Evaluation Of The Effectiveness Of China’s Anti-money Laundering System

China’s anti-money laundering (AML) system increasingly become perfect. But there are many different opinions about the effectiveness of the system showing. The reason is that we always view AML system as public goods, and then it is difficult to know that constructing the system have directly effectiveness which contribute to social stability and development from the perspective of data. For the financial institutions, they have to spend huge cost in implementing the system. There is badly asymmetry in the aspect of the performance of social utility and payment of implementing cost, and finally the asymmetry performance can affect the whole system development speed and its effectiveness to be taken.To construct AML system quickly China has drawn lesson from the international experience, and promoting it. But, in essence, China adopts transplantation forms to construct AML system. The way of system transplantation can be in favor of constructing the integrity AML system in a short term. However AML system is not isolated from the whole social system and it is affected by the local external environment, such as economy, politics, social culture and legal system. Within some period, the new system transplanted must adapt all of these external factors, or the effectiveness of the system will be affected. If a country cares about the system transplanting very much, and takes some measures to promote it, the AML system will be changed by self-learning, and rapidly adapts itself to the local external environment, finally self-reinforcing mechanism incent the system to increasingly develop and improve. AML institution evolution, however, does not lead to institutional advancement, sometime the situation system degradation maybe happen, moreover the path dependence, the characteristic of the AML system, will lead to path-lock which caused by self-reinforcing mechanism, and finally the AML system effectiveness of fighting predicate offence and money laundering crime will be affected.The theory of institution evolution is used to analyze the change of China’s AML system and its effectiveness. Meanwhile the research use methodology of empirical to verify the effectiveness of China’s AML system. The logic of dissertation is:crime of money laundering encompasses predicate offence and downstream crime; therefore it is necessary to assess the effectiveness of China’s AML suspicious transaction reporting system against predicate offence and downstream crime respectively. Moreover viewing AML system as part of the whole system fighting all kinds of crime, after a long period of institutional change, theoretically AML system will be integrated into initial system, and the institutional effectiveness forms 1+1>2, based on this mind, it is need to compare the effectiveness of AML system before constructing with AML system constructed. The paper has seven chapters.Chapter One introduces background of the subject, fundamental knowledge, and main research contents and innovation.Chapter Two reviews on the literature about AML system, including the theme, methodology, conclusion and the latest studies, aiming to select appropriate methodologies to assess the effectiveness of the system, and showing marginal value of the study.Chapter Three introduces the theory of evolutionary economics to analyze the AML system, which encompasses institutional transplantation, evolutionary process, path dependence and path lock. There are two crucial factors, initial institutional environment and economic environment, to assess the effectiveness of the system. Under the initial institutional environment and economic environment, the evolutionary process of AML system can influence on the effectiveness of the system. Moreover the evolutionary process of AML system may cause to path lock and have some factors leading to path lock, and the AML system evolution influenced by corruption. According to the statistic conclusion, there is a repetitive performance when some countries that have serious corruption situation enforce the AML regulation.Chapter Four is devoted to the analysis of the effectiveness and difficulties of the Anti-money Laundering and Suspicious Transaction Report (STR) System from a database theory perspective. The major reason that affects the effectiveness of STR System is the mismatching between the quantity and quality of the STR. Causes of this mismatching on the one hand lie in the executive abilities and willingness of the commercial institutions; on the other hand lie in the deficiency in the design of the STR System. The chapter analyzes the’Suspicious activities’ and ’Unusual activities’ and their respectively severe impact on the quantity of the filing of suspicious activity. Besides, analysis of the impact of’suspicious’ and’unusual’on the report system is also conducted under the frame of ’Rules-based’ and ’Risks-based’. Furthermore, the process of using the Panel VAR to assess the influence of Chinese STR on the predicate offence is carried out. Due to the fact that this method takes account of the Panel data and the characteristics of time series data processing, it can not only shows that the Chinese STR System still does not have significant influence in the fight against the corruption, but also shows that the application of STR System in commercial banks simply adds up a little bit system-construction cost, yet not impede the normal banking business.Chapter Five examines the effectives of China’s Anti-money Laundering’s checking power over predicate offence. We use ’Difference-in-Differences’ (DID) method to analyze the China’s Anti-money Laundering System’s checking power over the predicate offence before and after the application of the system. The analysis shows that the system does have a significant negative influence on the fight against predicate offence. Meanwhile, the analysis shows that there is a "barrel effect" in the application of Anti-money Laundering System due to the fact that the application of the system is incomplete. In order to verify whether there is "barrel effect" in the system, the "DID" method is used to examine the corruption’s influence on Residents’ saving before and after the application of the anti-money laundering system. Because, after the application of the anti-money laundering system, the corruption gains which used to be laundered through banking transactions might now be laundered through other channels and indirectly enter the banking system and change the structure of bank deposits which are embodied in the changes of household savings. The results confirm the existence of’barrel effect’.Chapter Six analyzes the Anti-money Laundering System’s effectiveness from the perspective of the STR System’s checking power over the downstream crime. In consideration of the fact that the overall scale of the downstream crime is hard to define, the present research takes the trade as a sample of the downstream crime of money laundering. The respective calculations of the import/export records of China to its 15 trading partners and 15 trading partners’respective record of import/export to China shows a gap in trading records (known by scholars as’Trade Mis-invoicing’). We use the scale of the Trade Mis-invoicing as a measuring stick to measure the scale of Chinese Trade-based Money Laundering and use this to assess the STR System’s checking power over the Trade Mis-invoicing. Besides, in order to show that the Chinese STR has the same checking power over money laundering, this study makes a comparison between China and counties having similar Anti-money Laundering System. Results show that Chinese STR can play an active role in fighting against trade-based money laundering.Chapter Seven draws a natural conclusion of the study and puts forwards some suggestions to improve the Chinese Anti-money Laundering System.