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China's New AML Law: Preventing Money Laundering

· 3 min read
Michael Thompson
Regulatory Enforcement Officer

The Chinese government passed a new Anti-Money Laundering (AML) Law on October 31, 2006, marking a significant step in the battle against money laundering and related illicit activities. This comprehensive legislation aims to prevent money laundering, safeguard financial order, and check on related crimes.

Key Components of the AML Law​

The new law, which consists of seven chapters, outlines:

  1. General principles
  2. Supervision and administration
  3. Obligations for financial institutions
  4. Investigation procedures
  5. International cooperation
  6. Legal liabilities
  7. Supplementary articles

Chapter I - General Principles​

The law emphasizes the importance of preventing money laundering activities and associated crimes, including those funded by drug trafficking, organized crime, terrorism, and corruption. Financial institutions and specific non-financial institutions must establish systems to prevent money laundering.

Obligations for Financial Institutions​

  • Set up a special unit for AML
  • Follow client identity verification requirements
  • Maintain client identification and trading records
  • Report large transactions and suspicious trading
  • Conduct regular anti-money laundering training and publicity
  • Ensure confidentiality of documents and information related to client identity and trading data

Chapter II - Supervision and Administration of Anti-Money Laundering​

The supervision and administration of AML in China are under the responsibility of the anti-money laundering authority under the State Council. Customs authorities are required to report individuals carrying cash or securities exceeding certain thresholds.

Chapter III - Anti-Money Laundering Obligations of Financial Institutions​

Financial institutions have obligations, including:

  • Setting up a special unit for AML
  • Developing an identification system
  • Conducting regular inspections
  • Maintaining client ID information and trading records
  • Keeping client ID documents and other information confidential

Chapter IV - Anti-Money Laundering Investigation​

The investigation process involves:

  • The anti-money laundering authority
  • Related departments, institutions, and judicial authorities

The anti-money laundering authority has the power to investigate suspicious transactions, request cooperation from concerned financial institutions, and freeze suspicious accounts if necessary.

Chapter V - International Cooperation for Anti-Money Laundering​

China collaborates with other nations in international efforts to combat money laundering through treaties.

Chapter VI - Legal Liabilities​

Violations of the AML law may result in administrative sanctions for relevant authorities and financial institutions, as well as criminal liability if the offenses are deliberate.

Chapter VII - Supplementary Articles​

This chapter includes provisions related to the publication of specific non-financial institutions subjected to AML regulations and the application of the law to terrorism financing.

The Anti-Money Laundering Law of the People's Republic of China is set to take effect on January 1, 2007. This comprehensive legislative measure marks a significant stride forward in China's ongoing fight against money laundering and related financial crimes.