Source: 2000
Released by the Bureau for International Narcotics and Law Enforcement Affairs
The People's Republic of China (PRC or China) continues to be a major transit country for illegal narcotics produced in the Golden Triangle. During 2000 the PRC worked strongly and effectively to combat narcotics trafficking and domestic drug use. Preliminary figures suggest that heroin seizures by Chinese law-enforcement personnel remained steady from the previous year, while seizures of amphetamine-type stimulants (ATS) skyrocketed. A government "White Paper" issued in June set forth a comprehensive strategy to fight narcotics use and trafficking. For the first time, Chinese authorities provided U.S. counternarcotics officials with samples of drugs seized en route to the United States. The United States and the PRC signed a Mutual Legal Assistance Agreement in mid-2000. China is a party to the 1988 UN Drug Convention, the 1961 UN Single Convention and its 1972 Protocol, and the 1971 Convention on Psychotropic Substances.
Most seizures of Southeast Asian heroin now take place within Chinese borders. Preliminary figures suggest that heroin seizures in 2000 were roughly the same as those in 1999, representing a significant drop from 1998's record levels. Record quantities of ATS were seized in 2000, illustrating the growing threat of this type of drug in China. The Chinese government reported that there were 681,000 registered drug addicts in 1999, but officials privately admit that the actual number of users is far higher.
China is a major producer of precursor chemicals, including acetic anhydride, potassium permanganate, and ephedrine. China monitors all 22 of the chemicals on the 1988 UN Drug Convention watch list. China has been a strong partner with the United States and other concerned countries in implementing a system of pre-export notification of dual-use precursor chemicals.
In 1997 the PRC criminalized the laundering of proceeds from narcotics trafficking, organized crime, and smuggling. In April 2000 the government enacted "true name" banking legislation. China does not participate in the Asia-Pacific Group on Money Laundering or other regional or international groups, such as the Financial Action Task Force. A detailed discussion of money laundering is in the Money Laundering and Financial Crimes section of this report.
Policy Initiatives. In June, the government issued a "White Paper" on drugs. This comprehensive strategy for fighting narcotics trafficking and drug use covers all of the major goals and objectives of the 1988 UN Drug Convention and emphasizes drug eradication, interdiction, education, and rehabilitation as well as precursor chemical control.
Illicit Cultivation/Production. China's effective eradication program has essentially eliminated commercial cultivation of illicit narcotics within its borders. The government continues to target small-scale cultivation in remote northeastern and northwestern areas of the country. Ephedra grows wild in northern parts of China and is used to make ephedrine, the precursor for methamphetamine. The government tightly controls exports of this key precursor.
In part because of the success of these efforts, Chinese officials suggest, narcotics traffickers have increased the production of methamphetamines ("ice") and other synthetic drugs within China. Faced with a growing threat from methamphetamines and synthetic drugs such as ecstasy, the government has made locating and destroying illicit drug laboratories a top priority. A single investigation resulted in the seizure of 17 tons of methamphetamines and precursor chemicals with an estimated street value of up to U.S. $700 million. The results of that case highlight not only the extent of the ATS problem in China, but also the depth of the government's commitment to combating synthetic drugs produced and distributed in China.
Drug Flow/Transit. The PRC shares a 2,000-kilometer border with Burma. The majority of heroin produced in Burma now travels through China en route to the international market. Reflecting China's importance as a transshipment route, most seizures of Burmese heroin now take place in China. Smaller quantities of heroin enter China from Laos, Vietnam, and Southwest Asia.
Law Enforcement Efforts. Preliminary figures suggest that seizures of heroin by Chinese law-enforcement personnel in 2000 will be roughly equal to those from the previous year. The amount represents a steep decline from 1998, when heroin seizures reached an all-time high. Nonetheless, China still accounts for more heroin seizures than all other East Asian countries combined. Methamphetamine seizures continued to soar, with this year's total seizures eclipsing last year's record haul.
