Cooperation Mechanism between China and the UK in Anti-Corruption Asset Recovery ()
1. Introduction
As the world’s largest socialist country with a predominantly public-controlled economy, China’s centralized system of power and numerous areas of public-private interaction provide a “vast breeding ground” for corruption. China is well aware of this, and in recent years, it has been maintaining a high-pressure stance against corruption at home. The country is determined to apprehend individuals who have fled abroad. Between the 18th and 20th CPC National Congresses, the “Operation Sky Net” has apprehended 10,668 fugitives and recovered 44.79 billion yuan in stolen money (CCDI, 2023) . This is undoubtedly an encouraging outcome in the ongoing battle against corruption. The phenomenon of corrupt individuals fleeing their home countries is intricately linked to the illicit transfer of assets abroad. The report (People’s Bank of China, 2008) released by People’s Bank of China posits that individuals engaged in corrupt practices frequently employ cross-border money laundering activities as a means to transfer illicit assets to foreign jurisdictions. In order to ultimately enjoy illegally obtained material wealth more safely, corrupt individuals may eventually flee overseas. The implementation of measures to limit and recover stolen funds from foreign jurisdictions can effectively safeguard national public assets against substantial losses and deter the flight of corrupt individuals. However, currently, there are still unscrupulous individuals who are transferring stolen funds out of the country using offshore companies or underground money changers.
Any country welcomes the inflow of foreign capital. However, when these inflows are linked to criminal activities, governments become concerned about whether the funds will turn their country into a “hotbed” for crime. (Zhang, 2018) When Chinese politicians, government officials, and corporate employees suspected of corruption steal public assets, they often choose to hide the illicit funds in “safe” locations, and the United Kingdom is one such destination. London, the capital of the United Kingdom, holds a significant role in the global financial system. However, this position also makes it vulnerable to becoming a safe haven for corrupt assets. The cities well-established financial system inadvertently facilitates the provision of intermediary services for illicit funds associated with corruption. (Transparency International UK, 2013) Several criminals on China’s Red Notice 100 list have fled to the United Kingdom, and the number of offenses related to money laundering and asset concealment in the UK is even higher.
2. Mechanisms for Cooperation between China and the United Kingdom on Recovery Procedures
The China-British Treaty on Mutual Legal Assistance in Criminal Matters, signed by the People’s Republic of China and the United Kingdom of Great Britain and Northern Ireland in 2013, contains provisions pertaining to assets in Articles 16 to 20. The Law on Mutual Legal Assistance in Criminal Matters, enacted by the People’s Republic of China in 2018, contains legal provisions pertaining to assets in Chapters VI and VII. Currently, it is crucial to reassess the procedural value and practical significance of anti-corruption recovery efforts conducted by China and the United Kingdom within the framework of the China-British Treaty on Mutual Legal Assistance in Criminal Matters and the Law on Mutual Legal Assistance in Criminal Matters. This reassessment should include an examination of the similarities, differences, and inherent connections between the criminal freezing procedures, criminal confiscation procedures, and special confiscation procedures within the judicial systems of both countries. The aim is to establish a logically coherent criminal recovery procedure that fulfills the requirements of practical application, as well as the demands for reform and development of the anti-corruption system in relation to foreign countries. This issue is of great theoretical and practical importance in China’s pursuit of judicial assistance in criminal matters from abroad.
2.1. Two-Track Mechanism for Recovery
Over the past few decades, there has been a consistent emphasis among legal scholars on the relationship between crime and financial resources. Consequently, transnational financial crimes have garnered heightened attention. Criminal legislation aimed at addressing the confiscation of illicit proceeds has been implemented in various countries globally, with ongoing efforts to enhance the corresponding legal frameworks. The current trend is to address the inefficiency of the conventional criminal justice system in dealing with property-related offenses by increasingly prioritizing (illicit) assets rather than solely focusing on individual perpetrators. This objective has been primarily pursued through a two-pronged strategy of “following the money”. Firstly, by introducing new criminal offenses such as the criminalization of money laundering, financing of terrorism, and even the criminalization of undeclared assets. Secondly, by establishing or expanding asset recovery mechanisms, which involve the seizure and confiscation of illicit assets. The two measures are mutually reinforcing and have the objective of regulating the movement of illegal funds and preventing their association with criminal activities. Given that illicit assets are frequently situated in jurisdictions outside the country where the crime occurred, (Fernández-Bertier, 2016) international mutual legal assistance in criminal matters has become a crucial means of addressing this issue. However, in practice, mutual legal assistance pertaining to the freezing and confiscation of property has not yielded satisfactory outcomes. This situation arises from the significant variations in legislation across countries regarding the recovery of stolen funds, particularly when compared to other areas of criminal law. (Mirandola, 2020) Consequently, there is an immediate requirement to undertake a comprehensive analysis of both national and international judicial systems and legal provisions. This analysis aims to streamline the processes involved in the recovery of stolen assets and to enhance the existing procedures for mutual legal assistance.
