Author/ Damon Quan Xun Li Giselle Li
Editor / Tianwei Zhuge
On November 8, 2024, the 12th session of the 14th National People's Congress Standing Committee reviewed and adopted the new Anti-Money Laundering Law of the People's Republic of China (the “AML Law 2024”), which marks the first official major revision of the Anti-Money Laundering Law since its enactment in 2007 (the “AML Law 2007”), and the AML Law 2024 will take effect from January 1, 2025. The AML Law 2024 consists of 7 chapters and 65 articles. While most of the amendments are not substantially newly issued regulatory requirements, but rather regulatory provisions that have been implemented for years, scattered across various regulations and administrative rules within the anti-money laundering regulatory framework, and the AML Law 2024, formally elevates such provisions to the level of law. A few amendments introduce innovations, such as the introduction of "special anti-money laundering preventive measures" and " extraterritorial application of anti-money laundering laws". Below, we highlight the key provisions of the AML Law 2024.![]()
1. The "risk-based approach" running throughout the AML Law 2024The "risk-based approach" is the prevailing standard in the international anti-money laundering regulatory field, and the Financial Action Task Force (FATF) explicitly addresses the "risk-based approach" in its publication the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation: The FATF Recommendations.Although the "risk-based approach" is not explicitly stated in the AML Law 2007, various regulatory provisions such as the Notice of the People's Bank of China on Further Strengthening the Anti-Money Laundering Work of Financial Institutions, the Opinions of the General Office of the State Council on Improving the Supervisory and Management System for Anti-Money Laundering, Counter-Terrorist Financing, and Anti-Tax Evasion, the Administrative Measures for Anti-Money Laundering and Counter-Terrorist Financing Supervision of Financial Institutions" and the Measures for Customer Due Diligence and the Retention of Customer Identity Information and Transaction Records by Financial Institutions all reflect the "risk-based approach" to some extent.The "risk-based approach" runs throughout the AML Law 2024, for example, it is explicitly required that relevant departments and financial institutions shall conduct money laundering risk assessments, and optimize resource allocation according to risk conditions.Following the "risk-based approach", the AML Law 2024 explicitly establishes the requirements that the “anti-money laundering measures” shall be compatible with the "money laundering risks", that says the obligations of anti-money laundering shall be performed so as to ensure normal financial services and smooth flow of funds, especially for the basic and necessary financial services relating to medical care, social security and public utility services that are legally enjoyed by clients, which shall not be influenced due to the anti-money laundering measures that may be incompatible with the risk level.The establishment of the "risk-based approach" marks the transition of China's anti-money laundering from formal compliance to substantial compliance.2. Expanding the scope of predicate offensesThe AML Law 2007 had provided seven types of predicate offenses for money laundering activities, although they were deleted from the draft amendments for the first review, the AML Law 2024 follows the AML Law 2007 by retaining the seven types of predicate offenses while adding a catch-all clause, that is, disguising or concealing the source or nature of proceeds and gains of “other crimes” are also part of money laundering activities. Such revision, on one hand, reveals the main types of money laundering activities and its hazards, highlighting the focus of anti-money laundering work, and, on the other hand, further expanding the scope of predicate offences of money laundering activities to provide accurate guidance for anti-money laundering work.3. Significantly increasing penalties, introducing the principle of "exemption from liabilities for fulfilling duties" for directors, supervisors, and responsible personsThe AML Law 2024 elaborates on the circumstances of penalties, introduce several new circumstances of penalties, and significantly enhance the severity of penalties. For example, the penalty for illegal acts related to internal management mechanisms, depending on the circumstances, has been upgraded from no fine to fines up to RMB200,000 or fines ranging from RMB200,000 to 2 million; for failure to conduct customer due diligence as required, or failure to report large/suspicious transactions, the maximum fine has been raised to RMB2 million; for illegal acts such as trading with unidentified customers, the maximum fine has been raised to RMB5 million; for violations resulting in money laundering consequences, the penalties vary according to the amount involved in the case, with the maximum penalty reaching twice the amount involved.In addition, for directors, supervisors, senior management personnel, or other directly responsible persons, the AML Law 2024 further increases the penalty amount, raising