C N A O AUDIT TO DETECT FRAUD AND CORRUPTION: EVALUATION OF THE FIGHT AGAINST CORRUPTION AND MONEY...

C N A O

AUDIT TO DETECT FRAUD AND CORRUPTION:EVALUATION OF THE FIGHT AGAINST

CORRUPTION AND MONEY LAUNDERING

National Audit Office of the People’s Republic of National Audit Office of the People’s Republic of ChinaChina

HoChiMinh, April 24 2013HoChiMinh, April 24 2013

National Audit Office of the People’s Republic of National Audit Office of the People’s Republic of ChinaChina

HoChiMinh, April 24 2013HoChiMinh, April 24 2013

Part II: Evaluation of current situation of corruption and money laundering

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Outline

Evaluation of Current Situation of Evaluation of Current Situation of CorruptionCorruption

Evaluation of Current Situation of Evaluation of Current Situation of Money LaunderingMoney Laundering

Evaluation of Current Situation of Evaluation of Current Situation of CorruptionCorruption

Evaluation of Current Situation of Evaluation of Current Situation of Money LaunderingMoney Laundering

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I. Evaluation of Current Situation of CorruptionEvaluation of Current Situation of Corruption

0

1

2

3

4

5

6

Governmentdepar tment

Fi nanci alI nst i t ut i on

Non- fi nanci alcorporat i ons

I nf ormat i on ofrespondent

The research team chose the 8 experts devoted in anti-corruption actions, including 6 worked in specialized government departments, 1 state-owned company, and 1 financial institution.

1.1 Information of respondents

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The survey results showed that most respondents indicated that the current prevalence of corruption in China was moderate.

1.2 Assessment of Current Situation

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Low Moderate Moderate andwi despreadamong some

publ i csectors

wi despreadamong some

publ i csectors

The currentpreval ence ofcorrupt i on

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Most respondents indicated that it was similar compared with previous 3 years. Individually, 25 percent of respondents thought that the current prevalence of corruption was slightly higher, or slightly lower than previously.


00. 5

11. 5

22. 5

33. 5

4

Much hi gherthan

previ ousl y

Sl i ght l yhi gher thanprevi ousl y

About thesame as

previ ousl y

Sl i ght l yl ower thanprevi ousl y

Much l owerthan

previ ousl y

the currentpreval ence ofcorrupt i oncompared wi thprevi ous years

C N A O


As of 2012, the CPI of China ranks at 80 among the 176 countries and economic entities. Half of the respondents thought that the rank of CPI fairly reflected the reality of corruption of China. However, another half of respondents showed that the rank of CPI didn’t reflect the reality.


Compared with 33 diverse countries, the Global Integrity Indicators of China in 2011: the Overall Rating was weak, 64 of 100. Half of respondents agreed with the score of GII fairly, but another half of disagreed with it.

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5 respondents thought that the tolerance level of population in China was moderately intolerant towards corruption.

1.3 Strength of anti-corruption in China

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Tol erant Moderatel yi ntol erant

St rongl yi ntol erant

Tol erancel evel ofpopul at i ontowardscorrupt i on

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In recent years, the government of China has made a lot of works to build integrity and fight corruption. Half of respondents thought that the strength of steps taken by government was strong, 3 respondents showed that the strength was moderate, and only 1 person pointed that it was weak.

1.3 Strength of anti-corruption in China

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0. 5

1

1. 52

2. 5

3

3. 5

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Weak Moderate St rong

St rength ofsteps taken bygovernmentagai nstcorrupt i on

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All of the respondents thought that the pattern of corruption dealings was moderately predictable or highly predictable in China.

1.4 Patterns of corruption

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11. 5

22. 5

33. 5

44. 5

5

Unpredi ctabl e Unpredi ctabl e butbenefi t t i ng f ew

top l eaders

Moderatel ypredi ctabl e

Hi ghl ypredi ctabl e andcan be seen f romcertai n pat tern

The pat tern ofcorrupt i ondeal i ngs

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In most developing countries, corruption is vast and pervasive, and can be found at all levels of public entities and private enterprise. In China, most respondents indicated that Corruption occur most frequently in public entities, the other 3 persons thought that Corruption occur equally in public and private entities.


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Most l y i npubl i c

ent i t i es

Most l y i npr i vateent i t i es

Equal l y I npubl i c and

pr i vateent i t i es

Where doescorrupt i onoccur mostf requent l y?

