China Cracks Down on Financial Crime: New Anti-Money Laundering Law Amendments Targeting Cryptocurrencies

China is set to revamp its outdated Anti-Money Laundering (AML) Law, with experts predicting that the amendments will address the escalating threats posed by cryptocurrencies and other digital assets.

Revamping China’s AML Law

Premier Li Qiang led a State Council meeting in late January to review and send the draft amendment to the national legislature for approval. Although the text of the revised amendment has not been publicly disclosed, Chinese digital news media Jiemian reported that the changes aim to combat money laundering through digital assets.

Combating Money Laundering in the Web3 Era

As China strives to stay abreast of international trends in the Web3 era, the country’s efforts mark a significant evolution in tackling new money-laundering threats. Fei, a partner at law firm King & Wood Mallesons in Hong Kong, observed that:

“China’s ambition to curb AML risks by focusing on virtual assets has followed a pattern observed in major countries worldwide. Given the increasing need to speed up the procedures and keep up with the development, this new move is a testament to Beijing’s eagerness to address vulnerable points such as non-fungible tokens and other virtual assets.”

Expected Adoption and Enforcement

The new amendments are expected to be adopted within the next year. Chinese authorities have intensified efforts to investigate crypto-related money laundering activities in recent times, and senior prosecutor Zhang Xiaojin has emphasized the need for toughened enforcement measures against money laundering and illicit foreign exchange activities. Zhang specifically highlighted the importance of prosecuting cases involving the use of digital currencies for overseas asset transfers.

Chinese authorities have shown determination in investigating crypto-related money laundering activities. In 2022, law enforcement in the northern Inner Mongolia Autonomous Region apprehended 63 individuals for laundering over 12 billion yuan (US$1.7 billion) through cryptocurrencies.

Updating AML Legislation to Combat Virtual Asset Risks

Given the ever-changing landscape of international AML standards, it is imperative that China updates its legislation to combat risks associated with virtual assets. The Paris-based watchdog, Financial Action Task Force (FATF), has provided guidelines in their proposed amendments to address virtual assets within AML regulations. Although China was assessed as “largely compliant” with their AML recommendations related to virtual assets in the 2020 report, certain criteria do not apply to China due to its strict cryptocurrency regulations.

Potential Solutions for Combating Money Laundering with Digital Currencies

Fei further suggested potential solutions, such as “authorizing the supervisory bodies with additional powers and tools in their respective cells of virtual assets and innovative technology.” The borderless and decentralized nature of digital currencies makes them a potential threat for criminals.

“Although digital currencies and everything associated with them remain illegal in China, their borderless and decentralized nature makes them a potential threat. For criminals, they can serve as weapons, especially when used in illegal activities.”