On Anti-Money Laundering

Money laundering is the process to make illegal money legal. In the 1980s, money laundering has developed into a kind of international crime, threatening the economic and social order of the whole world. Adopting the methodology of demonstration analysis and comparative analysis and using externality and incomplete information theory in economics, the article analyzes money laundering and anti-money laundering activities, points out the problems existing in China, and thus suggests the possible anti-money laundering mechanism design accordingly.The article consists of 5 parts. From the origin and definitions of money laundering, the 1^st part shows the characteristics, process and form of money laundering, and illustrates its serious hazard to the society. In the economic analysis of money laundering, choosing financial institutions---the frontier of anti-money laundering as an example, the article analyzes the existence of market failure in anti-money laundering activities with the theory of externality and incomplete information, and points out ways to solve market failure, showing the important role of government in anti-money laundering.In the 2^nd part, the article compares different money laundering systems of developed countries and international organizations, including FATE, the U.S., Germany and Japan, emphasizing FATF's "Forty Recommendations" and new policies after the 911 event in the U.S. It also introduces the latest international development in anti-money laundering, from which China can get beneficial experience.In the 3^rd part, through the introduction of money laundering situation and recent money laundering crime cases in China, the article summarizes different forms often used in money laundering. It also analyzes the causes and characteristics of money laundering in China: the booming of corruption and drugs, the under-ground banks and the habit of using cash, and the incompleteness of legal system.In the 4^th part the article discusses the development in anti-money laundering in China, including the 4 legal stages, the important role of financial industry in anti-money laundering. At the same time the article points out the problems, such as the disorder in financial market, the system barrier for financial institutions to perform anti-money laundering duties, the lag of anti-money laundering information supervision and analysis, and the blurriness of anti-money laundering responsibilities in the accidental fields.In the 5^th part the article suggests the possible mechanism that China should adopt to solve the above problems: 1st to perfect legal system and the corresponding working mechanism in anti-money laundering, 2nd to strengthen the supervision of financial institutions in order to push them to fulfill their duty, 3rd to establish incentive and restrictive supervision system in financial institution, 4th to speed up the exchange of information system in anti-money laundering, and 5th to develop communication and co-operation with other countries.Working in a financial institution, I always pay much attention to anti-money laundering, so under the help of my tutor I choose to study this field.The creative points of this article lie in the following: people have done much research of anti-money laundering from legal aspects, illustrating the duties and responsibilities, but seldom analyze from economics point of view. The article fills the blank by analyze the internal reason of financial institutions lacking of impetus in anti-money laundering. Secondly the article compares outstanding systems adopted by different countries and organizations, summarizing the international trend, looking for beneficial experience of China. Thirdly by analyzing the unique characteristics of money laundering in China, the article gives possible solutionsBut due to the huge content of money laundering research and the author's limited theoretical knowledge, the article does not give comprehensive choice of anti-money laundering systems, which needs to be developed in later research.