From Retail Placement to Wholesale Settlement: How Pao Fen Platforms Supply Chinese Money Laundering Organizations

Chinese Money Laundering Organizations (CMLOs) have become a central focus of international enforcement concern, yet one dimension of their operations remains largely invisible in the Western literature: the mechanism by which illicit funds are initially collected, broken into fragments, and channeled into the underground banking system. This paper introduces the concept of Pao Fen (跑分, literally "running points") – a platform-mediated, deposit-governed, commission-driven system in which individuals are recruited as payment channel providers to collect criminal proceeds at industrial scale. Drawing on Chinese judicial analyses, prosecutorial guidance, enforcement case law, regulatory commentary, and an extensive body of Chinese-language legal scholarship, the paper provides a comprehensive definition and typology of Pao Fen. It distinguishes three operational variants – Capital-Pool (资金池型), Cryptocurrency (虚拟币型), and E-Commerce-Simulated (电商交易型) – and situates them within a Two-Layer Model of Chinese transnational money laundering. In this model, Pao Fen constitutes the retail placement layer: high-volume, low-value fund collection and fragmentation. Underground banking (Dixia Qianzhuang, 地下钱庄) constitutes the wholesale settlement layer: low-volume, high-value cross-border transfer. The paper contrasts the Chinese Pao Fen discourse with the Western money mule concept, identifying three structural blind spots in the Western framework: its individualism, its assumption that deception drives recruitment, and its lack of a platform category. It reconstructs the Chinese criminal law response – including the charging taxonomy of Bangxin Zui (帮信罪), Yanyin Zui (掩隐罪), and Feifa Jingying Zui (非法经营罪), graduated knowledge standards, and the Duan Ka (断卡) administrative sanctions regime – and derives implications for European AML detection, investigation, and prevention.