2.2. Police Cooperation in Leading the Recovery of Ill-Gotten Gains
Article 16 of the Treaty on Mutual Legal Assistance in Criminal Matters between China and the United Kingdom stipulates that each party is obligated, within the limits allowed by its domestic legislation, to fulfill requests from the other party for asset searches and freezes. However, there is a lack of consensus regarding the specific procedures for carrying out these obligations. Mutual legal assistance in criminal matters pertaining to asset recovery requests directed towards the United Kingdom are conducted within the framework of police cooperation and fall under the unified jurisdiction of the Financial Intelligence Unit (FIU). Police cooperation primarily encompasses cross-border collaboration among law enforcement agencies, particularly in the domains of investigation and tactical operations, intelligence exchange, police training, and the provision of mutual aid. (Bowling, 2010) Given the absence of a centralized bank account record management system in the United Kingdom, it is imperative to seek cooperation and information from the United Kingdom police prior to submitting any Mutual Legal Assistance (MLA) request for asset recovery to the United Kingdom central authorities.
The FIU is an office or agency at the national level in the United Kingdom. Its primary function is to receive, process, and report suspicious or unusual transactions that have the potential to contribute to the efforts against money-laundering and terrorist financing. Certain intelligence agencies possess the authority to directly exchange information and intelligence with law enforcement or judicial authorities. This stands in contrast to conventional intelligence-sharing mechanisms, where information gathered by intelligence agencies is limited to sharing solely among other intelligence agencies. (Zarza, 2014) The UK FIU, operating under the National Crime Agency, assumes the principal role of maximizing the utilization of financial intelligence found in Suspicious Activity Reports (SARS) to effectively combat organized crime, with a specific focus on money-laundering and terrorist financing. The UK FIU has the capability to utilize these SARS for the purpose of implementing efficient law enforcement interventions, which may involve the retrieval of illicitly obtained assets.
The UK FIU is an active participant in the Financial Action Task Force (FATF) and the Egmont Group. It is committed to collaborating with other international financial intelligence units in compliance with the respective obligations set forth by these organizations. Mainland China is not currently a member of the Egmont Group, an international organization focused on combating money laundering and terrorist financing. However, Hong Kong, Macau, and Taiwan are all active members of the Group. It is worth noting that the Egmont Group played a significant role in the Chen Shui-bian case, demonstrating its commitment to addressing financial crimes. China is an active participant in the FATF and currently holds the position of chair from July 2019 to June 2020. The People’s Bank of China operates an Anti-Money Laundering Center (AMLC) that serves as a collaborative platform for cooperation with the FIU of the United Kingdom. The primary objective of this center is to combat corruption and money laundering by facilitating asset tracing. However, it is important to note that the AMLC does not fall under the jurisdiction of the judiciary. Therefore, when seeking criminal legal assistance from the UK, the AMLC still relies on the cooperation of other Chinese authorities.
3. Differences in Procedural Approaches to Curbing Illicit Funds between China and the UK
3.1. Freezing Orders by the Chinese Police and the English Courts
The purpose of an Asset Freezing Order (AFO) is to prevent the loss of assets located in the UK and to freeze them for confiscation. Asset freezing and asset tracing are procedures that typically need to be conducted within the framework of UK police cooperation. The FIU is the department responsible for handling these requests. Where, following a criminal investigation or proceedings in the UK, there are reasonable grounds to believe that assets located in the UK are connected to the criminal activities of an individual, the UK prosecutor may request the court to issue an asset freezing order. This order aims to prevent the individual, or any other relevant person, from disguising or concealing assets.
