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U.S. Department of State, "Country Reports on Terrorism 2007," April 30, 2008

The U.S. Dept of State Office of the Coordinator for Counterterrorism produces an annual report on terrorism.
April 30, 2008

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In the lead up to the 2008 Olympics, China continued to boost counterterrorism cooperation with the United States and other nations. China participated in the UN Security Council's Fifth Special Meeting of the Counterterrorism Committee held in Nairobi, Kenya, and attended a United Nations, Organization of Islamic Conference (OIC), and Islamic Educational, Scientific, and Cultural Organization Antiterrorism conference held in Tunis, Tunisia. China, a founding member of the Shanghai Cooperation Organization (SCO), has made counterterrorism one of the group's main objectives. In August, troops from the six SCO member states conducted an "antiterrorist operation" joint military exercise in Russia. In December, Chinese and Indian troops conducted joint antiterrorism training in Kunming, China.

China selected Yangshan Deepwater Port in Shanghai as the pilot port for the Megaports Initiative, designed to detect and interdict illicit nuclear and radiological materials that could be smuggled in United States-bound cargo.

In February, at the second meeting of the Global Initiative to Combat Nuclear Terrorism in Ankara, China offered to host a workshop on radiation emergency response. Fifteen countries attended this workshop, which was hosted by the Chinese Ministry of Foreign Affairs in Beijing in December. China continued its participation in the Container Security Initiative with United States Customs and Border Protection inspectors stationed at the ports of Shanghai and Shenzhen.

China's new Anti-Money Laundering Law took effect January 1. The law expanded the criminalization of money laundering-related offenses and broadened the scope of existing anti-money laundering regulations to hold a greater range of financial institutions accountable for recording customer information and reporting suspicious transactions. It also firmly established the People's Bank of China (PBOC) as the lead agency for all anti-money laundering activities in China. The Ministry of Public Security (MPS) Anti-Money Laundering Division and Anti-Terrorism Bureau are responsible for criminal investigations.

China's cash-based economy and robust crossborder trade contributed to a high volume of difficult-to-track cash transactions. While mechanisms were in place for tracking financial transactions in the formal banking sector, the large size of the informal economy, prevalence of counterfeit identity documents, and vast numbers of underground banks presented major obstacles to law enforcement authorities. According to International Monetary Fund (IMF) statistics, money laundering in China may account for as much as $24 billion dollars per year.

Terrorist financing is a criminal offense in China, and the government had the authority to identify, freeze, and seize terrorist financial assets, but laws defining terrorist financing were not yet consistent with international standards, according to reporting by the Financial Action Task Force. China's Financial Intelligence Unit (FIU), housed by PBOC, worked closely with the Financial Crimes Enforcement Network (FINCEN) in the United States to develop its capabilities. In addition to its domestic collection and analysis activities, the FIU exchanged information with foreign FIUs on a case-by-case basis, but coordination in this area could be enhanced through membership in the Egmont Group, an umbrella body that coordinates the activities of over 100 FIUs worldwide. China applied for membership in the Egmont Group, but domestic political concerns about Taiwan's participation in the organization have reportedly hampered membership discussions.

China expanded its role in international efforts to combat terrorist finance and money laundering by becoming a full member of the Financial Action Task Force (FATF) in June. Since 2004, China has also been a member of the Eurasian Group (EAG), a FATF-style regional grouping that includes China, Russia, and several Central Asian countries.

Human rights organizations have accused China of using counterterrorism as a pretext to suppress Uighurs, a predominantly Muslim ethnic group composed of the majority of the population of the Xinjiang Uighur Autonomous Region (XUAR) of western China. In January, Chinese authorities raided an alleged terrorist camp affiliated with the East Turkestan Islamic Movement (ETIM) in the XUAR, killing 18 and arresting 17.

According to police reports, Chinese police seized hand grenades, unassembled explosives, detonators, and the equivalent of $38,705 dollars in cash. Six of the 17 arrested were sentenced in November: three were sentenced to death, two received suspended death sentences, and another was given life imprisonment. In August 2006, upon Chinese request, Uzbekistan extradited a Canadian citizen of Uighur ethnicity to China where he was convicted for alleged involvement in East Turkistan terrorist activities. In November 2006, China gave Canada assurances that he would not be executed for his alleged crimes, and in September 2007, China denied the appeal of his life imprisonment sentence; at year’s end he remained in prison.

Formally established in 2002, the FBI Legal Attaché Office in Beijing bolstered United States-China cooperation on counterterrorism investigations. China provided substantive intelligence in some counterterrorism cases, but more work remained to be done in terms of the depth and overall responsiveness to United States requests.

In 2006, Chinese Air Marshals completed their first mission to the United States, and in July 2007, United States Air Marshals made inaugural trips to Shanghai and Guangzhou. The CAAC sent the Commander of the Air Marshals to attend an International In-Flight Security Officer Conference held in Miami in September. In October, the Administrator of the Transportation Security Administration (TSA) made the first high-level TSA visit to Beijing to discuss future formal collaboration on security matters in both the aviation and mass transit sectors.

Although not publicly attributing any particular incident to terrorism, Chinese authorities asserted that terrorists, primarily based in Xinjiang, continued to operate clandestinely on Chinese territory. The Chinese government increased the number of deployed security personnel in response to perceived terrorist activities in Xinjiang.

Hong Kong
Hong Kong's position as a major transit point for cargo, finances, and people and its open trade and financial regime made it a potential site for money laundering and terrorist financing activities. The high level of cooperation and the successful implementation of the Container Security Initiative (CSI) by Hong Kong Customs officials received continued praise from visiting USG delegations, which described it as a model for CSI implementation. In cooperation with Hong Kong Customs and one of Hong Kong's port terminal operators, the United States began implementation of a the Strategic Freight Initiative (SFI) pilot project to screen 100 percent of U.S.-bound containers using non-invasive inspection techniques to scan for nuclear and radiological materials.

Hong Kong law enforcement agencies provided full support and cooperation to their overseas counterparts in tracing financial transactions suspected of being linked to terrorist activities.

Hong Kong actively participated in various anti-money laundering and counterterrorist financing initiatives, including the Financial Action Task Force (FATF) and the Asia/Pacific Group (APG) on Money Laundering. Hong Kong's Joint Financial Intelligence Unit (JFIU), operated by Hong Kong Police and the Customs and Excises Department, is a member of the Egmont Group. Hong Kong completed a mutual evaluation by the FATF and APG in November; the results of this review will be announced in mid-2008.

The Macau Special Administrative Region is a member of the Asia Pacific Group (APG) and completed a mutual evaluation of its Anti-Money Laundering Regime in 2007. APG examiners reviewed Macau government regulations, suspicious transaction reporting; bank record-keeping and reporting requirements; and also interviewed frontline staff, senior management, and money laundering compliance officers. The APG report, published in September, made a series of recommendations including making the FIO a permanent body, establishing disclosure or declaration systems for crossborder transport of currency, and tighter due-diligence requirements for casinos.

The Government of Macau continued to exchange information with the Hong Kong Special Administrative Region and counterparts in mainland China. Additionally, Macau continued to cooperate internationally in counterterrorism efforts, through INTERPOL and other security-focused organizations within the Asia Pacific Region. Macau was considering information sharing mechanisms that would allow it to join the Egmont Group.