When financial institutions replaced their European and American clients with Chinese new wealth, this was under pressure, compliance departments de-risked (read pushed out after many years of collaboration) their EU & US private clients to avoid complications.
No more French dentist is avoiding taxes by having a discreet offshore account and welcome to Mr. CHAN a wealthy Chinese entrepreneur, the problem is that China has many homonyms to Mr. CHAN … so many in such a vast country and a real difficulty to understand business models, activities, Politically Exposed Persons status, source of wealth …
Most of the time Mr. CHAN and his homonyms had foreign funds because such funds weren’t duly repatriated to mainland China businesses, non-taxed or unaccounted for. Profits shifting at minima.
Of course, compliance departments don’t really know the exact situation and performing an enhanced KYC on a Chinese national / resident is somewhere dangerous, the possibility to break a Chinese law while performing the KYC process is Medium to High.
High also are the possibilities that Mr. Chan did in fact break few laws when creating his wealth, nobody knows really, to many laws and differences in business practices.
Until now the Chinese government in a similar fashion than Western governments didn’t give a damn, thanks to the automatic exchange of information they did get the names and amounts but didn’t react.
This particular situation is going to change, Chinese’s (and the rest of the world with them) are fed-up with constraints on banking and international business coming from the US. Soon China will replicate against sanctions and other politically motivated rules.
As China, in total contrary of Western countries, don’t meddle with foreign government’s affairs, it’s unlikely they will issue their own sanctions, at least not in the few years to come and surely not before cleaning up their own issues of shadow banking and untaxed funds.
China did recently send a clear message to their rich entrepreneurs, the common prosperity wording and thematic could be only interpreted as a warning, not only to the offenders but also to the foreign recipients of untaxed funds.
Not accepting the warning for what it is would mean continuing with willful blindness, a dangerous attitude which is often caused by the gesticulations from Western governments (as they have no credibility at all on economic subjects, nobody cares)
But the fact is that the Chinese government is not adept of gesticulations, they talk and they act, sometime very fast in their own country and slowly on foreign subjects.
Seems that the entire world is upset by the change of pace in Chinese’s actions, China do talk more and do act more than before, with a different set of values and with constraints that are difficult to imagine.
Because of this new situation bank’s compliance departments should be encouraged to review once again their Chinese’s clients. In few years they will be fined by China in the same fashion than US and few countries are doing right now, the wheel is turning.
