1. 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 China HoChiMinh, April 24 2013 National Audit Office of the People’s Republic of China HoChiMinh, April 24 2013 Part II: Evaluation of current situation of corruption and money laundering

2. C N A O Outline Evaluation of Current Situation of Corruption Evaluation of Current Situation of Money Laundering Evaluation of Current Situation of Corruption Evaluation of Current Situation of Money Laundering

3. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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

4. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption The survey results showed that most respondents indicated that the current prevalence of corruption in China was moderate. 1.2 Assessment of Current Situation

5. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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. 1.2 Assessment of Current Situation

6. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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. 1.2 Assessment of Current Situation 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.

7. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 5 respondents thought that the tolerance level of population in China was moderately intolerant towards corruption. 1.3 Strength of anti-corruption in China

8. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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

9. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption All of the respondents thought that the pattern of corruption dealings was moderately predictable or highly predictable in China. 1.4 Patterns of corruption

10. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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. 1.4 Patterns of corruption

11. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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. 1.4 Patterns of corruption

12. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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

13. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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

14. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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

15. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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

16. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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

17. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption The local government/municipality, custom, law enforcement/police or taxation were the most vulnerable sectors to corruption. 1.7 Types of corruption

18. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption At the government level, procurement contract, licensing, and revenue (taxes) collection were the most frequent field which had the greatest probability of corruption. 1.7 Types of corruption

19. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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. 1.7 Types of corruption

20. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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

21. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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

22. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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. 1.9 Attitude of enforcement agency to corruption

23. C N A O Evaluation of Current Situation of Corruption I. Evaluation of Current Situation of Corruption 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. 1.9 Attitude of enforcement agency to corruption

24. C N A O 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

25. C N A O II. Evaluation of money laundering 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

26. C N A O II. Evaluation of money laundering 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

27. C N A O II. Evaluation of money laundering 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

28. C N A O II. Evaluation of money laundering Most respondents indicated that trade and real estate were the 2 top risk fields. 2.3 Main pattern of money laundering

29. C N A O II. Evaluation of money laundering Project, business, and cash transaction were the most common methods of money laundering, ranked for 1st to 3rd. 2.3 Main pattern of money laundering

30. C N A O II. Evaluation of money laundering 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.

31. C N A O II. Evaluation of money laundering The 3 top offences were embezzlement, corruption, and drug. 2.4 Field of money laundering

32. C N A O II. Evaluation of money laundering 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

33. C N A O II. Evaluation of money laundering For the consequences of money laundering, most respondents described increased crime and corruption, compromised economy and private sector. 2.5 Consequences of money laundering

34. C N A O II. Evaluation of money laundering 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. 2.5 Consequences of money laundering

35. C N A O II. Evaluation of money laundering For the question of money laundering impacting negatively on national security, and weaken the economy, most respondents indicated it was serious or very serious. 2.5 Consequences of money laundering

36. C N A O II. Evaluation of money laundering 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.