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Half of respondents chose that petty corruption was the most serious, and grand corruption was the least serious. At the same time, half of respondents showed that grand corruption was the most serious, and petty corruption was the least serious. All respondents showed that corruption at enterprise level was the medium serious.


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Rank 1 Rank 2 Rank 3

Petty corrupti on

Corrupti on at enterpri sel evel Grand corrupti on

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Petty corruption is widespread and visible in the everyday lives of citizens and businesspeople. Most respondents thought the prevalence of petty corruption in China was moderate.

1.5 Petty corruption

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Non- exi stent Low Moderate Hi gh

Preval ence ofpet tycorrupt i on

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Most respondents indicated high-level management were most easy to be involved in petty corruption, and 3 persons chose medium management/supervisors.

1.5 Petty corruption

Hi gh- l evelmanagement

Medi umManagement / Supervi sorsRank and fi l eempl oyees

Publ i c

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Grand corruption Operates at high levels of government, 3 respondents described the prevalence of petty corruption was low in China. On the contrary, another 3 respondents indicated it was high in China. 2 persons described it was moderate.

1.6 Grand corruption

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1. 5

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2. 5

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Non- exi stent Low Moderate Hi gh

Preval ence ofgrandcorrupt i on

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Half of respondents indicated powerful government officials are most easy to be involved in grand corruption, 3 persons chose specific business interests and political groups.

1.6 Grand corruption

El ectedoffi ci al s

governmentoffi ci al s

ent repreneurs

Speci fi cbusi nessi nterests

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The abuse of position/power, bribery, and influence peddling were the most common 3 types of corruption. Most respondents indicated the approximate average monetary value was less than USD100,000.

1.7 Types of corruption

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11. 5

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33. 5

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Abuse of powerI nfl uence peddl i ngBri beryKi ckbackExtorti onNepoti sm

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The local government/municipality, custom, law enforcement/police or taxation were the most vulnerable sectors to corruption.


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0. 5

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1. 5

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2. 5

3


Local governmentHeal thLegi sl atureLaw enforcementState-owned enterpri seTaxati onCustomEducati onEnergyJ udi ci ary

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At the government level, procurement contract, licensing, and revenue (taxes) collection were the most frequent field which had the greatest probability of corruption.


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Procurement contract

Li censi ng

revenue col l ect i on

El ectoral i rregul ari ty

Publ i c fund di sbursementprocedure

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For monies and assets gained from corruption, most respondents described that they were always used in investing in real estate, acquiring assets, and stock investment.


00. 5

11. 5

22. 5

33. 5

4


I nvesti ng i n real estateBank deposi tsAcqui ri ng assetsLei sure, soci al acti vi t i esStock i nvestment

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In the respondents’ opinion, the absence, weaknesses or failure in regulatory and legal systems, or the culture, customs and habits of giving bribes to get things done, the complicated and cumbersome administrative procedures and unclear rules and loopholes for manipulation were the top 3 important causes of corruption.

1.8 Root cause of corruption

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Fai l ure i n regul atory

Cul ture of gi vi ng bri be

Low sal ary l evel

Uncl ear rul es formani pul ati onCompl i cated admi ni strati veprocedureLack of fi nanci al rul es

Become ri ch as qui ck aspossi bl e

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Most respondents indicated that their monitoring the situation of corruption was essential. 25 percent of respondents showed that the attitude was high priority.

1.9 Attitude of enforcement agency to corruption

00. 5

11. 5

22. 5

33. 5

44. 5

5

Not apr i or i t y

Lowpr i or i t y

Medi umpr i or i t y

Hi ghpr i or i t y

Essent i al

Enf orcementagencypr i or i t i zemoni tor i ng thesi tuat i on ofcorrupt i on

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For the complaints of corruption or fraud from the public, half of respondents selected that their attitude was essential, 3 persons showed that their attitude was high priority.


0

0. 5

1

1. 5

2

2. 5

3

3. 5

4

Not apr i or i t y

Lowpr i or i t y

Medi umpr i or i t y

Hi ghpr i or i t y

Essent i al

Enf orcementagencypr i or i t i ze thecompl ai nts ofcorrupt i on orf raud f rom the

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As for the important role of whistle blower in reporting of corruption, most emphasized it was extremely important or very important. For the value of whistle blower’s complaints of corruption, all of respondents indicated that it was very effective or effective.


