| Anti-money laundering, being critical to the financial safety and social stability of a nation, has become a hot and knotty issue in the international society now. Subsequent to a quick progress during its preliminary period of the anti-money laundering work in our country, poor effectiveness in anti-money laundering supervision and administration starts to be gradually exposed, which, having severely affected and constrained the in-depth advancement and overall development of anti-money laundering, becomes the major conflict that the current anti-money laundering work is faced with. Based on comprehensive investigation, review and evaluation of the status quo and effectiveness of the anti-money laundering supervision and administration in our country, this paper tries to apply modern economic theories in analysis and resolution of the issue related to effective anti-money laundering supervision and administration, for the purpose of promoting the overall effectiveness of our anti-money laundering work, so as to precisely crack down on money laundering/financing of terrorism as well as any other crime upstream, and contribute to steady and faster growth of economy. This is the motivation and purport behind this paper, and where the meaning of its subject choice lies, too.This paper follows the underlying thinking and methodology that combine theoretical deduction with empirical research, logic analysis with historic survey and empirical induction with comparative research, to analyze and discuss in a comprehensive manner the anti-money laundering supervision and administration theory and the effectiveness of anti-money laundering supervision and administration. The first chapter of this paper is introduction, with the formal discussion ranging from Chapterâ…¡to Chapterâ…¦. The whole contents can be approximately divided into three parts:Firstly, this paper spends two of its chapters, Chaptersâ…¡andâ…¢, on a comprehensive retrospect on the anti-money laundering regulations, the architecture of the supervision and administration organization, the supervision and incentive mechanisms and the anti-money laundering capital monitoring rules of the anti-money laundering supervision and administration system of our country, based on which, evaluation is made to draw the conclusion that the effectiveness of our anti-money laundering supervision and administration is not adequate. Secondly, this paper compares and analyzes, in Chapterâ…£, the characteristics of anti-money laundering supervision and administration in U.S.A., U.K., Germany and Hong Kong, and summarizes the supervision and administration experiences of these countries or region developed in anti-money laundering to be used for reference. Lastly, this paper takes, in Chaptersâ…¤andâ…¥, the modern principal-agent theory as its analytical framework, to construct a matter-of-fact mathematical model for anti-money laundering supervision and administration, analyzes the game behavior of supervision and administration departments and financial institutions in anti-money laundering supervision and administration, and, under the guidance of theoretical analysis, proposes systematic design and policy recommendations for consummation of our anti-money laundering supervision and administration system. The contents of this paper are introduced in brief hereinbelow:Chapterâ… :Introduction. It sets forth the background of subject choice and the research significance, and leads to the key issue to be resolved in this paper:How to improve the effectiveness of anti-money laundering supervision and administration in our country. In order to facilitate elaboration and discussion, a group of fundamental concepts, including "money laundering and anti-money laundering", "anti-money laundering constraint mechanism, anti-money laundering supervision mechanism and anti-money laundering incentive mechanism" and "effectiveness of anti-money laundering supervision and administration", are defined and clarified. During the literature review, anti-money laundering literature is retrospected in both the overseas and domestic perspectives; in particular, the domestic literature of economic theory in respect of anti-money laundering supervision and administration is examined in detail to point out the contribution and inadequacy of existing research. In the end, it expounds the methodology and innovations of research, and introduces the structural arrangement of this paper.Chapterâ…¡investigates and analyzes the existing anti-money laundering supervision and administration system of our country. First of all, this chapter presents a sketchy overview of the history of our anti-money laundering development. The anti-money laundering work in our country has undergone three stages:the preparatory stage of our anti-money laundering work 1988-2002; the preliminary stage of the anti-money laundering work 2003-2006; and the deepening stage of anti-money laundering from 2007 up to now. Next, Sections 2 through 6 of this chapter gives a comprehensive and in-depth investigation, induction and summary in the perspectives ranging from anti-money laundering regulations (including the anti-money laundering penalty system and anti-money laundering administrative regulation system), the anti-money laundering obligations that financial institutions shall perform, the architecture and job responsibilities of the anti-money laundering supervision and administration organization, anti-money laundering supervision measures, anti-money laundering capital monitoring to anti-money laundering incentive mechanism. The status quo of our anti-money laundering supervision and administration system shows that the anti-money laundering penalty system is constantly maturing. The promulgation and implementation of the Law of the People's Republic of China on Anti-money Laundering as well as its complementary rules expedites the establishment of the anti-money laundering administrative regulation system, enabling our country to set up a well-defined anti-money laundering regulation system for preventing and combating money laundering and financing of terrorism. As far as the construction and actual operation of the anti-money laundering supervision and administration system is concerned, our country has formed an administrative system with the People's Bank of China taking charge of anti-money laundering and other departments cooperating with the anti-money laundering supervision and administration within their respective scope of responsibilities. The financial institutions have developed their anti-money laundering systems to ready initially the first line of defense against money laundering.Chapterâ…¢evaluates the effectiveness of our anti-money laundering supervision and administration