In the fall of 2000, Chinese police uncovered a syndicate that specialized in smuggling MDMA (ecstasy) to the United States. In the course of the investigation, Chinese authorities arrested several suspects and seized 100,000 tablets bound for the United States. The Ministry of Public Security has worked actively with the Drug Enforcement Administration (DEA) to identify U.S. residents involved in the operation, which had already successfully smuggled 50,000 tablets into the United States. Although this case demonstrates effective bilateral cooperation on narcotics, Chinese responses to U.S. requests for information and assistance in narcotics investigations often come too late to be of operational value.
Corruption. Chinese officials admit that corruption is one of the most serious problems the country faces. An ongoing anticorruption campaign has led to the arrest of hundreds of government officials. The execution of a former provincial Vice Governor and a Vice Chairman of the National People's Congress Standing Committee attest to the extent of the campaign, as well as to the degree to which corruption has permeated Chinese society. One smuggling and corruption scandal in the southern port city of Xiamen involved official complicity in avoiding duties on approximately USD 10 billion worth of consumer goods. China's entry into the World Trade Organization (WTO), which will greatly reduce tariff barriers to imports, should significantly reduce smuggling and its attendant corruption. Most other official graft in China involves misappropriation of funds, abuse of power, and embezzlement. There have been instances of PRC officials embezzling funds and then emigrating to the United States. Efforts to deport them have not been successful. There were no reports in the state-controlled media of narcotics-related corruption.
Asset Forfeiture. The PRC's criminal law provides for asset forfeiture. Article 347 of the criminal law, which states that "smuggling, trafficking, and manufacturing of drugs will subject an offender to a term of imprisonment or death and the confiscation of property," has been used to seize drug-related proceeds and assets, particularly in Yunnan province.
Precursor Chemical Control. China is a major producer of precursor chemicals. The PRC monitors all 22 of the chemicals on the 1988 UN Drug Convention watch list. Several provinces, including Yunnan (which shares a border with Burma), have even more stringent controls than called for by the Convention. Yunnan, for example, monitors exports of 28 chemicals. In June 1999 and May 2000, the government issued regulations further tightening controls on transportation licenses for ephedrine. The PRC cooperates closely with the United States on chemical control issues. The two sides have in place a strong pre-export notification program for ephedrine and pseudoephedrine. China is a participant in Operation Purple, the worldwide initiative to stem the diversion of potassium permanganate to cocaine syndicates.
Demand Reduction. China's counternarcotics strategy emphasizes both education and rehabilitation. According to official statistics, there were 680,000 "registered" addicts in 1999, but officials admit that the real figure may be many times higher. Individuals identified as addicts are subject to compulsory rehabilitation. The 746 rehabilitation centers throughout the country treated 224,000 addicts in 1999. An additional 120,000 were treated at specially designated reeducation-through-labor treatment centers.
China provides antidrug education to all school children and has also taken steps to warn citizens about the link between intravenous drug use and HIV/AIDS. The country also has experimented with "drug free communities," an effort to mobilize entire communities to work together to combat narcotics trafficking and encourage former addicts to remain drug free. In the coming years, China plans to expand this program beyond a few initial test communities.
Agreements and Treaties. The PRC is party to more than 30 mutual legal assistance treaties with 24 countries covering civil or criminal matters. In June 2000 the PRC and the United States signed a Mutual Legal Assistance Agreement. When this treaty enters into force, it will provide a powerful tool for obtaining evidence needed to prosecute transnational criminals, including narcotics traffickers, in both countries. The PRC signed the UN Convention Against Transnational Organized Crime in December 2000. China has yet to take action to activate a bilateral Customs Mutual Assistance Agreement signed in 1999. This agreement, if brought into force, would facilitate cooperation by customs officials and enhance the flow of narcotics intelligence.
A May 1997 U.S.-PRC Memorandum of Understanding on Law Enforcement Cooperation allows the two sides to provide assistance on narcotics investigations and prosecutions on a case-by-case basis.
The PRC also cooperates actively with countries in the region in the fight against narcotics. Along with the UNDCP and five Southeast Asian nations, China is a member of the Memorandum of Understanding (MOU) States. In the MOU, the members agreed to collaborate on drug-control projects and programs. China supports crop-substitution initiatives for farmers in Burma and Laos, as well as demand reduction efforts in areas bordering Yunnan province.
