The thinking of pondering over the international network financial crime prevention and control system

From Sept 5 to Sept 11, the 34th Cambridge International Forum of Anti-Economic Crime on Anti-economic Crimes--Responsibility was held at the JesusCollege at Cambridge, nearly a thousand people from UN, international organizations and more than 90 Jurists, legal professionals of many countries, attended the forum. Prof. Xu Hanming of our university made the theme report of Research on network financial crime prevention and control system in the Big Data Age. The full text is as follows:

The thinking of pondering over the international network financial crime prevention and control system

Xu Hanming

The big data is both an opportunity and challenge for national and international financial network safety. Effective prevention and control of network financial crime requires a combination of the theories and practice and focuses on the combination of legal regulation and comprehensive supervision to realizes the two goals of collectively fighting against crime and effectively preventing crimes, to come true regulatory governance, multiple governance, source governance and corporate governance of network financial crime and to promote the prevention and control system of international network financial crime and the modernization of control ability by learning from mature experience and basing on our national conditions.

1. To promote the innovation of the network finance legal system, to achieve the regulatory governance of network financial crime

The network financial legal system innovation of United Nations, international organizations, regional organizations and other sovereign countries should take the network financial activities of the global, regional and sovereign countries as the objects of regulation and fit the network finance to the current financial governance legal frameworks of the global, regional and sovereign countries. It is the key way to complete the legalization of the network financial supervision system, to promote the standardized management of network financial crime by means of fixing the legal form of prevention and control of network financial crime and perfecting the network financial legal system standards.

1.1. We should perfect the international and domestic criminal legislation of network financial crime. The institution of criminal law is made to stipulate the procedure legal system and the entity of crime and punishment. Through comparative analysis of the legislative situation of financial crimes such as in Japan and Germany, it is not difficult to find that the comprehensive criminal law system is a common part of network financial crime prevention and control system which have great significance to punish network financial crime and maintain the network financial order and property security. It is necessary to systematically sort out the legislative experience of the international financial crime and take its essence to its dregs in order to perfect criminal legislation of network financial crime; Furthermore, according to the national conditions, we should sort out the historical situations, the practical defects and the development directions of the domestic network financial legislation. Several hot and difficult issues of legislation are as follows:

1.1.1. How to section network financial crime? Network financial crime is greatly different from traditional financial crime thus it is unreasonable to section network financial crime in traditional financial crime provision by utilizing the traditional financial crime constitution to regulate the new type of network finance crime. Therefore, as a sovereign country, on the base of taking full account of the characteristics of the constituent elements such as the subjects of network financial crime and the criminal objects and of combining with the wide range of network financial crime and the serious consequences of the crime, we should differentiate network financial crime and traditional financial crimes, and establish sections of network financial crime to better off punish network financial crime;

1.1.2. How to diversify the punishments of network financial crime? When realizing the section of network financial crime, we should fully implement the penalty as an efficiency principle in preventing and combating network financial crime and achieve a variety of penalty applications, such as freedom penalty, qualification penalty and fine penalty. In addition, in order to ensure the efficient operation of all kinds of cases, we should pay attention to the rational allocation of the criminal penalty structures of the diversified network financial crime and realize the smoothness of the penalties mechanism and the full play of the functions.

1.1.3. How to expand the scope of the main bodies of network financial crime? In the network information society, the legal persons have not only the condition to implement the network crime, but also the quite big possibilities to do so. In the current international financial services, the transnational criminal organizations often use the legal person legitimates to commit network financial criminal activities. Therefore, it is necessary to add the legal person as one of the criminal main bodies.

1.1.4. How to establish national network financial crime convergence mechanism, such as the mechanism of jurisdiction, detection, investigation and evidence collection, evidence to prove, mutual recognition and judicial assistance. Network financial crime has some characteristics, such as space, across localization, intelligent and concealment, thus the problems, such as the inter-regional conflicts and international conflicts, the attribution of jurisdictional rights, are difficult to be settled down. The rights (or powers), such as detection, investigation and evidence collection, are different in various countries which makes it difficult to determine the convergence mechanisms; the focus of controversy still existing in some countries are whether the electronic evidence can be the evidence to action or what kind on earth. All mention above indicates it’s necessary to speed up the establishment of national network financial crime convergence mechanism, such as jurisdiction, detection, investigation and evidence collection, evidence to prove, mutual recognition and judicial assistance to ease the conflicts between the legal provision of the countries and to realize the double value of punishing the network financial crime and protecting network financial security.

