Commercial Banks In China Anti-money Laundering Incentive System

From 1950s, the money-laundering activities become more and more severe, and its scale and harm is increasing. Money-laundering has separated from its originating crimes and start to become independent crimes. According to estimate of the International Monetary Fund, the total amount of money laundering is equivalent to 2% -5% of the gross national product of the countries around the world each year. Particularly since the 9.11 incident in the United State, terrorist activities are more rampant. To effectively prevent and combat money-laundering has become a consensus in many countries. Many countries have adopted anti-money laundering legislation to coordinate the work of norms and to strengthen international cooperation against money-laundering. In China, money-laundering began in 1980's, and had the continuous trend of a serious development in recent years. According to estimates, each year up to 200 billion yuan flow overseas from China through the "money-laundering", bringing China an annual tax loss of nearly a thousand billion RMB. A prominent feature in China is the close link between money laundering and capital flight and corruption.In recent years, China attaches great importance to the dangers of money laundering, increases the work of anti-money laundering, and improves anti-money laundering legislation. In October 2006, "People's Republic of China Anti-Money Laundering Law" was approved, which marked a key step of China on the track of anti-money laundering work in the legal system and the internationalization. As this law stipulates, Financial institution is a main party of anti-money laundering. Most of the money-laundering activities take place by entering and transfer illegal funds through banks. Thus commercial banks on behalf of financial institutions will inevitably become the vanguard of anti-money laundering front-line work. In order for Anti-money laundering work of the banking sector to achieve the best results, constraints and motivation are essential as two very important aspects. As far as these two aspects are concerned, China's banking sector has clear work limitations in anti-money laundering. The main problem is weak constraints and lack of motivation. If we do not give appropriate motivation to commercial banks participating in anti-money laundering work, the effect of anti-money laundering work will be greatly hindered. This is because the anti-money-laundering and the banking sector's short-term commercial interests are in conflict. In this paper, economics methods are used to analyze the costs and benefits of anti-money laundering work of commercial banks, as well as the gaming between the various parties in the Anti-Money Laundering work, which is aimed at raising recommendations to improve the motivation system of China's banking industry.First of all, this paper sorts out the theory of anti-money laundering in this article and the motivation theory and game theory, to lay a theoretical basis for incentive of a specific target in anti-money laundering work—commercial banks.Then, this paper uses "economic man" behavior hypothesis to analyze the characteristics of commercial banks and its motivation of the pursuit of profit. Then by means of comprehensive application of a variety of theoretical economics, such as gaming theory, externality theory and other principles, and through the establishment of model, this paper analyzes anti-money laundering costs and revenues of various parties to determine their behavior choices, so as to provide a theoretical reference to improve the binding - motivation mechanism of China's banking industry.Finally, through the introduction of the characteristics of anti-money laundering regime in Europe and the United States, combined with the actual situation in China, this paper raises specific recommendations to improve anti-money laundering work of China's commercial banks. Studies have shown that in order to increase the work of commercial banks to engage in anti-money laundering initiative and to increase the overall anti-money laundering work of China's actual results, the central bank must be taken to "both strengthened the constraints and appropriate motivation" policy options. On the basis of further strengthened binding mechanism, such measures as follow may be taken to commercial banks actively undertaking anti-money laundering obligations: (1) lower the standard of entry to commercial market for its branches (2) implement anti-money laundering assessment regulations (3) provide advice about supervison (4) share the revenue from anti-money laundering (5) provide credit facilities to promote its business.