China’s Belt and Road Initiative Exacerbates Illicit Supply Chains and Trade-Based Money Laundering

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washington d.c. – “Globalization 2.0” or China’s Belt and Road Initiative (BRI), is a global infrastructure development strategy that was introduced in 2013 with the aim of reshaping global trade. Since its inception, China has spent approximately US$200 billion to renew and modernize the overland trade routes that make up the BRI. New research by Global Financial Integrity and King’s College London finds that improving transport corridors fuels illicit financial flows (IFFs) and criminal exploitation because the BRI was not designed and implemented with the aversion to crime.

A recent study of 186 countries found that China was the top export destination for 33 countries and the top import source for 65 countries. Our new report, titled Everything everywhere all at once, highlights the implications of China’s BRI on trade-based money laundering (TBML) and illicit supply chains.

“Trade-based money laundering is the disguising of the proceeds of crime and the movement of value through commercial transactions in an attempt to legitimize their illicit origins. An increase in trade means a consequent growth of TBML’s business , including opportunities for newer and more innovative black market trading systems to launder the proceeds of drug trafficking in the European Union,” said Dr Alexander Kupatadze, Lecturer at London King’s College.

Dubbed “the factory of the world,” China is already a major supplier of deceptive counterfeit and illicit goods. This research notes that BRI transport projects have significantly increased trade within the corridor economies as well as the rest of the world. This has increased the proliferation of counterfeit and illicit goods disguised as legal goods. In addition, limited enforcement and corrupt customs and border agencies have created opportunities for rent-seeking among political elites in BRI partner countries.

The report further highlights the risks posed by China’s economic expansion for the movement and migration of illicit financial flows (IFFs) across borders: laundered annually by the Chinese economy. New transport infrastructure can also exacerbate the problem of corruption in partner/transit countries. In particular, the public procurement and construction processes related to the implementation of major infrastructure projects offer many opportunities for corruption and collusion,” said Lakshmi Kumar, Director of Policy at Global Financial Integrity.

The report recommends that countries incorporate Free Zones (FTZs) into their Anti-Money Laundering (AML) regime and that adequate IFF risk assessments be conducted in FTZs, including separate reports on goods/goods entering and leaving it.

In addition, the report recommends the establishment of beneficial ownership registers throughout the financial, transport and commerce system. “Beneficial ownership information in the context of the BRI should cover all companies importing and exporting through trade corridors along the BRI; it should also be ensured that this information is recorded for the vessels,” noted Dr Kupatadze.

To mitigate risks arising from BRI, it is important that aggregated and disaggregated business records are made available as open source information or at nominal cost. Prioritizing improved channels for cross-border sharing of real-time trade information to flag BRI IFF risks is essential. Regarding the assessment of TBML, the report recommends increased monitoring as part of national risk assessments.

The report further recommends that companies undertake better and more specific, actor-driven due diligence to understand issues related to corruption, ethics and transparency between supply chain partners. In jurisdictions with a less established track record of good governance, it is essential to have a better picture of local patronage systems, particularly with regard to customs and law enforcement structures, the institutional and individual complicity and complacency in smuggling and counterfeiting, and the local decision-making structure.

Read the full report here.

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About GFI

Global Financial Integrity is a Washington, DC-based think tank producing high-calibre analyzes of illicit financial flows, advising developing country governments on effective policy solutions, and promoting pragmatic transparency measures in the financial system to promote development and global security.

About King’s College London

King’s College London is an internationally renowned UK university offering exceptional education and cutting-edge research dedicated to driving positive and lasting change in society.

press contact

Denis Kabia
Communications Consultant, Eastern and Southern Africa
[email protected]

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