Commentary 17th Nov 2014

Chasing the money: how China is clamping down on corruption

Corruption is estimated to cost around 5 per cent of global GDP.

It has particularly affected modern China. The Washington-based Global Financial Integrity Group estimates US$1.1 trillion illegally flowed out of China between 2002 and 2011.

Money continues to flow out of China with the help of Macau casinos. It is this money that Chinese President Xi Jinping's latest anti-corruption effort, dubbed Operation Fox Hunt, is pursuing.

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Since assuming power in 2012, Xi has launched a sweeping campaign against corruption. Luxury hospitality venues throughout mainland China have downsized or closed, reducing demand for luxury goods from Australia and elsewhere. Gambling revenues from Macau have plummeted. James Packer's joint venture in Macau experienced a record 23 per cent fall in business throughout October partly due to the crackdown.

While Operation Fox Hunt is hampered by difficulties in returning corrupt officials and assets to China, it has made considerable headway. Already the 20 teams China has sent to Thailand, the Philippines, Malaysia, Cambodia and other countries have arrested 75 suspects. China says 180 people suspected of committing economic crimes have returned to China either voluntarily or otherwise, from more than 40 countries in Africa, South America, the South Pacific and Western Europe.

An enhanced international effort against corruption

APEC ministers in Beijing have now signed the Beijing Declaration on Fighting Corruption. This expressly recognises that corruption impedes economic sustainability and development.

The declaration reaffirms APEC members' commitment to denying safe haven to those engage in corruption, including through extradition, mutual legal assistance and return of proceeds of corruption. It also seeks to expedite international cooperation in the prevention, investigation, prosecution and punishment of offences.

APEC has established a new informal network for sharing information and best practices to fight corruption. Importantly, the declaration also refers to using existing multilateral UN conventions as well as signing new bilateral extradition treaties and mutual assistance agreements.

China does not have bilateral extradition treaties with the United States, Canada or Australia – the three most popular destinations for suspected economic criminals. However, China is signatory to a number of multilateral treaties containing extradition obligations to which Australia, Canada and the US are also party.

Australia and China are parties to the UN Convention Against Corruption and the UN Convention against Transnational Organised Crime. These treaties provide for international cooperation in criminal matters, including through the exchange of extradition requests. They provide an international law basis for China to send an extradition request to Australia in respect of any corrupt act listed as an offence under the treaties. The proviso is that the offence must be punishable under both Chinese and Australian law.

Australia's extradition laws provide a number of grounds to refuse extradition requests. These reasons include that the person is an Australian citizen or permanent resident. However, international law obliges Australia to ensure that appropriate criminal proceedings are initiated in Australia.

Australia's Attorney-General is prevented from surrendering a person to an extradition country if there are substantial grounds for believing that the person would be in danger of torture or the death penalty. There are also safeguards in respect of offences deemed to be of a political character, or where a person may be subject to prejudice because of his or her race, sex, sexual orientation, religion nationality or political opinion.

Australia and China are also signatories to the Treaty on Mutual Legal Assistance in Criminal Matters. Chinese authorities can therefore seek almost any form of legal assistance from Australian law enforcement authorities when pursuing corrupt Chinese officials. This allows China to request measures to locate, restrain and forfeit the instruments and proceeds of crime. Chinese authorities can also ask for help in identifying and locating other individuals who may be able to assist in criminal investigations.

Since assuming power in 2012, Xi has launched a sweeping campaign against corruption. Luxury hospitality venues throughout mainland China have downsized or closed, reducing demand for luxury goods from Australia and elsewhere.

Dr Alice de Jonge

Senior Lecturer, Department of Business Law and Taxation

Do Australia and China need another extradition treaty?

A bilateral extradition treaty between Australia and China could perhaps help to close a few loopholes in the coverage of offences for which extradition can be sought under current UN treaties. It would allow Chinese law enforcement officials to seek extradition without having to ensure the request is carefully framed within the current confines. It would also enable the Australian government to reinforce and possibly extend protections for individuals subject to extradition requests where such individuals are at risk of persecution for political reasons or on grounds of their nationality, gender, sexual orientation or religion.

Such a treaty may allow Australia to seek guarantees from China in respect of the transparency and fairness of legal proceedings in China. Apart from these improvements, it is unlikely to represent any more than a minor step in China's sweeping efforts against corruption. Far more important will be the longer-term economic gains to China's economy from reduced levels of corruption and money-laundering. It is hoped these benefits are not overshadowed in the minds of Australian business by the short-term economic impacts of reduced luxury consumption in China.

Dr Alice de Jonge works in the Department of Business Law and Taxation at Monash Business School.

This article has appeared in The Conversation.

By Alice de Jonge

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    Dr Alice de Jonge

    Department of Business Law and Taxation Monash Business School

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