China to Revise Anti-Money Laundering Law to Combat Virtual Asset Risks

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Beijing’s Efforts to Keep Pace with Web3 Developments

Beijing has announced plans to revise its outdated Anti-Money-Laundering (AML) Law, aimed at addressing growing risks associated with virtual assets. This move comes as China seeks to keep pace with the rapidly evolving Web3 landscape.

Addressing Emerging Money-Laundering Risks

The proposed amendment is expected to address new types of money-laundering risks and will be passed next year, according to legal experts. Professor Wang Xin from Peking University Law School, who was involved in the discussions about the law’s revision, believes that the proposed amendment will effectively tackle these emerging risks.

China has increased its scrutiny of crypto-related money-laundering cases in recent years. In 2022, police in Inner Mongolia Autonomous Region arrested 63 individuals for laundering 12 billion yuan (US$1.7 billion) using cryptocurrency.

International Standards and Best Practices

Andrew Fei, a partner at law firm King & Wood Mallesons in Hong Kong, sees the revision as a positive step, citing the evolution of international standards and best practices. “China’s AML legislation has not undergone a major revision since it was first enacted more than 17 years ago… The world is a very different place now,” he said.

FATF Recommendations

The Financial Action Task Force (FATF), a Paris-based intergovernmental money-laundering and terrorist-financing watchdog, has set out detailed recommendations to address virtual assets in the proposed AML law amendment. While China was rated “largely compliant” with these recommendations, the country’s ban on crypto activities means several criteria do not apply.

Additional Powers and Tools

Fei suggests that China should take into account the relevant FATF recommendations and consider expressly referring to virtual assets in the amended law, giving authorities additional powers and tools to target unique issues arising from virtual assets and new technologies. “China’s focus on combating AML risks associated with virtual assets is broadly consistent with the approach taken in, and urgency felt by, other major countries around the world,” he added.

Beijing’s Commitment

The proposed amendment reflects Beijing’s commitment to addressing money laundering related to virtual assets, while keeping its draconian ban on cryptocurrency operations in place. As China moves forward with this revision, it remains to be seen how effectively it will combat the growing risks associated with virtual assets.