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Drug and Chemical Control
Introduction
The People’s Republic of China (PRC) is a significant drug transit country due to its history, location, geographical size, population, and current economic conditions. China continues to face problems of domestic drug production and trafficking and is a major manufacturer of “dual use” chemicals, primarily used for licit products, but also diverted by criminals. In particular, China is a major source of the precursor chemicals necessary for the production of cocaine, heroin, and crystal methamphetamine. Organized crime or criminal brokers divert these legitimately manufactured chemicals, especially ephedrine and pseudoephedrine, from large chemical industries throughout China to produce illicit drugs.
China is a transit area for Southeast Asian heroin and crystal methamphetamine (a.k.a. ice, shabu, bingdu) used by drug addicts in many Southeast Asian and Pacific Rim nations, as well as Southwest Asian heroin bound for international drug markets. Southwest Asian heroin continues to enter from Afghanistan to China for consumption in Chinese markets and, according to two recent investigations, for transshipments in smaller quantities to the United States, and other countries. China’s high volume of exports presents significant enforcement challenges, while a lack of government transparency creates problems for international cooperation. These two factors make China an ideal narcotics transshipment and precursor chemical diversion location for criminals.
Based on statistics provided by Chinese law enforcement authorities, China’s consumption of opiates would appear to be relatively stable, but some would dispute official statistics. Consumption of amphetamine-type stimulants (ATS) is unquestionably growing among China’s younger population. PRC authorities view drug trafficking and abuse as a major threat to China’s national security, economy, and stability.
China employs a comprehensive counter-drug strategy, dubbed “The People’s War against Drugs,” which includes prevention, education, eradication, interdiction, rehabilitation, thorough regulation on commerce in precursor chemicals, and increasing international cooperation. However, corruption in drug-producing and drug transit regions of China limits what dedicated enforcement officials can accomplish. PRC authorities continue to take steps to integrate China into regional and global counternarcotics efforts. China is a party to the 1988 UN Drug Convention.
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Money Laundering and Financial Crimes
China is a major global financial center, with a rapidly growing economy and increased integration in the international market. The primary sources of criminal proceeds are corruption, narcotics and human trafficking, smuggling, economic crimes, intellectual property theft, counterfeit goods, crimes against property, and tax evasion. Money is generally laundered through bulk cash smuggling, trade-based fraud (over/under pricing of goods, falsified bills of lading and customs declarations, counterfeit import/export contracts), and both the formal and underground banking systems. The use of cash-intensive, non-financial sectors such as real estate has increased, as has the use of e-currency, online exchanges, and the exploitation of investment vehicles such as forward exchange rate contracts and financial derivatives.
Most money laundering cases currently under investigation involve funds obtained from corruption and bribery. Proceeds of tax evasion, recycled through offshore companies, often return to China disguised as foreign investment and, as such, receive tax benefits. Chinese officials have noted that most acts of corruption in China are closely related to economic activities that accompany illegal money transfers.
Chinese authorities have observed that the increase in AML efforts by banks has been accompanied by increased laundering through the underground banking system and trade fraud. Value transfer via trade goods, including barter exchange, is a common component in Chinese underground finance. Many Chinese underground trading networks in Africa, Asia, the Middle East, and the Americas participate in the trade of Chinese-manufactured counterfeit goods.
China has multiple Special Economic Zones (SEZs) and other designated development zones at the national, regional, and local levels. SEZs include Shenzhen, Shantou, Zhuhai, Xiamen, and Hainan, along with 14 coastal cities and over 100 designated development zones. It is not a major offshore financial center.
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