The process of obtaining a freezing order through an MLA request is generally similar to that of obtaining a confiscation order, with the exception that an asset freezing order can only be granted by the UK High Court. An asset freezing order must specify or describe the assets to which it applies and prohibit any person to whom it applies from dealing with those assets. (Raphael, 2011) An application for a restraining order must also satisfy the principle of dual criminality by providing details of relevant investigations. This is necessary for the UK court to issue an asset restraining order or register the order specifying the assets to be confiscated in a timely manner, ensuring that it can be enforced. If the request for a Mutual Legal Assistance in Criminal Matters (MLA) for an asset freezing order is accepted by a central UK agency, it will be referred to either the Crown Prosecution Service (CPS) or the Serious Fraud Office (SFO) for enforcement.
Under the UK Proceeds of Crime Act 2002, the relevant enforcing authority has the power to determine whether or not to file an application for a restraining order with the court. When the enforcing authority of the restraining order decides to apply to the court to restrain the asset, it will first notify the Chinese foreign contact authorities. A copy of the restraining order will also be promptly served on the person concerned and any other individuals known to be affected by the order. The English court will confirm whether the use of the asset restraining order is reasonable. If it is not, the court may set aside the restraining order. It is worth noting that the English court may also set aside a restraining order if no proceedings have been commenced within a reasonable period of time or if the order has not been registered.
According to Article 144 of the Criminal Procedure Law of the People’s Republic of China, the procedure for criminal freezing in China does not require the approval of the People’s Court. Instead, the power to freeze property is exercised by the People’s Procuratorate and public security organs, either directly or by requesting cooperation from relevant organs. The Regulations on the Application of Seizure and Freezing Measures by Public Security Organs in Handling Criminal Cases pertain to the creation of a notification of assistance in freezing property. This notification is authorized directly by the head of the public security organ at or above the county level in China. The notification is sent to other financial institutions or relevant units, and the receiving institution is required to cooperate with the public security organs to carry out criminal freezing procedures. This results in a change in the freezing procedure in China, which is primarily overseen by the public security authorities, to the UK, where it requires approval from the High Court. Although the rights and interests of those involved in the freezing of property can be safeguarded to the greatest extent possible, the original benefits of an efficient freezing procedure in China will no longer exist and may provide criminals with a “precious” respite from the time-consuming process of freezing assets.
3.2. Confiscation Orders and Non-Conviction Forfeiture Proceedings
The term “confiscation order” can be misleading since these orders do not directly confiscate specific assets. Instead, they represent a valuation of the “benefit” obtained by the criminal from their unlawful conduct. Essentially, it is a “debt” (Wood, 2016) owed to the state. Confiscation is one of the most effective means of curbing criminal behavior. If convicted, criminals will have any benefits derived from their criminal conduct confiscated. The economic foundation previously acquired through criminal behavior will no longer exist, and the individual’s future capacity to engage in criminal activity will be significantly reduced. Typically, after a criminal conviction in a UK court, if there is evidence that the defendant derived economic benefit from their criminal conduct, the court may issue a confiscation order to seize the “benefit” (Powell & Sydow, 2017) obtained by the offender. As of 31 March 2017, the total debt from confiscation orders in the UK was £1.814 billion (£1.761 billion for 2015-2016). (HMCTS, 2017)
However, the asset confiscation process in the UK faces practical execution and challenges with and weaker law enforcement agencies. Chinese courts have the ability to request the confiscation of assets located in the UK through criminal judicial assistance. If the request for a confiscation order is accepted, the UK central agency will register the confiscation order issued by the Chinese court in accordance with the 2002 Proceeds of Crime (External Requests and Orders) Order. The registered order will then be submitted to the appropriate executing authorities. Under all conditions being met, the executing authorities may request the court to register and enforce the confiscation procedure. However, the practical execution of the confiscation procedure may require a significant waiting time. The confiscation procedure is usually carried out after a criminal sentence has been imposed, when an individual has been found guilty of specific crimes and their criminal assets are seized. However, there is a very special form of confiscation known as non-conviction confiscation, which can be enforced by the court even without a conviction. Early on, the European Union took a relatively passive attitude towards non-conviction confiscation legislation, taking into account various aspects of human rights, among other considerations. Only a small number of EU member states, such as the UK, Italy, and Ireland, have enacted regulations pertaining to non-conviction confiscation. As time passed, people gradually discovered that, on the one hand, non-conviction confiscation has a far greater impact than expected in combating organized crime, and on the other hand, it is entirely legal (Alagna, 2015) and does not violate human rights.