the maximum fine to RMB1 million. Nevertheless, the AML Law 2024 introduces the principle of "exemption from liabilities for fulfilling duties" which means that if the relevant responsible persons can prove that they have diligently fulfilled their duties to take anti-money laundering measures, they may be exempted from penalties. Correspondingly, keeping records of the performance of duties by directors, supervisors, and senior management will become one of the key focuses of future anti-money laundering work for financial institutions/specified non-financial institutions.4. Allowing sharing of anti-money laundering information within financial institutions or financial holding company groups, while strictly limited to the purpose of fulfilling anti-money laundering obligationsAccording to Article 37 of the AML Law 2024, financial institutions and financial holding companies that have branches or holdings in other financial institutions within or outside China shall establish a unified anti-money laundering system at the headquarters or group level. If they share anti-money laundering information within the company or among group members to fulfill anti-money laundering obligations, they shall specify the information sharing mechanism. Also, this provision underscores that the sharing of anti-money laundering information shall adhere to the laws and regulations relating to information protection and relevant information shall not be used for purposes other than anti-money laundering and counter-terrorism financing.This provision provides a legal basis for group members of financial institutions and financial holding companies to share anti-money laundering information, but it should be noted that, in addition to affirming the aforesaid basis, the AML Law 2024 incorporates several provisions to underscore the principles of "restricted use for AML purpose" and "confidentiality" with respect to data and personal information involved in anti-money laundering work, that is, the information shall only be shared for the purpose of performing anti-money laundering and counter-terrorism financing obligations and shall not be used for other purposes.5. Allowing domestic authorities to require foreign financial institutions to cooperate in anti-money laundering activities, clearly restricting providing information abroadIn recent years, the adoption of sanctions and the application of long-arm jurisdiction have been frequent. Articles 49 and 50 of the AML Law 2024 provide a legal basis for China to require foreign financial institutions to cooperate in providing information in anti-money laundering and counter-terrorism financing regulatory activities, while also echoing the provisions of the Data Security Law and the Personal Information Protection Law regarding the provision of data and personal information to foreign judicial or law enforcement agencies, clarifying that domestic financial institutions are not allowed to provide relevant information or take actions such as freezing funds/assets according to foreign countries or organizations’ instructions.6. Implementing special anti-money laundering preventive measures for high-risk countries and regions on the blacklistOne of the core innovations of the AML Law 2024 is the introduction of special anti-money laundering preventive measures targeting blacklisted entities.These blacklists include: (1) lists of terrorist organizations and individuals recognized by the national anti-terrorism agency and announced by its office; (2) lists of organizations and individuals subject to targeted financial sanctions identified in the notices of implementation of the UNSC’ resolutions issued by the Ministry of Foreign Affairs; and (3) lists of organizations and individuals identified by the anti-money laundering regulatory authority of the State Council as having significant money laundering risks and where failing to act could cause serious consequences. The special anti-money laundering preventive measures include immediately ceasing providing financial services or funds and assets to the listed entities and their agents, organizations and individuals instructed by them or directly or indirectly controlled by them, and immediately restricting related fund and asset transfers, etc.It is worth noting that the obligated parties to take special anti-money laundering preventive measures are not limited to financial institutions/specified non-financial institutions but also extend to "any entities and individuals", significantly increasing the anti-money laundering obligations for the general public.7. Clarifying the anti-money laundering obligations of specified non-financial institutionsIn its Mutual Evaluation Report on Anti-Money Laundering and Counter-Terrorist Financing in China published in April 2019, the FATF explicitly pointed out that China should improve the legal system for anti-money laundering and counter-terrorism financing of specified non-financial institutions, strengthen risk assessments for specified non-financial institutions, and enhance compliance and risk management levels for specified non-financial institutions. Although the regulatory authority has issued the Circular of the General Office of the