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1. 5

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2. 5

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Not at al li mportant

Sl i ght l yi mportant

Moderatel yi mportant

Ext remel yi mportant

I mportancerol e ofwhi st l e bl oweri n report i ngof corrupt i on

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II. Evaluation of money laundering

The research team chose 9 experts worked in 7 specialized government departments, 1 state-owned company, and 1 financial institution.

2.1 Information of respondents

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7

Governmentdepartment

Fi nanci alI nst i t ut i on

Non- fi nanci alcorporat i ons

I nf ormat i on ofrespondent

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In the respondents’ opinion, most persons thought that the situation of money laundering in China was serious or very serious, and 4 persons indicated that the situation was not serious.

2.2 Situation of money laundering

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11. 5

22. 5

33. 5

4

Ext remel yser i ous

Veryser i ous

Ser i ous Notser i ous

Notser i ous

Not atal l

ser i ous

Si tuat i on ofmoneyl aunder i ng

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As for the tendency of increasing of money laundering in recent 5 years, from 2007 to 2012, all respondents strongly agree or agree with this attitude.

2.2 Situation of money laundering

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St rongl yagree

Part i al l yagree

Di sagree Part i al l ydi sagree

St rongl ydi sagree

Moneyl aunder i ngtends toi ncrease i nrecent years

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Money laundering takes several different forms in China although most methods can be categorized into one of a few types, most respondents showed that corruptive practices through money laundering observed both in public and private entities, and 3 persons thought that money laundering mostly found in private sectors.

2.3 Main pattern of money laundering

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I n publ i cent i t i es

pr i vatesectors

Both i n publ i cand pr i vate

ent i t i es

Mai n pat ternof moneyl aunder i ng

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Most respondents indicated that trade and real estate were the 2 top risk fields.


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Real estateFi ance, banki ngTradeConstructi on

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Project, business, and cash transaction were the most common methods of money laundering, ranked for 1st to 3rd.


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1. 5

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2. 5

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Busi nessCash t ransact i onCasi noMoney exchangeProj ectReal estateStock market Through i nternetThrough fi nanci al i nst i t ut i ons

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2.4 Field of money laundering

The types and levels of corruption in a society are largely affected by both situational opportunities and obstacles. The following below areas represent the major factors at play.

7 out of 9 respondents individually described that the most favourable environment for money laundering was bank and financial institutions do not have suitable supervision/control system to anti-money laundering, and legal system for anti- money laundering is not enough.

7 respondents individually indicated that the offences closely associated with money laundering was embezzlement, and corruption.

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The 3 top offences were embezzlement, corruption, and drug.

2.4 Field of money laundering

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The fi rst t op The second top The thi rd t op

Embezzl ement

Corrupt i on

I l l egal goods

Terror i sm

Drugs

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All of respondents chose becoming legitimate as the main reason criminals laundering money. At the same time, respondents chose hiding illegally accumulated wealth, avoiding prosecution or evading taxes as the main reason criminals laundering money.

2.5 Consequences of money laundering

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Avoi di ngprosecut i on

Becomi ngl egi t i mate

Evadi ng taxes Hi di ngi l l egal l y

weal th

I ncreaseprofi t

El ements ofthe cr i me ofmoneyl aunder i ng

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For the consequences of money laundering, most respondents described increased crime and corruption, compromised economy and private sector.


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I ncreasedcr i me

Compromi sedeconomy sector

Weakenedgovernment

cont rol overthe economy

Consequencesof moneyl aunder i ng

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For the economic and social consequences that money laundering has caused, most respondents indicated it was very serious, or serious. Only 1 person chose it was not too serious.


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33. 5

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No consequence Not too seri ous Seri ous Very seri ous Extremel y seri ous

Economi c andsoci alconsequencesthat money

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For the question of money laundering impacting negatively on national security, and weaken the economy, most respondents indicated it was serious or very serious.


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11. 5

22. 5

33. 5

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No consequence Not too seri ous Seri ous Very seri ous Extremel y seri ous

Quest i on

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2.6 General assessment of money laundering in China

In the respondent’s opinion, the condition of money laundering in China is not serious and controllable, The government has paid more and more attention to money laundering.

But there are some difficulties: the construction of anti-money laundering regulations lags behind the international practice, the anti-money laundering for non- financial institutions should be strengthened, etc.

In future, all financial institutions will face the increasing pressure of anti-money laundering. So anti-money laundering should be strengthened in various fields of the society as a whole in China.

C N A O AUDIT TO DETECT FRAUD AND CORRUPTION: EVALUATION OF THE FIGHT AGAINST CORRUPTION AND MONEY...

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