Blog: China to Broaden Scope of AML Law, Raise Penalties – Regulation Asia

The draft law brings into scope non-bank financial institutions as well as property developers, accounting firms and precious metal dealers.

The PBOC (People’s Bank of China) has issued a revised draft AML law for consultation, expanding the scope of the current law and raises penalties for violations, among other changes.

The PBOC said the new law is aimed at curbing money laundering, terrorist financing and other illegal activities, safeguarding national security and financial order, and addressing gaps and deficiencies of the current AML law, which was last updated more than 14 years ago.

The deficiencies identified include the current narrow scope of money laundering predicate crimes, the lack of AML requirements for individuals and non-financial industries, gaps in the beneficial owner system, and regulatory penalties that are considered not high enough.

“It is clear that anti-money laundering includes not only preventing money laundering crimes, but also curbing illegal activities related to money laundering,” the PBOC said.

The law brings into scope non-bank payment firms, online microlenders, asset management firms and financial leasing companies, as well as non-financial institutions such as property developers, accounting firms and precious metal exchanges.

Like financial institutions such as banks, these firms would be required to establish risk management systems, conduct customer due diligence, implement AML controls, and monitor clients to prevent money laundering risk.

The law also raises penalties for offences such as failures to conduct due diligence on clients and report large or suspicious transactions. The penalties will increase to a maximum CNY 2 million, up from CNY 500,000 previously.

Directors, supervisors, senior managers or other individuals directly responsible for such offences would receive a warning and a fine of between CNY 20,000 and CNY 200,000, on top of the confiscation of illegal gains.

For the offence of helping to conceal criminal gains or terrorist financing, the maximum penalty is raised to CNY 10 million (up from CNY 5 million previously), or 10 percent of illegal gains, whichever is higher.

For individuals responsible, fines of between CNY 200,000 and CNY 1 million can be imposed, on top of the confiscation of illegal gains.

If the illegal act is not discovered within five years, no administrative penalty shall be imposed.

The law also seeks to improve enforcement against terrorist financing, specifying that regulated entities and individuals shall “immediately take special precautionary measures” on terrorist organisations identified by China’s National Counter-Terrorism Agency.

“This law shall apply to the prevention and containment of terrorist financing activities,” the draft states.

The law requires foreign financial institutions to cooperate with money laundering and terrorist financing investigations. However, Chinese financial institutions are not allowed to comply with foreign orders to submit information or seize, freeze or transfer onshore assets.

“If institutions believe it necessary to respond to such requests, they need to ask for permission from the Chinese government and notify foreign authorities to negotiate with their Chinese counterparts,” the law says.

Where foreign authorities require Chinese financial institutions to submit summary compliance information, business information, or other reasonable requests, Chinese financial institutions may take appropriate actions as required, but this must be reported to domestic regulators.

The submission of such information requires prior approval if they may affect China’s national sovereignty, security and interests, or the interests of its citizens, legal persons, or other organisations.

Firms that submit information to foreign regulators without reporting or approval can be fined between CNY 200,000 and CNY 5 million. Individuals can be fine between CNY 20,000 and CNY 1 million.

The law also enables China to introduce its own list of countries and regions where the risk of money laundering and terrorist financing is high.

In addition, it provides a formal definition of “beneficial owner”, sets out the identification information of the beneficial owner, and enhances the obligations of financial institutions to have internal controls and customer due diligence processes in place.

The proposed law is consistent with the draft rules on customer due diligence for financial institutions that were issued for consultation in March.

The consultation, available here, is open for comment until 30 June.

The draft law is expected to be passed by the Standing Committee of the NPC (National People’s Congress) later this year.

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