People's Bank of China on Strengthening Anti-Money Laundering Regulation of Specified Non-Financial Institutions (the “Circular 120”), overall, the regulatory framework for anti-money laundering of specified non-financial institutions in China still needs to be improved.The AML Law 2024 clarifies the scope and anti-money laundering obligations of specified non-financial institution, and also the responsibilities of the regulatory authorities, filling the regulatory gaps in this area in China.Previously, Circular No. 120 defined the scope of specified non-financial institutions as including real estate development enterprises, real estate agencies, precious metal traders, precious metal exchanges, accounting firms, law firms, notary offices, and corporate service providers. Based on Circular No. 120, the AML Law 2024 deletes "corporate service providers", adds "gemstone spot traders" and sets the qualification of “more than the prescribed amount” for "precious metals dealers" and "gemstone spot traders", and redefines the scope of specified non-financial institutions by adopting an enumerative and catch-all approach. It is worth noting that the AML Law 2024 does not require specified non-financial institutions to fulfill relevant anti-money laundering obligations throughout their full operation cycle but only requires them to fulfill anti-money laundering obligations with reference to those of financial institutions and based on its industry characteristics, scale of operations and the money laundering risk conditions for specific businesses.![]()
1. Introducing the beneficial ownership registration system and issuing the special regulationsDespite the People's Bank of China (PBOC) having successively issued various regulations since 2017, including the Circular on Strengthening Customer Identification for Anti-money Laundering, Circular on Further Improving the Identification of Beneficial Owners, and Circular of the General Office of the People's Bank of China on Further Enhancing Anti-Money Laundering and Counter-Terrorism Financing Efforts, clarifying the requirement for financial institutions to conduct beneficial owner identification, discrepancies exist in the identification standards across different sectors due to varied interpretations of the concept of beneficial owners. The FATF highlighted issues such as inadequate transparency of beneficial ownership information in China in its Mutual Evaluation Report on Anti-Money Laundering and Counter-Terrorist Financing published in April 2019.The AML Law 2024 for the first time defines the beneficial owners at the level of law, i.e. natural persons who ultimately own or control legal persons or organizations, or who enjoy the ultimate benefits of legal persons or organizations. Pursuant to the AML Law 2024, the identification of beneficial owners will no longer be solely the obligation of financial institutions but will be jointly undertaken by market entities and financial institutions. Market entities are required to retain and promptly update beneficial ownership information, truthfully submit and promptly update such information to the registration authority as required. Failure to fulfill these obligations may result in administrative penalties such as corrective orders and fines. Financial institutions, on the other hand, are required to identify and take reasonable measures to verify the identity of customers and their beneficial owners.The PBOC, in conjunction with the State Administration for Market Regulation, promulgated the Administrative Measures for Beneficial Ownership Information (the “Measures”) on April 30, 2024, providing specific provisions for the filing and management of beneficial ownership information. Consistent with the AML Law 2024, the Measures stipulate that market entities should proactively file beneficial ownership information, financial institutions may access beneficial ownership information from the PBOC, and if financial institutions discover errors, inconsistencies, or incompleteness in the filed beneficial ownership information, they should promptly report such findings to the PBOC.2. Granting powers to Anti-Money Laundering CenterThe AML Law 2007 stipulated that the anti-money laundering authority of the State Council shall establish an anti-money laundering center, mainly responsible for receiving and analyzing reports on large-value and suspicious transactions. This anti-money laundering information center refers to the anti-money laundering monitoring and analysis center established under the PBOC. The AML Law 2024 further clarifies the legal status and scope of responsibilities of anti-money laundering monitoring and analysis center and grant it certain powers so that the anti-money laundering monitoring and analysis center may, in addition to receiving, analyzing, and transferring relevant reports, request institutions subject to anti-money laundering obligations to provide supplemental information relating to large-value and suspicious transactions.3. Refining requirements on the establishment of sound internal control systemsThe AML Law 2024 incorporates "establishing sound anti-money laundering internal control systems" into its first section and comprehensively