The non-conviction based asset forfeiture system in the UK is subject to certain limitations. When issuing a forfeiture order to a defendant who has not been convicted, it must be requested by a prosecutor and can only be granted if deemed reasonable by the court after review. Additionally, the defendant must have been in hiding for at least three months since the commencement of the legal proceedings (Legal Guidance, Proceeds of Crime). When utilizing the non-conviction asset forfeiture process, the goal is to minimize any potential harm to ongoing criminal investigations or related proceedings as much as possible. (UK Home Office, 2021) China’s criminal special forfeiture system has certain similarities to the UK’s non-conviction based forfeiture, but its primary focus is on corrupt officials (Xiong, 2013) who have fled abroad and cannot be prosecuted. The China-British Judicial Assistance Agreement does not include provisions for non-conviction-based asset forfeiture. In comparison to the traditional concept of confiscation, which involves depriving assets after convicting specific crimes, the new form of forfeiture establishes a vague link between crime and illicit profit. Even if the assets are not proceeds of the crime for which the offender was convicted, (Simonato, 2017) they can still be forfeited. In some cases, there may not even have been a criminal trial of the suspect. Due to the rampant money laundering and corruption crimes that have occurred in the past, the UK’s forfeiture procedure has developed into its current form and has even surpassed that of most European countries.
Although China has established special confiscation procedures, they are currently not sufficiently refined, and the fundamental aspects of the civil and criminal issues still need to be discussed. (Wan, 2012) In the UK, criminal justice assistance will only execute confiscation orders for cases that have been convicted and are unappealable. Therefore, China is currently unable to request the UK to execute China’s special confiscation procedures through criminal justice assistance. However, special confiscation procedures do provide an efficient and feasible solution for the numerous institutional challenges encountered in recovering illegal gains from abroad.
3.3. Special Orders for Evidence Pertaining to Privacy or Freedom of Expression
Production Orders can be used to obtain certain specific litigation materials, such as correspondence, financial evidence, news footage, and records held by accountants, among others. Once an application for special litigation material has been accepted by the UK Central Authority, the Central Authority will issue directions to the police and law enforcement agencies to apply to the courts for a production order. The application for a production order will be made in the Crown Court before a Circuit Judge, and the party holding the information will usually be notified before the application is made. This is done to ensure that the defendant, such as a bank, can appoint a representative to appear in court. If the institution does appear, the UK Central Authority will consult with the Chinese External Relations Authority to ensure that the request for execution does not violate confidentiality.
Financial transactions have played a crucial role in facilitating significant advancements in the conduct of numerous criminal investigations. Access to bank records and the tracking of financial documents, particularly the digital tracing of financial transactions, have become essential in effectively combating the majority of crimes. However, the way bank investigations and financial investigation techniques are handled today is likely to have a greater impact on the judicial process compared to decades ago. Because financial transactions are often conducted on a global scale, and the development of financial investigation techniques has not yet reached a transnational level of full commonality, the rules and regulations of each country still vary significantly. As a result, the investigation of financial transactions is limited in many ways. (Lasagni, 2019) Currently, the United Kingdom places significant emphasis on financial regulation, with its financial institutions spending as much as 28.7 billion pounds (Oxford Economics & LexisNexis, 2022) annually on anti-money laundering efforts. This substantial investment demonstrates the British law enforcement authorities’ commitment to combating crimes related to money laundering and corruption. Additionally, the relevant financial investigation agencies typically exhibit a highly proactive approach.
