China Strengthens Anti-Money Laundering Laws: A Broadcast on Upcoming Regulatory Changes and International Pressures

China’s Response to Global Pressure and Domestic Risks

China’s legislators are currently enhancing their anti-money laundering (AML) regulations as part of a broader campaign to combat financial crimes and align with international standards. The government’s intentions were emphasized by Pan Gongsheng, the Governor of the People’s Bank of China, during the ongoing session of the National People’s Congress’ Standing Committee.

The Importance of Updating AML Frameworks

Pan underscored the necessity of updating China’s AML framework in response to contemporary challenges and international demands. He reiterated Xinhua’s reports stating that “given the evolving financial landscape and the increasing global scrutiny, it’s crucial that we root our AML regulations in our country’s actual needs” (Xinhua, 2023).

The Scope of Prohibited Money Laundering Channels: Expanding the Legal Framework

The forthcoming amendments are anticipated to expand the scope of prohibited money laundering channels, including digital currencies like Bitcoin and non-financial institutions. Dong Jinyue, principal economist at BBVA Research, holds that this expansion will fortify China’s financial system’s security and safeguard national financial security (BBVA Research, 2023).

Addressing Ongoing Challenges: The Fifth FATF Review

These planned revisions precede the fifth review by the Financial Action Task Force (FATF), an international organization responsible for setting standards to counter money laundering and terrorism financing. China has been an active member since 2007.

The Impact of Previous FATF Evaluations and Criticisms

During the last assessment in 2019, the FATF identified minor criticisms regarding China’s financial sector’s weak obligations in controlling money laundering and a lack of transparency surrounding legal arrangements. The People’s Bank of China had also previously highlighted potential risks of money laundering in China and Southeast Asia, stressing the need to address weak points and employ advanced regulatory technology (People’s Bank of China, 2019).

The Necessity of Fortifying Internal Control Mechanisms

The draft AML law, encompassing 62 articles and seven chapters, will necessitate financial institutions to bolster their internal control mechanisms against money laundering, requiring comprehensive due diligence on customers and transaction records retention. A new regulatory oversight body is to be established to monitor and examine large transactions for signs of illicit activity (The Paper, 2023).

Existing Regulatory Framework: Current Enforcement and Collaboration

Despite already stringent enforcement in mainland China, the new iteration of the law aims to bolster supervision and management oversight while streamlining the regulatory framework of non-financial institutions’ responsibilities. However, the fifth FATF examination poses potential challenges and collaboration with other countries is essential to counter cross-border crimes, especially in Southeast Asia (South China Morning Post, 2023).

Preparing for the FATF Review: Rectifying Weaknesses and Upgrading Operations

To successfully navigate the FATF’s review, Chinese financial institutions must rectify any weaknesses and upgrade their operations before the FATF’s fieldwork commences in 2025 (Reuters, 2023).