Anti-Money Laundering Research Of CNY Offshore Market In Hong Kong Based On Financial Freedom

Internationalization of CNY is an irresistible trend in recent years as the results of continuously growth of foreign exchange reserve, continuously increase of national comprehensive strength, and CNY’s circulation peak. At the same time, the establishment of CNY offshore market is an extremely urgent and necessary way to CNY internationalization. However, as the features of high freedom, low information disclosure, and loose regulation, offshore market has become an excellent place for money laundering. And thus it is urgent and important to investigate anti-money laundering to offshore market.The offshore market is the result of global financial integration and openness, and is of independence to onshore finance in the host country, such as executing account separation and different laws application. The offshore market manages currencies of the unregistered countries with the features of high cash flow speed and high degree of freedom.This paper firstly divides different identities that exist game behavior as Mainland China onshore tax institution, Hong Kong offshore tax institution, Hong Kong offshore banks and Mainland China onshore banks. And then builds the free degree model of Hong Kong CNY off-shore market, in which this paper analyzes participants’ cost and benefit by the cost-benefit analysis method and classifies offshore banks into two types according to whether the banks execute anti-money laundering provisions. Moreover, two stages static game method is utilized to analyze the equilibrium results of the four sides identities mentioned above. And also, the rate difference and tax rate difference of both banks and tax institutions, as well as the influence of free degree in the offshore market on them are analyzed based on the equilibrium results in detail.The second part of this paper assumes that there exists a Unified regulator between Hong Kong CNY offshore market and mainland China onshore market, which ensures Hong Kong CNY offshore banks could conscientiously implement anti-money laundering provisions under incentive mechanism. Then, based on equilibrium results and the assume, this paper discusses the effective free degree of Hong Kong CNY offshore market, at which the anti-money laundering efficiency of the whole society reaches to the highest point.The offshore market will cause the competition between the game participates in the short term. However, with the development of Hong Kong CNY offshore market, the cross-strait financial integration will be well promoted. That is to say, the cross-strait financial integration is the inevitable trend in the long run. And hence, based on the above conclusions, this paper makes further analysis between the degree of the cross-strait financial integration and the free degree of the offshore market with the mathematical method. At the end of this paper, some policy recommendations are proposed respectively from such aspects as Hong Kong CNY offshore market construction, internal and external supervision of the offshore banks, as well as cross-strait co-operational supervision to offshore banks.