1.2. We should improve the network financial security related laws. The first is the protection of the subject rights and interests. First, we should improve the protection system of the maintenance of network consumer personal property and information in each nation’s Law on the Protection of the Rights and Interests of Consumers. In the network finance, consumers are the main bearers of financial market risks, they are always in a weak position, so we should highly concern about the protection of consumer interests which is one of the focus of the network financial legislation of each country; Third, we should consummate tax laws in the network financial transactions.

1.3. We should enhance the prevention legal system of network financial crime. The criminal activities such as theft, fraud and money laundering in the financial activities of the network often bring huge economic losses, which seriously impresses the normal network financial and trade activities. Although some countries have developed special legislation to prevent and control network financial crime, such as The United States, the United Kingdom, Japan, Germany, Canada, some of them still stay in the administrative regulations, decisions and methods for the lack of forward-looking legal system design or related regulations. The high incidence of network financial crime urgently requires countries to formulate special legislation on network financial crime from the top level to effectively prevent network financial criminal activities.

2. To improve the network financial professional regulatory model and to achieve multi-network financial crime control.

Multiple governance models are the important part of network financial crime prevention and control system. To create a multiple governance model, it is necessary to highlight the dominant position of the government in the network financial crime prevention and control, to give full play to the government's network power and to play the judicial branch’s role of participating in comprehensive management and special rectification to address of the network financial crime. At the same time, we should pay full attention to the role of prevention industry supervision and self-discipline soft constraint of the network financial crime, guide the public active participation and form the new pattern of the multi-subject control of financial crimes, on base of industry regulation, with the lead of government, judicial protection, public participation and self-discipline users.

2.1. Government's leading role in multiple governance.

 (1) To clear the main government regulation. The network financial products have the characteristics of substitution, fast replacement. It is difficult for the law to make timely and definite qualitative analysis, thus there are obvious gaps in supervision main bodies. To fill gaps in supervision main bodies, the supervisory main bodies should strengthen cooperation between the main bodies to break the mode of division of industry supervision and to take their own responsibilities and cooperate with each other.

 (2) To strengthen the cooperation between the main bodies of supervisory. According to the difference of the main bodies of the network finance, the division of the supervisors is responsible for the regulation of the different network financial activities. The supervisors should strengthen the collection and collating of the network financial crime information, timely grasp the dynamics of international network financial crime, establish a database similar to the US Financial Crimes Enforcement Network, share and exchange the information, and improve the corresponding preventive measures.

2.2. The basic role of industry regulation in multiple governances.

(1) To enhance self-discipline;

(2) To train and management professionals and to strengthen the internal management of the financial systems are effective ways to prevent crime. Network financial enterprises should develop a series of the rules and regulations to ensure the internal network security on the base of the specific circumstances of the enterprise; According to relevant regulations in network financial industry, we should take classification management of the management of personnel, technical personnel and standardize the behavior of employees. Through the industry supervision and the personnel’ self-discipline, we will internally enhance the network financial crime prevention and control system.

2.3. Protection of the judiciary in multiple governances. In the face of the increasing reality of network financial crime, it is necessary to accordingly establish a special investigation institutions against network financial crime to enhance the ability of the investigation and control of network financial crime; Legally, we need amend the relevant criminal legal norms and appropriately expanse the jurisdiction of the people's court in the place where the crime is committed; we should improve the criminal investigation procedure, establish and perfect the rules of network financial evidence, and enhance the accuracy of cracking down on network financial crime.

2.4. Participation and self-regulation of the public and netizens in pluralistic governance. It is an important task for a sovereign state to figure out how to play the network virtual community members’ roles of participation in network financial governance to improve national governance system and the modernization of the governance.

3. To strengthen the prevention measures of network financial crime and to achieve the source governance of the network financial crime.

Innovation is one of the most important features of network financial activities. Therefore, as for emerging Internet banking platform such as crowd funding and virtual currencies like Bitcoin, to define the nature and legal status of those virtual banking and new financial products can not only give the legitimate network financial activities to grow space, but also crack new problems of preventing and punishing network financial crime. Hence, we need take appropriate technical preventive measures:

3.1. Taking the isolation measures to prevent unauthorized access or exceeding access to the computer information system. Identification and verification procedures shall be set for the relevant network equipment providing network financial services in order to ensure that only authorized persons have access to the computer system and network data;

3.2. Ensuring the completing and accuracy in data processing. In order to ensure data integrity, authenticity, security and effectiveness of the network financial activities referring to the items of accounts and important documents, we shall read protection, write protection, code time lock, use passwords communication in the remote terminal data transmission and so on;

3.3. Creating a file system to record network financial activities, such as data query, modification, retrieval, transfer, copy and storage. Internet financial institutions and other businesses engaged in network financial transactions shall keep the records, such as opening account records, account records, various accounting credentials, financial transaction documents relating to accounts, and shall not disclose or provide such records except as provided by law.

