China preps for clampdown on financial crimes with new version of anti-money-laundering law

China’s lawmakers are revamping the country’s law on money laundering to bolster a crackdown on illegal activities and address cryptocurrency-related risks, a measure that will also align its practices with global standards as it faces stricter international scrutiny.

A draft revision of the law is now under review at the ongoing session of the Standing Committee of the National People’s Congress, China’s top legislative body when the full congress is not in session.

“It’s necessary to root our anti-money-laundering law in the actual needs of our country and integrate into new [international] demands,” said Pan Gongsheng, governor of the People’s Bank of China, according to state news agency Xinhua. “[We need to] seize the moment to improve the law.”

These changes will expand the coverage of money laundering channels [to include] digital currencies and bitcoin
Dong Jinyue

The revision is likely to include scrutiny of digital assets – including cryptocurrencies which are banned in mainland China – and non-financial institutions which could have previously allowed for loopholes in the system, according to analysts.

“These changes will expand the coverage of money laundering channels [to include] digital currencies and bitcoin, as well as the [medium of laundering through] non-financial institutions, which enhance the safety of China’s financial system and national financial security,” said Dong Jinyue, principal economist at BBVA Research.

Hong Kong’s position as the cryptocurrency hub in Asia should also be protected, Dong said.



Is cryptocurrency too risky for China?

Is cryptocurrency too risky for China?

“As long as cryptocurrency is not used as a way to launder money or [support] other illegal activities in Hong Kong, its position should be sustained,” he said.

“The legal usage and development of cryptocurrency in Hong Kong will be protected, rather than being hit by the law.”

The planned revision comes in advance of a fifth review by the Financial Action Task Force, an international organisation that sets standards to combat money laundering and the financing of terrorism.

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China’s anti-money-laundering law went into effect in 2007, the same year it joined the task force. The intergovernmental agency was founded in 1989 on the initiative of the Group of 7 countries to coordinate efforts to combat money laundering. In 2001, its mandate was expanded to include the funding of terrorism.

China narrowly passed the fourth round of assessments in 2019. The review stated some of the country’s financial institutions had weak obligations in the control of money laundering, and the overall system lacked transparency regarding legal arrangements.

China’s central bank had previously warned the risk of money laundering remains high in the country as well as Southeast Asia, emphasising the need to address weak points in compliance management and improve regulatory technology to handle the complex nature of financial crimes and the burgeoning fintech sector.

The central bank released a draft for public feedback in 2021, when improving the law was listed as one of the major tasks for the top legislature to tackle.

The draft version of the Chinese anti-money-laundering law comprises 62 articles in seven chapters, and will require financial institutions to establish and enhance an internal control mechanism for money laundering, carry out due diligence with customers and save their identity information and transaction records.

A new organ will be set up to monitor and analyse the transfer of “large sums” and “suspicious” transactions for potential signs of illicit activity, according to the draft.



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Opium, war and crime: How Hong Kong became known as a smuggling hub

Chen Zhiwu, chair professor of finance at the University of Hong Kong, said the enforcement of anti-money-laundering rules is already tough on the mainland, with domestic financial institutions stepping up their reporting to the central bank in recent years to comply with recommendations from the Financial Action Task Force.

The new iteration of the law would also bolster the supervision and management of anti-money-laundering operations, advance provisions of obligations and clarify the scope of non-financial institutions that must comply, Xinhua said.

Pan noted the revision is based on a “risk-centric” principle and protects “national security”, coordinates “development and safety” and will “perfect” the anti-money-laundering system.

The fifth review is still going to be challenging to the country and its financial industry
Qian Hang

In a report released last year, the consultancy Oliver Wyman said the fifth-round assessment by the Financial Action Task Force will focus on “effectiveness” and “results”.

“Although the fourth examination has affirmed certain work from China, like new technology, internal control, telegraphic transfer, non-profit organisations and financing of terrorism and proliferation, the fifth review is still going to be challenging to the country and its financial industry,” said Qian Hang, a partner at Oliver Wyman.

He suggested Chinese financial institutions “raise consciousness” on fulfilling their obligations and use the fifth review period to examine weak links and upgrade their operations before the task force’s field work begins in 2025.

But China will need to cooperate closely with other countries to crack down on cross-border crimes, particularly in Southeast Asia, one of the world’s hotspots for illegal financial activities.

Additional reporting by Ralph Jennings



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