In August 2000 senior Thai and Chinese officials met in Yunnan province and agreed to strengthen bilateral efforts to fight drug trafficking and the transshipment of precursor chemicals. They formalized the agreement in October by signing a MOU detailing areas of cooperation. Also in October the PRC and the Republic of Korea signed a bilateral extradition treaty. In November, the PRC and Laos signed a bilateral cooperation accord, which included provisions for expanding efforts to combat transnational crimes, including narcotics trafficking.
Policy Initiatives. Bilateral counternarcotics cooperation at both the working and policy levels improved in 2000. The June visit to the PRC by then U.S. Office of National Drug Control Policy (ONDCP) Director McCaffrey symbolized the high-level bilateral commitment to work together to combat illicit narcotics trafficking and use. At the working level, PRC and U.S. officials cooperated closely in conducting transnational investigations, exchanging information on existing and emerging threats, and developing Chinese law-enforcement capabilities.
There were several notable examples of successful cooperation in the field of law enforcement in 2000, including the dismantling of an ecstasy-smuggling ring operating in both the PRC and the United States.
PRC and U.S. counternarcotics personnel meet regularly to discuss active investigations and related narcotics matters. In response to a U.S. request, China for the very first time provided the United States with samples of drugs seized in an investigation for inclusion in the DEA special drug-signature program. The United States continued to emphasize the importance of receiving quick responses to requests for information in time-sensitive investigations.
Throughout the year, Chinese police attended counternarcotics and general law-enforcement training courses at the joint U.S.-Thai International Law Enforcement Academy in Bangkok. This important regional forum brought together police and other law-enforcement officials from throughout the region to improve technical capabilities and establish ties among regional counternarcotics and law-enforcement bodies.
The Road Ahead. During his June visit to China, then ONDCP Director McCaffrey identified several areas in which the United States hoped to expand and strengthen bilateral cooperation, including the exchange of narcotics-related information and strategic intelligence. To this end, the United States has proposed holding regular meetings of working-level counternarcotics officials to discuss specific topics and targets of mutual interest. The United States will also encourage the PRC to continue to provide samples of narcotics seized by Chinese officers. The United States will continue to monitor both the transshipment of Burmese heroin through China and the threat posed by the explosive growth of methamphetamine trafficking in China.
China has a major chemical industry. It is the worlds largest producer of potassium permanganate, a key cocaine essential chemical, and it is a major producer of acetic anhydride and ephedrine, two other important precursor chemicals. The country is a party to the 1988 UN Drug Convention and has regulations for record keeping and import/export controls on the 22 chemicals included in the convention. Several provinces, including Yunnan (which shares a border with Burma), have more stringent controls than called for in the Convention. Yunnan, for example monitors exports of 28 chemicals. China also requests "letters of no objection" from importing countries prior to authorizing exports of methamphetamine precursor chemicals.
China actively cooperates with multilateral initiatives to control chemicals in international commerce, and it has been a strong partner with the U.S. and other countries in implementing a system of notification of duel-use chemicals. It reports the highest number and largest quantities of potassium permanganate shipments to the Operation Purple control system. It will participate in Operation Topaz, the acetic anhydride tracking initiative.
Record seizures in China of amphetamine-type-stimulants (ATS) indicate equally large diversions from domestic commerce of the chemicals required for their manufacture. Diversions from domestic commerce smuggled across Chinas 2,000 kilometer border with Burma are also a source of the chemicals for Burmas surging ATS manufacture. Domestically diverted acetic anhydride is also reaching Burmese heroin labs.
China cooperates closely with the U.S. on chemical control issues. The two sides have in place a strong pre-export notification system for ephedrine and pseudoephedrine. Chinese officials routinely take part in chemical control courses sponsored by the Department of State and taught by DEA. Information is exchanged through mechanisms such as Operation Purple and in the course of normal counternarcotics cooperation.