refine relevant requirements.Specifically, the requirements include: (1) establishing sound anti-money laundering internal control systems and effectively implementing them; (2) establishing a specialized organ or designating an internal organ to be responsible for anti-money laundering work; (3) allocating personnel according to business scale and money laundering risks; (4) conducting anti-money laundering trainings and campaigns as required, etc.; (5) regularly assessing money laundering risks and formulating corresponding risk management systems and processes; (6) establishing sound information systems; (7) supervising the implementation of anti-money laundering internal control systems through internal or external audits.Overall, these requirements are not entirely new and are already present in regulations such as the Administrative Measures for Anti-Money Laundering and Counter-Terrorist Financing Supervision of Financial Institutions and the Measures for Customer Due Diligence and the Retention of Customer Identity Information and Transaction Records by Financial Institutions. The AML Law 2024 primarily refines the requirements for the establishment of internal control systems at the level of law, and the status of internal control systems may become a focus of the regulators during anti-money laundering inspections in the future.![]()
4. Replacing customer identity verification with customer due diligence, with no substantive overturning adjustmentOne significant change in the AML Law 2024 is the replacement of the term "customer identity verification" under the current anti-money laundering system in China with "customer due diligence" which aligns with the expression in the deferred Measures for Customer Due Diligence and the Retention of Customer Identity Information and Transaction Records by Financial Institutions." Although there is no substantive overturning adjustment, we understand that compared to customer identity verification, customer due diligence better reflects the substantive requirements of anti-money laundering regulation. Specifically, it implies that the background, business relationship, transaction purpose, and risk status of customers and their beneficial owners should be dynamically and continuously monitored, rather than statically identified based solely on identity information.5. Reiterating the feasibility of conducting KYC through third partiesArticle 32 of the AML Law 2024 reiterating that financial institutions may conduct customer due diligence through third parties and elevating the requirements for assessing the risk status and capacity of third parties to fulfill anti-money laundering obligations and the obligation of third parties to cooperate with financial institutions under the Measures for Customer Due Diligence and the Retention of Customer Identity Information and Transaction Records by Financial Institutions to the level of law.6. Providing several channels for verifying customer identity informationArticle 33 of the AML Law 2024 providing several channels for verifying customer identity information for financial institutions, including anti-money laundering administrative authorities, as well as departments of public security, market regulation, civil affairs, taxation, immigration management, and telecommunications management, etc., and anti-money laundering administrative authorities will coordinate and promote the provision of necessary facilities by the relevant departments for financial institutions’ KYC.7. Extending record retention period to ten yearsOne significant change in the AML Law 2024 concerning current anti-money laundering practices is the extension of the retention period for customer identity information and transaction records. It is required that customer identity information shall be retained after the end of the business relationship and customer transaction information shall be retained after the completion of the transaction, both for at least ten years. Following the entry into force of AML Law 2024, relevant institutions shall adjust their record retention arrangements promptly.8. Requiring financial institutions to establish anti-money laundering objection response mechanismsArticle 39 of the AML Law 2024 allows the public to raise objections to the anti-money laundering risk management measures taken by financial institutions and requires financial institutions to verify and respond in writing to objections within 15 days, and if the matter concerns clients’ essential financial services, it shall be handled in a timely manner. Also, the public is allowed to file complaints with the PBOC and even take legal action against financial institutions. For financial institutions, on the one hand, they should establish corresponding objection response mechanisms to actively address customer objections, on the other hand, financial institutions may face significant customer complaint pressure or even litigation pressure in the future, and how to balance anti-money laundering risk management with related pressures will become a new challenge for financial institutions' anti-money laundering work.汉坤律师事务所 资深律师
ye.li@hankunlaw.com | |
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