3.4. Expanding the scope of the reporting obligations of the main bodies. We shall improve large and suspicious transactions reporting system and different reporting standards for different reporting systems. Meanwhile, through the establishment of exemption from the obligations and liability exemption system, we shall improve the initiative of the main bodies of the network financial crime and the efficiency of combating and preventing network financial crime.

4. To strengthen transnational cooperation against network financial crime, to improve the network financial crime in common governance.

Economic globalization makes the financial links between countries closer and closer, thus in order to protect the common interests among the countries, the countries should not only strengthen the transnational cooperation with other countries in the process of combating the network financial crimes, but also should strengthen the cooperation with the international organizations. Concretely, we should enhance the exchange of information with the international organizations and collectively build the international financial barriers of preventing financial crimes to ensure the smooth development of network finance.

4.1. To strengthen the transnational legislative cooperation for punishing and preventing network financial crime. The so-called transnational legislative cooperation refers to, when the countries shall formulate or revise the relevant legislation, we should always adhere to To promote the Internet financial health as the fundamental starting point, comprehensively considerate other countries’ laws so as to reduce the conflicts of laws and achieve international standards in legislation.

4.2. To strengthen the judicial cooperation for punishing and preventing transnational network financial crime. According to mutual judicial assistance agreement or the understandings agreed in advance, transnational judicial assistance refers to the judicial system to support and help to some aspects, such as providing mutual criminal intelligence, investigating and collecting evidence, seizing assets, arresting and transferring fugitives, recognizing and enforcing effective judgments, when prosecute transnational crimes of different countries. It is necessary to strengthen transnational judicial assistance among countries, countries and international organizations, to avoid possible conflicts of international jurisdictions, and to achieve more effectively combating transnational network financial crime and ensure the healthy development of global network finance. Therefore, it is necessary to speed up the establishment of a Mutual Legal Assistance Agreement (MLAA) mechanism, such as information communication, investigation and evidence collection, case handling, so as to timely feedback the information of transnational network financial crime and realize the sharing of investigation resources; to obtain valuable time for cracking down on international network financial crimes.

4.3. To perfect the international administrative cooperation system for punishing and preventing network financial crime. The transnational and cross-border network financial activities have brought great challenges to the collection and management of the tax abroad for the countries concerned, especially to the information acquisition. According to the different situations of the partners, the bilateral or multilateral tax treaties between countries, countries and international organizations based on the reciprocity shall confirm the modes, the tax categories, information confidentiality and management procedures of the tax information exchange. In the light of international trade norms and international practice, government departments shall strengthen the intergovernmental exchange and cooperation in network financial activities, change the power exercise of the relevant regulatory functions, regulates, restrictions and supervisions in network financial crime, and achieve all-round protection of punishing and preventing network financial crime.

4.4. To accelerate the establishment of the mechanism of identification, seizure, recovery, return of network financial criminal assets. Since the financial assets involved in transnational network crimes are usually huge, timely to identify, seize, recover and return the financial assets involved in network financial criminal is not only necessary to effectively curb network financial criminal and punish the financial crimes, but also to restore the property losses. In view of the imperfect mechanism of identification, seizure, recovery, return of network financial criminal assets, the conflicts of judicial jurisdiction, the unclear international rules of rights and obligations between the requesting and assisting countries, we can remove the obstacles to recovery in the assets of the judicial assistance, according to the relevant provisions of the asset return mechanism in “United Nations Convention against Corruption (UNCAC)”; at the same time, we can learn from the relevant provisions of asset return mechanism in UNCAC to speed up asset return single conventions, treaties of network financial crime; In order to improve the efficiency of prevention and control system of network financial crime, we can learn from the legislative model of the United States and other countries, implement the legislative principle of The criminal law after the civil law, separate the civil parts from the criminal parts of the financial crimes involved in the network financial crime and establish the relevant procedural mechanisms. We should promote the global, international organizations and sovereign countries, effectively crack down on international network financial crime and protect the legitimate rights and interests of the countries concerned so as to realize the orderly growth of global wealth.

(The article is the excerpt from the 34th Cambridge International Forum of Anti-Economic Crime speech)