Financial Crime World

Title: China Strengthens Financial Crime Prevention with Revised Anti-Money Laundering Law

Background and Significance

In the face of growing financial criminal threats, China has initiated a major overhaul of its Anti-Money Laundering (AML) legal framework. The draft revision to the People’s Republic of China Anti-Money Laundering Law, currently under review by the National People’s Congress, aims to align Chinese strategies with international best practices and bolster national security.

  • Existing AML Law critiqued for insufficiency
  • New draft under parliamentary scrutiny
  • Demonstrates China’s commitment to safeguarding financial security

Key Revisions

Emphasizing National Security

  1. Article 1 prioritizes national security in AML efforts

Broadened Scope

  1. Article 2 covers all types of money laundering crimes and terrorist financing

Risk Prevention and Management

  1. Article 3 urges institutions to implement robust risk prevention and management systems

Universal Obligations

  1. Articles 5 and 36 require all social entities and individuals to contribute to AML efforts

Overseas Jurisdiction

  1. Article 10 covers overseas money laundering and terrorist financing activities

Concept of Beneficial Owner

  1. Article 61 defines beneficial owner and adds new reporting requirements

Expanded Regulatory Scope

  1. Articles 59 and 60 include non-bank payment institutions and specific non-financial institutions in the regulatory purview

Clear Regulatory Procedures

  1. Articles 19, 20, and 41 establish clear procedures for regulatory authorities to inspect financial institutions

Decentralization of Investigation Power

  1. Article 40 decentralizes AML investigation powers to the prefecture level city
  1. Articles 24 and 30 outline responsibilities of third-party service institutions (consulting, technology, competence evaluation firms) in the AML process

Enhanced Customer Due Diligence System

  1. Article 26 mandates financial institutions to conduct extensive due diligence on customers

Increased Transaction Risk Reviews

  1. Financial institutions must review transactions for potential money laundering risks beyond initial customer identity checks

Continuous Risk Management

  1. Article 28 requires continuous due diligence and risk management throughout business relationships

Information Sharing and Confidentiality Obligations

  1. Chinese financial institutions requested to establish a unified AML system and clarify mechanisms for information sharing
  1. Articles 37 and 38 detail grievance procedures for units and individuals objecting to AML measures taken by financial institutions and authorities

Increased Penalties

  1. Proposed harsher penalties, including fines and restrictions for violations of AML regulations

Implications for Financial Institutions

More rigorous AML compliance requirements:

  • Customer due diligence
  • Risk management
  • Internal controls

Implications for Specific Non-Financial Entities

Newly subject to AML obligations:

  • Real estate developers
  • Accounting firms
  • Law practices

Requirements:

  • Establish AML compliance frameworks
  • Adhere to new legal requirements

Implications for General Entities and Individuals

Heightened awareness and proactive approach to financial crime prevention

Outlook on Implementation

  • Upon implementation, China’s AML legal framework becomes more robust and stringent
  • Financial institutions and relevant entities must closely monitor legislative process
  • Adjust AML strategies to remain compliant with evolving regulatory environment