system. The first section of this chapter summarizes and retrospects the practice and exploration of U.S.A., U.K. and China in assessing the effectiveness of anti-money laundering supervision and administration. Section 2 presents the underlying thinking and approach for evaluation. And Sections 3 through 6 assesses the effectiveness of our anti-money laundering supervision and administration from such four aspects as anti-money laundering regulation, anti-money laundering supervision system, anti-money laundering monitoring system and anti-money laundering incentive mechanism. In reference to the approach for anti-money laundering assessment, this paper adopts the method that combines statistical analysis with historic survey, with seven indices for assessment in total, which are respectively criminal legislation targeting money laundering/financing of terrorism, the complementary rules of the Law on Anti-money Laundering, organization system for anti-money laundering supervision and administration, anti-money laundering supervision and administration technologies, anti-money laundering monitoring system and anti-money laundering incentive mechanism. The assessment concludes that our anti-money laundering supervision and administration has achieved in part foreseen goals and results, but is inadequate in its overall effectiveness.Chapter IV surveys the anti-money laundering regulations, supervision and administration system arrangement and concrete supervision and administration measures in U.S.A., U.K., Germany and Hong Kong, compares and analyzes their different characteristics and experiences, and gains enlightenment conducive to improving our anti-money laundering supervision and administration as follows: First, to establish and consummate the regulatory system of the Law on Anti-money Laundering; second, although financial institutions play a key role in anti-money laundering, the anti-money laundering work of other departments shall not be neglected; third, to put into effect the risk-based thinking in terms of supervision and administration, and urge financial institutions to establish a risk-based working system for anti-money laundering; fourth, not to set any objective criterion for dubious deal reporting; and fifth, to pose strict supervision and administration on enforcement.Chapter V applies the principal-agent theory to construct a mathematical model for analysis of the anti-money laundering supervision and administration behavior. This chapter lays the theoretical foundation of the whole paper. Section 1 introduces the basic analytical framework for the principal-agent theory; and Section 2 analyzes the principal-agent relationship in anti-money laundering supervision and administration. According to the definition in information economics, financial institution is the agent while supervision and administration department the principal. The supervision and administration department and financial institution constitute a standard principal-agent relationship. Both the supervision and administration department and financial institution shall execute behavior that maximizes their respective utility under the cost-benefit constraint each faces. Section 3 constructs a parametric static model for anti-money laundering supervision and administration pursuant to the characteristics of anti-money laundering supervision and administration, finds the solution for the optimum supervision incentive level and optimum supervision and administration utility for the supervision and administration department, deduces the critical factors that determine the optimum supervision incentive level and optimum supervision and administration utility for anti-money laundering supervision and administration, and probes into the influencing mechanism that these factors work on the behavior and result of supervision and administration. In the end, it is concluded that, it shall be an essential approach for improving the effectiveness of anti-money laundering supervision and administration to increase anti-money laundering marginal benefits of the anti-money laundering supervision and administration department itself, and reduce the marginal cost coefficient related to level of difficulty in supervision, risk aversion of financial institution in anti-money laundering and anti-money laundering efforts of financial institution.Chapter VI provides systematic design and policy recommendations for optimization of our anti-money laundering supervision and administration system in terms of perfecting anti-money laundering regulations and the supervision and incentive mechanisms. With reference to perfecting the anti-money laundering regulations, concrete policy recommendations are made to recognize crimes upstream of money laundering; include self-money laundering in the scope of money laundering crimes; improve cash management mechanism; promulgate and implement anti-money laundering rules specific to non-financial institutions; and develop risk-based anti-money laundering supervision and administration regulations. As far as betterment of our existing anti-money laundering supervision and incentive mechanisms is concerned, it's proposed to establish and consummate a risk-based anti-money laundering supervision and administration system, urge financial institutions to formulate a risk-oriented working system for anti-money laundering while intensifying anti-money laundering administrative penalty. Furthermore, this paper discusses and explains why positive incentive measures are not adopted in practice.Chapterâ…¦covers conclusion and inadequacy of this paper and subsequent direction of research.The potential innovations of this paper are:First, it incorporates both anti-money laundering supervision and incentive mechanisms into an unified mathematical model analytical framework so as to fully study the behavior of anti-money laundering supervision and administration department and financial institution, and succeeds in theoretically explaining such a paradoxical phenomenon as that in many countries without benefits compensation for anti-money laundering, why the financial institutions have the drive to carry out anti-money laundering activities, and achieve remarkable success. Second, it brings forth policy recommendations and systematic design to improve the effectiveness of our anti-money laundering under the guidance of anti-money laundering supervision and administration theory and from the angle of changing the constraint conditions in the existing supervision and incentive mechanisms. Third, the reason why the anti-money laundering incentive mechanism contains only administrative penalty in reality is analyzed and explained in terms of economics.
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