of China (PRC) is said to play an extremely impactful role as a source, passage and demand country in the most widespread and serious transnational crimes, according to the new Global Financial Integrity (GFI) report 2022.
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The report released October 27, 2022, scrutinize China’s role in four different transnational crimes including drug trafficking, counterfeiting and IP theft, human trafficking, and wildlife trafficking, as well as the illicit financial flows (IFFs) associated with these crimes.
It explores the dynamics of these crimes as they relate to China both domestically and internationally; the political, economic, social, and cultural drivers and facilitators to these crimes; laws and regulations related to these crimes; and how the Chinese government has responded to these crimes and IFFs.
It further points out that the Chinese government engages in certain types of criminal activity particularly forced labour and intellectual property (IP) rights violations yet the country’s political, economic, and social policies have extensive repercussions on the presence and prevalence of these crimes, both domestically and internationally.
“The country’s willingness to cooperate and act on these crimes within the global context has been relatively limited,” the report indicates. Channing Mavrellis, the Illicit Trade Director, Global Financial Integrity and John Cassara, the Special Agent (Retired), U.S. Treasury GFI Board Member, authored the report.
According to them, there are mainly two important factors to consider when evaluating China’s response to transnational crimes and these include the country’s dynamic/rather forceful pursuit of development, and its authoritarianism.
While the authoritarian state (China) has denied interest in becoming a global supremacy, the report indicates there has been no ambiguity about China’s desire to become a geopolitical and a global economic powerhouse.
The country has invested heavily in social and economic development, at home and abroad, and has crafted policies to aggressively support and protect important issues and sectors.
At times it has sacrificed potential avenues for improving the efficacy of its fight against different transnational crimes in order to avoid any knock-on impacts that may negatively impact its interests.
The Chinese Communist Party has significant control over what happens in the country. While there will obviously be actors, such as criminals, criminal organizations, and the corrupt, that compete against Beijing’s interests, the government has a monopoly over a fair amount of what happens in the country and the agency to quickly, and severely, respond to undesired actors, activities, and flows, especially in comparison to democratic states, according to the report.
China plays an outsized role in transnational crime mirroring its growth as an international super-power. The country’s rapid economic development has been a catalyst for advancements across a variety of industries as well as lifting 800 million people out of poverty over the last few decades. At the same time, however, the country has expanded its influence in a broad array of transnational crime areas including trafficking, narcotics and IP theft, as well as illicit financial flows.
In regards to the factors contributing to China’s rise in global crime, internal dynamics within the country—economic, political, social, and cultural—are major drivers and/or facilitators of trans-national crime and IFFs. Economically, innovation in industries such as manufacturing, computer technology, and pharmaceuticals has also translated to gains in transnational crime.
Illicit actors have taken advantage of these improvements, using the technical advancements to easily produce counterfeit goods as well as manufacture synthetic drugs and precursor chemicals.
However, the regulation and oversight of these sectors have not kept abreast with the technical progress, and illicit actors, both “traditional” and corporate, have taken advantage of both.
In addition, the policies that opened up China’s economy have also meant that illicit actors in China as well as Chinese consumers of illicit goods have access to new markets. Connected to this is the growth of China’s burgeoning middle class, who now have greater disposable incomes.
“This has meant greater buying power, which, in terms of transnational crime, has turned to increased demand for illicit goods such as illegal wildlife products like ivory and rhino horn. Increased wealth, coupled with the country’s currency controls, has escalated the amount of illicit capital flight from China,” according to the report.
These flows often move through informal channels, such as via underground banking which often facilitates criminal activities, especially money laundering.
Recommendations
However, in the report, several focus recommendations have been proposed for China to improve its response to transnational crimes and IFFs as well as for the U.S. to combat these crimes and flows.
They include, to start with, improving the regulation and oversight of the pharmaceutical and chemical manufacturing industries. This could include strengthening the Guidelines for Standardization of Enterprises’ Management of Non-Pharmaceutical Precursor Chemicals to require mandatory reporting to a nation-al-level authority, such as the NNCC.
This, according to the authors, should include all illicit behaviors rather than allowing the companies to handle most cases in-house and only report “severe” cases to local-level authorities. One option is requiring all companies that manufacture and/or distribute pharmaceutical or chemical components related to narcotics and precursor chemicals to register with and receive licensing from the NNCC.
“Among other things, this would move oversight from the local level, which may face issues of corruption or conflicts of interest, to the national level,” they stated.
Secondly, working towards harmonizing China’s list of scheduled and banned drugs and precursors with international partners. Equally important is to enact class-wide controls on narcotics, such as was done with the scheduling of all fentanyl-like drugs, in order to prevent producers from evading the ban by tweaking chemical formulas.
