AML in China

Money laundering poses a significant challenge in China, particularly as technological advancements give rise to new forms of illicit activities, such as transaction laundering replacing traditional methods. However, China maintains a robust Anti-Money Laundering (AML) policy to safeguard its economy against the escalating threat of money laundering. Various criminal activities contribute to money laundering in China, including terrorism, drug-related offenses, smuggling, bribery, financial fraud, and forgery. It’s worth noting that revenue generated through tax evasion and recycled via overseas entities is not strictly classified as money laundering but is punished separately as a distinct offense.

China has formulated comprehensive AML laws aimed at deterring money laundering, maintaining fiscal order, and combating related crimes. With a strong understanding of money laundering and terrorist financing risks, China is not listed as having AML deficiencies by the Financial Action Task Force (FATF). However, according to a February 2019 FATF report, China should focus more on addressing the proceeds of crime and expanding the resources employed for national risk assessment. The People’s Bank of China demonstrates a good understanding of how criminals can exploit financial institutions and is deemed largely compliant with 15 out of the 40 FATF Recommendations.

Since 2006, China has taken steps to enhance its AML regime. The China People’s Bank (PBC) and State Foreign Exchange Administration (SAFE) enacted AML Rules on January 1, 2007, following efforts to strengthen the system. These regulations aim to prevent money laundering, standardize AML regulatory activities, and ensure the integrity of the financial industry. In addition, the Chinese government issued the “Measures on the Management of Freezing Assets Related to Financing Terrorism” in 2014. As the economy becomes increasingly interconnected globally, the opportunities for criminals also rise significantly.

In China, several institutions play a role in regulating and overseeing Anti-Money Laundering (AML) regulations. These include the People’s Bank of China, the China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC), the Ministry of Public Security, and the State Administrator of Foreign Exchange Administration. AML regulators worldwide are intensifying their oversight efforts within their respective jurisdictions. Financial institutions are required to establish and implement robust and effective AML compliance programs that align with local regulatory expectations.

Furthermore, self-regulatory bodies outside these institutions also enforce AML requirements and are responsible for implementing these regulations among their members. These self-regulatory bodies not only serve as regulatory authorities responsible for complying with AML requirements but also monitor AML internal control systems and impose necessary administrative sanctions.

Regulators have the authority to impose administrative fines for non-compliance with AML obligations, with a maximum penalty of 5 million RMB. Additionally, organizations that fail to meet the necessary conditions may have their financial permits revoked. The maximum penalty for non-compliance with AML requirements is 500,000 RMB. Prior to imposing fines, organizations are typically issued orders to rectify any violations, and disciplinary sanctions may be applied.

AML laws and obligations are crucial in China, and it is mandatory for all financial institutions to adhere to these obligations. The country’s regulators diligently assess compliance with these obligations, and failure to comply can lead to specific sanctions. Here are some significant obligations in China:

  1. Implementation of Internal Control Systems: Financial institutions are responsible for establishing effective internal control systems to ensure compliance with AML requirements.
  2. Customer Identification System: Financial institutions are required to establish a customer identification system in accordance with relevant provisions.
  3. Non-Service to Unidentified or Anonymous Customers: Financial institutions are prohibited from providing services or engaging in transactions with customers who cannot clearly identify themselves or maintain anonymity.
  4. Protection of Customer Identity Materials and Transaction Records: Financial institutions must establish protective measures for customer identity materials and transaction records to safeguard against misuse or unauthorized access.
  5. Reporting System for Large or Suspicious Transactions: Financial institutions are obligated to have a reporting system in place to identify and report large or suspicious transactions to regulatory authorities.
  6. Retention of Customer Identity Documents and Transaction Records: Financial institutions are required to maintain customer identity documents and transaction records for a designated period.
  7. Establishment of Money Laundering Department: Financial institutions must establish a dedicated department to address money laundering issues and designate an authorized officer responsible for AML compliance.
  8. AML Training: Financial institutions are expected to provide AML training programs for their staff to enhance their understanding of AML regulations and procedures.
  9. Verification and Registration of Principal’s Identity: When a customer appoints an agent to conduct transactions on their behalf, the relevant financial institution is responsible for verifying and registering the identity documentation of the principal.

These obligations serve to strengthen the AML framework and ensure financial institutions’ compliance with AML laws and regulations in China.