China’s Anti-Money Laundering Law: Strengthening Financial Crime Reporting Requirements

On October 31, 2006, China’s President Hu Jingtao signed the Anti-Money Laundering Law of the People’s Republic of China into effect. The law, which came into force on January 1, 2007, aims to combat money laundering activities and maintain financial order.

Defining Anti-Money Laundering

The new law defines money laundering as actions that conceal or disguise the true source and nature of proceeds of crimes. These crimes include those related to:

• Drugs
• Criminal syndicates
• Terrorism
• Smuggling
• Embezzlement
• Bribery
• Financial administration disruptions

Responsibilities of Financial Institutions and Designated Non-Financial Institutions

Financial institutions and designated non-financial institutions operating within China are required to comply with the new law’s anti-money laundering responsibilities. These obligations include:

1. Preventive and monitoring measures: Financial institutions must establish internal controls to identify and prevent money laundering.
2. Customer identification programs: Financial institutions must verify the identities of their customers.
3. Reporting large-value and suspicious transactions: Financial institutions must report large-value transactions exceeding a certain threshold and suspicious transactions to the competent authority.

Role of the Competent Authority

The Competent Authority is responsible for overseeing and coordinating national anti-money laundering tasks, monitoring fund movement, and issuing regulations for financial institutions. The dispatched institutions of the Competent Authority supervise and inspect financial institutions’ compliance with anti-money laundering obligations.

International Cooperation and Legal Liabilities

The new law includes provisions for international cooperation against money laundering, legal liabilities, and supplementary provisions. Confidentiality is a key aspect of the law, with customer identification materials and transaction information kept confidential and not to be disclosed unless specified by law.

Protection for Reporting Institutions and Individuals

Institutions and employees required to perform anti-money laundering responsibilities are provided legal protection to report large-value or suspicious transactions. Individuals can report any money laundering activity to the competent authority.

Reporting and Record Keeping

Financial institutions must establish internal control programs, verify customers’ identity documents, and keep customer identity and transaction records. Non-compliance with these regulations can result in administrative sanctions.

Investigating Suspicious Transactions

The Competent Authority and its dispatched institutions have the power to investigate and verify suspicious transactions through financial institutions. In case of resistance or non-compliance, the financial institution has the right to refuse the investigation.

Legal Liabilities and Penalties

Penalties for misconduct, such as inspecting, investigating, or taking temporary freezing measures in violation of the law, can result in administrative sanctions for the employees responsible. Financial institutions that violate regulations on anti-money laundering reporting, customer identification, or large-value transaction reporting may face fines and orders to impose disciplinary sanctions on their directors, senior managers, and other personnel.

Conclusion

The new anti-money laundering law is an essential step in China’s efforts to strengthen its financial monitoring and reporting requirements in line with international standards. This law aims to improve China’s anti-corruption efforts and maintain financial stability by combating money laundering and other financial crimes.