China to amend its Anti-Money Laundering Law
China Anti-Money Laundering Alert
In June of 2021, the People’s Bank of China (PBOC, China’s central bank and major financial regulator) published the draft version of amended Anti-Money Laundering Law (Amended AML Law) seeking for public opinion[1]. Amended AML Law contains major changes to improve the effectiveness of its legal framework to combat money laundering and terrorist financing and has expanded AML obligations to all individuals and organizations. In this article, we summarized the highlights of the Amended AML Law.
1. Expansion on definition of money laundering activities. Amended AML Law expanded the scope of money-laundering activities to include any activities to conceal or hide the criminal income and the source and nature of criminal income. The rules in the Amended AML Law will also be applied in countering terrorism financing. So far, the AML Law only listed seven crimes as the upstream crimes of money laundering crime[2]. Under the Amended AML Law, the AML compliance program may need to cover a wider scope in reviewing the source and nature of the funds.
2. Enhanced regulation on non-financial entities. The Amended AML Law would include the property developers or agencies, accounting firms and precious metal exchanges as the non-financial entities which are subject to AML obligations. It also allows the regulators to impose AML obligations on other types of entities according to the situation of money laundering risk. The expansion of AML obligations to non-financial entities have been specified in the PBOC regulation, but this time such system would become a national law. Furthermore, the sectoral regulators of the specific non-financial entities which have AML obligations may also offer detailed regulatory rules.
3. AML obligations for all individuals and organizations. Under Amended AML Law, all types of individuals and organizations would have to comply with the following obligations:
- To report payment and receipt of “huge amount of cash” to PBOC[3];
- Not to facilitate money laundering activities by renting, lending or trading financial tools with payment and receipt functions;
- To adopt AML special preventive measures for the targets in the following lists:
- List of terrorist organizations and terrorists announced by the Chinese national counter terrorism leading body;
- Targeted financial sanction list published by the Ministry of Foreign Affairs to perform international obligations;
- The lists of targets with money laundering or terrorist financing risks as decided by the Chinese AML regulatory authority together with other relevant authorities.
The AML special preventive measures include but not limited to prohibition on conducting any transactions with the listed targets and their agents, and the entities owned or controlled by the listed targets, and to freeze the funds or assets of the listed targets or adopt relevant restrictions on their funds and assets.
Apart from the above obligations to take AML special preventive measures, any entities and individuals would have the obligations to cooperate with the AML due diligence review performed by the financial or non-financial entities, and with the AML investigations performed by AML authorities, and all market entities shall report ultimate beneficial owner information through the information system of the Administration for Market Regulation.
4. Significant Increase on Penalties. The Amended AML Law established various the administrative fines for violation of AML obligations. For example, failure in adopting AML special preventive measures may lead to a fine up to CNY 200,000. The amounts of fines existed in the current AML Law are also significantly increased.
5. Reciprocal Requirements on International AML Cooperation. The Amended AML Law also has provided rules on international cooperation on anti-money laundering efforts, which stated that Chinese financial institutions are not allowed to comply with foreign orders to provide information or seize, freeze or transfer onshore assets. If the financial institutions consider it necessary to respond to such requests, they have to obtain the approval from the Chinese government and notify foreign authorities to negotiate with their Chinese counterparts.
In general, the Amended AML Law responses to the international common practices and aims to establish a risk-based approach to require relevant entities to deploy their AML/CTF resources and measures by identifying the risk they may face. It shall be noted that the Amended AML Law is still in draft version thus may subject to future changes. We will keep a close eye on the legislative process of the Amended AML Law.
[1] This draft law is published by PBOC for public comment from June 1, 2021 to June 30, 2021, which is part of the legislative process. PBOC is expected to provide a new draft taking into account the public opinions it received from this process and submit a draft to legislative authority for review in due course.
[2] Currently the upstream crimes of money laundering activity only include drug crimes, crimes of mafia-style organizations, crimes of terrorist activities, crimes of smuggling, crimes of bribery and corruption, crimes that disrupt financial administrative order, crimes of financial fraud.
[3] The detailed rules for reporting of huge amount cash transactions would be drafted by the relevant government authorities.
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