In response to the growing threat of money laundering, the People's Republic of China (PRC) has begun to focus greater attention on improving the country's anti-money laundering regime. The State Council (Cabinet) has directed various government agencies to examine their current anti-money laundering measures and to draft new regulations for the commercial banking, regulatory, and enforcement sectors. The government views an enhanced anti-money laundering regime as a means to stem the rise in financial crime and corruption. Narcotics trafficking, smuggling, extortion, alien smuggling, and the counterfeiting of currency and goods remain major sources of illegal proceeds in the PRC. Foreign and domestic organized criminal activity, endemic corruption at the provincial and local levels, and the continued presence of anonymous bank accounts contribute to the PRC's money-laundering problem.
The PRC's efforts to address money laundering began in 1990, when the National People's Congress (NPC) adopted the country's first law criminalizing narcotics-related money laundering and allowed the confiscation of narcotics proceeds. In 1997, the NPC adopted the PRC's current Criminal Code, Article 191, which makes it a crime to launder the proceeds of narcotics trafficking, organized criminal activity, and smuggling. Efforts are underway to draft amendments to the Code that would expand the definition of predicate offenses for money laundering to include the proceeds of all criminal activity. In addition to Article 191, Article 312 of the Criminal Code criminalizes complicity in concealing the proceeds of criminal activity.
As in many civil law-based countries, the PRC charges each offense separately, and defendants who have laundered the proceeds of a predicate crime usually are prosecuted for the predicate offense rather than money laundering because the predicate offense generally carries a heavier penalty and is easier to prove. The sentences handed down by tribunals in 2000 illustrate the severity of punishment. Several dozen senior officials at both the national and provincial levels were sentenced to death for corruption and smuggling.
The PRC took additional steps in 2000 to combat money laundering. In April 2000, the PRC passed a statute that requires anyone opening a new bank account to do so in his or her true name. When opening or depositing money into a new account, the customer must produce an identification card to verify his or her identity. Existing anonymous accounts may remain open for five years from the time of the account's establishment. After five years, the account holder must re-register the account in his or her true name only. Anonymous accounts will be phased out in 2005.
The People's Bank of China (PBOC)--China's central bank--has issued internal regulations that require currency transaction reports for all transactions involving Renminbi (RMB) 50,000 (US $6,000) or more. The PBOC also has issued rules concerning the recording and reporting of currency transactions at the county level, as well as a circular to Chinese banks regarding the reporting of suspicious transactions. Withdrawals of RMB 200,000 (US $24,000), deposits of RMB one million (US $120,000), or a series of aggregate transactions totaling RMB one million must be reported to the PBOC. At the county level, withdrawals of RMB 50,000 (US $6,000) require picture identification. However, central bank supervisors do not verify compliance with these rules.
In addition, the PRC has foreign currency exchange controls. Commercial banks require PRC citizens to justify the exchange of RMB into a foreign currency. The maximum amount of foreign currency that a PRC citizen may take out of the PRC is US $2,000. For foreigners, the threshold is US $5,000. Requests for exchanges of currency above these thresholds require advance certification through documentation of the need for the foreign currency, such as for foreign travel or commerce.
The United States and the PRC continue to discuss cooperation on money laundering and other law enforcement topics under the auspices of the US-PRC Joint Liaison Group (JLG) on law enforcement cooperation. The last JLG meeting took place in June 2000 in Beijing. In 2000, US enforcement and regulatory agencies hosted several law enforcement delegations from China to discuss money laundering and financial crimes. In addition, the US Departments of Treasury and Justice conducted various training seminars in the PRC featuring the enforcement and prosecutorial aspects of money laundering.
In October 2000, an interagency US Government team visited the PRC to assess the need for training to help PRC authorities combat money laundering. The team will make recommendations on future training.
The United States and the PRC in June 2000 signed a Mutual Legal Assistance Agreement (MLAA), which contains general obligations to cooperate in criminal matters. The agreement is not yet in force. The PRC is a party to the 1988 UN Drug Convention, and in December 2000, signed the United Nations Convention against Transnational Organized Crime. The PRC is a member of the Asia/Pacific Group on Money Laundering.
As the PRC examines ways to enhance its anti-money laundering regime, consideration should be given to criminalizing money laundering for all serious crimes, and abolishing anonymous accounts prior to 2005. The PRC also should adopt comprehensive anti-money laundering legislation that establishes appropriate mechanisms for prevention, detection, and enforcement.