Another proposal is for China to design and enact legislation solely focused on human trafficking. It is important to ensure that the law covers all forms of trafficking (sexual, labor, etc.) as well as all of the acts (recruitment, transport, transfer, etc.) and means (force, coercion, deception, etc.) as defined in the Palermo Protocol and punishes them equally. In addition, the law must equally treat men and women as victims, with additional weight given to crimes committed against minors (i.e., anyone under the age of 18) regardless of gender.
Still, China is advised to end the use of forced labour as a tool for re-education and legal punishment. This includes its use of detention centers, the “labor training programs” connected to the internment of ethnic minorities such as in Xinjiang and Tibet, as well as the acceptance of any North Korean citizens sent by the DPRK government.
The report further suggests that the country (PRC) should Revise the “first to file” system. Modify relevant IP and trademark legislation, moving from giving protection to those individuals or entities that “file first” to giving protection to those who first came up with the invention.
Focusing on manufacturers is another suggestion for China to increase enforcement against individuals and entities that manufacture counterfeit goods or items that infringe on IP rights, including strengthening financial and criminal penalties. Enforcement actions in recent years have largely focused on the sale of counterfeit goods, such as on e-commerce platforms.
End the farming of any/all endangered and threatened species. China is further advised to institute a blanket ban on the farming of any CITES-listed species, regardless of the intended destination of the animal or product (e.g. consumption, TCM, etc.). The legal trade in endangered/threatened species legitimizes the demand, can incentivize poaching and creates a channel through which illegally-sourced goods can be laundered, among other issues. On a related note, “China should harmonize its List of Wildlife under Special State Protection with the CITES Appendices”.
And lastly, the ban on the use of wildlife in Traditional Chinese Medicine (TCM). There are 70 wild species used in different TCM medical treatments, however there are alternative plant and mineral ingredients that can be used. “As Beijing has long backed the TCM industry, both domestically and abroad, it should ban the use of any wild species in TCM as well as actively engage with the TCM community to promote and enforce it,”
Suggestion for the U.S
While several recommendations have been proposed for China, the report further advises the US to hold countries accountable for the weak pharmaceutical and illicit chemical controls. Explore policies to hold accountable countries that fail to sufficiently regulate the legal trade in pharmaceuticals and precursor chemicals used to produce illegal narcotics, including fentanyl and its analogs, as well as adequately implement and enforce such laws/regulations.
Still, the US has been advised to hold China accountable for abuses in Xinjiang. Continue to use targeted sanctions and all diplomatic tools available to hold those responsible for the human rights and forced labor abuses in Xinjiang accountable.
To develop a national strategy to combat counterfeiting and IP theft through voluntary, consensus-based technical standards, best practices, and guidelines for the private sector and institutes of higher education so that they can design, adopt and deploy strategies to combat counterfeiting and IP theft.
More still, the US is advised to study the illicit financial flows related to wildlife trafficking by conducting a study on the illicit financing and proceeds related to wildlife trafficking, including an overview of the role of professional launderers and gatekeepers, the convergence of wildlife trafficking with other transnational crime, and the national security implications.
Another recommendation is to continue to make combating corruption a high priority in the U.S. national security strategy. Corruption is a major facilitator of transnational crime and illicit financial flows, undermining national, economic, and environmental security in the U.S. and abroad. The U.S. Government must continue to curb corruption and its deleterious effects by modernizing, coordinating, and resourcing efforts to fight corruption; curbing illicit financing; and holding corrupt actors accountable, among others.
To target the individuals, entities, and countries facilitating financial crimes, and money laundering. Apply economic and other targeted financial sanctions with respect to individuals and entities engaged in financial crimes and money laundering, particularly trade-based money laundering. In addition, explore policies to hold accountable countries that fail to sufficiently investigate financial crimes and money laundering and/or provide adequate responses to requests for financial investigations information.
In addition, the US should study the role of Chinese professional money laundering networks. Conduct a study on the role of Chinese professional money laundering networks in laundering the proceeds of transnational crime and corruption.
And lastly, to study the IFFs between China and Afghanistan by conducting a study on the financial activities of China and Chinese entities in connection with the finances of Afghanistan and the Taliban, including an assessment of the activities undertaken by the People’s Republic of China and Chinese-registered companies to support illicit financial networks in Afghanistan, including those related to natural resources.
China
However, by the time of his story publication China had not come out with an official statement reacting to the report. But a source in Beijing, capital, told Insight Post Uganda that the authoritarian government may choose to disregard the report and remain silent about it.
For more about the report, watch the video below.
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