China’s foreign liaison authorities should trace assets through the police cooperation framework before requesting banking evidence from the UK. In general, UK banking information is only retained for five years. It is for this reason that the Home Office faces a high volume of requests for banking evidence on a daily basis, which can slow down the process of obtaining such evidence through the MLA route. Bank secrecy no longer appears to be the insurmountable challenge for banking and financial investigations that it once was. The HSBC Swiss Bank money-laundering scandal (ICIJ, 2020) has clearly demonstrated that, with effective cross-border judicial cooperation, bank evidence can be successfully used in trials. (Naheem, 2018) Therefore, it is particularly important to make requests for access to bank evidence through mutual legal assistance in criminal matters.
4. Communication Mechanism for Asset Return
Most of the funds involved in money laundering within the UK financial system originate from serious corruption crimes committed in other countries. (Home Office and HM Treasury, 2016) The significance of combating illicitly obtained funds on the international stage is widely recognized. China and the UK should establish a more efficient and seamless communication platform for sharing financial intelligence and facilitating asset recovery and return as soon as possible.
It is gratifying to note that the United Kingdom has gradually started focusing on investigating unexplained funds several decades ago. For instance, in the field of legislation, the United Kingdom enacted the Proceeds of Crime Act 2002. The Act consolidated the provisions of earlier legislation, merging two separate confiscation regimes (one for drug trafficking offenses and one for other offenses). It also included several types of asset recovery, such as criminal confiscation, civil recovery, cash seizure and forfeiture, and taxation of the proceeds of crime. It expands confiscation powers to include financial crimes and authorizes courts to confiscate assets based on a presumption of their origin. (Chistyakova, Wall, & Bonino, 2019) In addition, it introduced criminal offenses related to money laundering and facilitated the establishment of the Asset Recovery Agency in 2003.
When assets seized by the UK for foreign-related offenses are realized through auctions or other means, there are three ways of handling them. Firstly, if the case falls within the provisions of UNCAC (United Nations Convention Against Corruption), the stolen state assets will be returned to the relevant country that received the assets, for a small and reasonable fee. Secondly, if the case does not fall within the provisions of UNCAC, the asset-receiving country can dispose of the assets through an asset-sharing agreement with the UK. The UK establishes asset-sharing agreements wherever possible. In the absence of a formal agreement with the relevant country or territory, individual cases will be dealt with using administrative procedures. In the absence of any asset-sharing agreement, the assets will be retained by the UK and disposed of in accordance with domestic law.
Both China and the UK are parties to the UNCAC, while Article 22 of the UK-China MLA Treaty also provides for asset return and sharing. Where permitted by UK law, China can negotiate with the UK on the proportion of assets to be returned and shared, as well as the specific matters to be returned. When public funds are involved, such as when funds obtained through corruption by a criminal from China are transferred to the United Kingdom, it is imperative that the United Kingdom returns the funds to China in accordance with the agreement, irrespective of whether or not the funds have been laundered. Of course, the UK can deduct reasonable expenses incurred during the repatriation period in the first instance.
The United Nations Office on Drugs and Crime (UNODC) has recognized that communication is the most significant obstacle to mutual legal assistance in criminal matters when receiving a request for such aid. This is particularly true for funds involved in corruption, which have always faced numerous difficulties. Within the framework of the United Nations Convention against Transnational Organized Crime, the legal obstacles encountered in mutual legal assistance in criminal matters are often not due to differences in the legal systems of the countries involved, but rather to a failure to acknowledge and address those differences. (UNODC, 2012) For example, the United Kingdom may have concerns about China’s ability to establish the existence of predicate offenses and obtain criminal convictions for those involved in the case, following the provision of mutual legal assistance in criminal matters. The United Kingdom may also question whether China’s conviction process adheres to the due process and legal standards of the United Kingdom. (Transparency International UK, 2015) Such concerns are not unfounded, as there have been cases in some developing countries where officials involved in criminal cases have been acquitted due to political settlements that granted them legal immunity. Such cases have significantly dampened the enthusiasm of the UK in providing criminal justice assistance. (Terracol, 2015) Therefore, China must establish a strong relationship of trust and an effective communication mechanism with the United Kingdom in the field of criminal justice. This will facilitate regular judicial cooperation and exchanges, which are crucial factors that impact the extradition of fugitives. (Zhang, 2015) Otherwise, the lack of mutual trust between the central authorities of the two countries for these reasons may create unnecessary obstacles to criminal legal assistance between China and the United Kingdom. It may even lead to the United Kingdom imposing additional conditions for the return of assets.
