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China’s AML Framework: A Quick Recap
Beijing - China has been at the forefront of combating money laundering and terrorism financing for years, with its government ministries working together to implement anti-money laundering (AML) regulatory frameworks.
The Policy and Progress
According to the US State Department, China is responsible for $154 billion in annual money laundering, a claim that China refutes. However, in an effort to stay compliant with Financial Action Task Force (FATF) requirements, China launched a three-year AML policy in 2021.
The policy has led to a significant increase in money laundering convictions, from 9,249 in 2016 to 13,700 in 2019. The country’s 11 official government ministries are working together to implement the AML framework, with the People’s Bank of China (PBOC) and Ministry of Public Security leading the effort.
Key Departments Implementing AML Controls
The following government ministries are involved in implementing AML controls:
- Supreme People’s Court
- Ministry of State Security
- China Banking and Insurance Regulatory Commission (CBIRC)
- Supreme People’s Procuratorate
- National Supervisory Commission
- General Administration of Customs
- State Administration of Foreign Exchange
- China Securities Regulatory Commission (CSRC)
- State Taxation Administration
These ministries are working together to mitigate risks, implement strong mechanisms to combat money laundering, and impose severe punishment on convicted criminal individuals and organizations.
Money Laundering Convictions in PRC
China has been cracking down on money laundering and terrorism financing, with capital punishments for serious crimes. In 2021, China sentenced the death penalty to Lai Xiaomin, a financial regulator and former banker, for receiving $257 million in bribes over a 10-year period.
The country’s AML efforts have also led to an increase in criminal convictions, from 2014 to 2019, according to government data.
New Requirements for Customer Due Diligence (CDD)
In March 2022, the PBOC, CSRC, and CBIRC released a joint statement on Customer Due Diligence and Keeping of Customer Identification and Transaction Records. The new requirements aim to safeguard China’s financial system and combat corruption and money laundering.
The measures cover:
- Conducting CDD by adopting a risk-based approach
- Enabling low-risk customers or transactions to easily access the financial system
- Additional requirements to identify beneficial owners
- Ensuring the safety of customer identification and transaction records
Fake High Returns Investments Project
China’s central bank has been cracking down on fraudulent financial activities, penalizing individuals and companies found guilty of evading taxes and luring investors into fake projects offering abnormally high returns. The country has also banned all types of cryptocurrency transactions, including mining, buying, and selling.
Key Takeaways
While China has made significant progress in remaining compliant with AML regulations, there is still a need to increase crackdown on money laundering and illegal financial activities. Most of the financial crimes investigated involve funds obtained from corruption, bribery, smuggling, counterfeiting, and fraud.
Tax evasion remains a major concern for mainland China, with businesses and individuals often laundering taxes through shell companies in tax havens before returning them back to China as foreign investment.