5. The Path to Improving China-British Anti-Corruption Reforms
“Corruption is an insidious plague that has a wide range of corrosive effects on societies. It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life and allows organized crime, terrorism and other threats to human security to flourish.” (UNODC, 2004) This is what Kofi Annan, the former Secretary-General of the United Nations, wrote in the foreword of the United Nations Convention against Corruption. Corruption is also a persistent problem faced by China and the United Kingdom, and there are still areas that can be improved in the current cooperation between the two countries in combating corruption.
5.1. Strengthening China-British Police Cooperation
Police cooperation plays an indispensable role in the process of recover ill-gotten gains. Most asset-related criminal judicial assistance with the UK, including criminal freezing procedures and confiscation procedures, must be carried out on the basis of police cooperation. Police cooperation is generally more efficient than a formal request for Mutual Legal Assistance (MLA) in the traditional sense. For example, having a reliable communication platform during the asset search process can help minimize property losses resulting from information gaps. Chinese and British police departments have their own advantages in different areas, allowing for cross-border police personnel exchanges and cooperation. They can complement each other’s strengths. At the same time, police personnel from both countries can enhance their understanding of each other’s national systems and current judicial situations. This understanding can help them effectively reduce misunderstandings and overcome obstacles caused by language and cultural differences, as well as differences in legal systems. Ultimately, this will improve the efficiency of police cooperation.
5.2. Simplify the Process of Mutual Legal Assistance
Although police cooperation may be more efficient, in cases with significant impact or complexity, it is still necessary to formally request Mutual Legal Assistance (MLA) in criminal matters. In particular, the absence of bilateral treaties and a well-defined legal framework for police cooperation between China and the UK may lead to criminal procedures being deemed illegitimate during court proceedings. Mutual Legal Assistance in Criminal Matters (MLA) remains one of the most important methods currently available for recovering ill-gotten gains. However, the lengthy and time-consuming procedures associated with MLA have resulted in a reluctance to utilize this process in many cases. The complex and time-consuming process can be optimized by applying lessons learned from the practice of mutual legal assistance in both countries. This can effectively reduce the time required for criminal mutual legal assistance. At the same time, reducing or simplifying approvals at various levels can also mitigate the adverse effects of bureaucracy on the judicial process.
5.3. Exploring Innovative Methods for Recover Ill-Gotten Gains
In order to effectively combat corruption and better fulfill its international legal obligations, the UK has continuously improved its domestic regulations in recent years and introduced various measures to limit the illegal proceeds of crime. However, the fight against cross-border funds is still inadequate. China and the UK can negotiate within the scope permitted by the laws of both countries to develop a unique approach for combating corrupt assets. This may involve establishing a fast-track processing channel, specifically identifying the relevant assets, and giving priority to requests for criminal judicial assistance related to these identified assets.
6. Conclusion
As one of the earliest countries to experience money laundering crimes and prioritize anti-money laundering efforts, the UK has always been at the forefront of the global fight against money laundering crimes and related legislation. Its extensive financial intelligence system and diverse anti-money laundering regimes can offer substantial support to our country in tracing assets flowing into the UK. However, we must enhance cooperation with the UK in terms of communication mechanisms and intelligence sharing to strengthen asset tracing efforts. In order to effectively cooperate in asset recovery and combat corruption, China and the UK should set aside ideological differences and collaborate closely within the legal frameworks of both countries, guided by a shared commitment to justice. In terms of MLA requests involving assets such as freezing and confiscation, the UK’s procedures are relatively reasonable. However, the property restriction procedures in the UK are generally too extensive. This poses a dilemma for Chinese case-handling authorities, as China does not have similar judicial instruments to enforce in the UK. At the same time, it is also necessary to strengthen communication with the British judicial authorities regarding the seizure or auctioning of funds, in order to establish a strong and trusting relationship. This will ensure that the preliminary work of asset recovery does not falter before reaching the “finish line”.