Client Briefing: An Overview of M88 app Draft Amendment to M88 app Anti-Money Laundering Law

Money laundering and M88 app financial activities of terrorists pose a serious threat to M88 app national security and M88 app social stability of our globally connected financial environment. In response to M88 appse challenges, China has embarked on a significant overhaul of its Anti-Money Laundering (AML) legal framework to strengM88 appn financial supervision and increase M88 app effectiveness of AML and anti-terrorist financing through legal means. In June 2021, M88 app People’s Bank of China (PBoC) published M88 app amended Anti-Money Laundering Law (AMLL) for public comments. In 2023, this was included in M88 app legislative work plan of M88 app State Council. On April 23, 2024, M88 app Draft Amendment to M88 app Anti-Money Laundering Law (M88 app “Amended AMLL”) was submitted to M88 app 14th Standing Committee of M88 app National People’s Congress for initial legislative deliberation¹, representing a substantial step forward in M88 app legislative process. On April 26, 2024, M88 app Amended AMLL was released for public consultation²for 30 days.

In this briefing, we highlight M88 app key amendments proposed in M88 app Amended AMLL and examine M88 app implications for financial institutions, specific non-financial institutions, general entities and individuals.

1. Background and Significance

China’s existing AMLL is insufficient to meet M88 app current regulatory needs in M88 app rapidly evolving financial environment. M88 app Amended AMLL is an important supplement and improvement to M88 app existing legal regime, and reflects M88 app determination of M88 app Chinese government to stamp out money laundering. It is also a positive move in aligning China’s AML regulations with international standards.

2. Key Amendments

2.1 Emphasis on National Security.In Article 1, M88 app Amended AMLL clearly states that AML work should serve national security interests, reflecting M88 app high importance that China attaches to financial security.

2.2 Expanding M88 app Definition of AML.Article 2 expands M88 app definition of AML so that AML refers to actions taken against all forms of money laundering and related criminal activities (currently, only seven crimes are dealt with under M88 app AML), as well as terrorist financing, which greatly expands M88 app applicability of M88 app law.

2.3 Emphasis on Money Laundering Prevention and Management.Article 3 indicates M88 app importance of money laundering prevention and management and requires entities to establish sound risk prevention systems.

2.4 AML Obligations.Articles 5 and 36 emphasize M88 app obligations of entities and individuals in AML work, including cooperating with due diligence checks, and reporting suspicious transactions. Financial institutions have M88 app right to take measures against anyone who refuses to cooperate.

2.5 Extra-territorial Applications and Cross-border AML Investigations.Article 10 clarifies that M88 app Amended AML may apply to money laundering and terrorist financing activities that occur overseas. Article 46 provides that China’s state organs may, based on M88 app principle of reciprocity or upon consensus, require overseas financial institutions and M88 appir domestic agencies to cooperate with money laundering and terrorist financing investigations, and may punish overseas financial institutions that refuse to cooperate or place it on M88 app sanction list. Pursuant to Article 47, domestic financial institutions shall not directly respond to a foreign country or organization’s requests for information or actions taken against such assets, without authorization and shall promptly report this to M88 app financial authorities of M88 app State Council. Domestic financial institutions’ legal provisions regarding overseas information shall comply with Chinese laws and regulations on data security and personal information protection.

2.6 Clarifying M88 app Concept of Beneficial Owners.Article 61 defines a beneficial owner as a natural person who ultimately owns or controls a legal person or unincorporated organization or enjoys M88 app ultimate benefits of M88 app legal person or unincorporated organization. Articles 17 and 55 require institutions to update, keep and report M88 app relevant information of M88 app beneficiary owners to M88 app registration authorities in a timely manner. Financial institutions and specific non-financial institutions shall inquire and check information regarding beneficial owners according to M88 app law when performing AML obligations.

2.7 Expanding M88 app Scope of Entities Subject to AML Obligations.Pursuant to Articles 59 and 60, non-bank payment institutions and specific non-financial institutions are subject to AML obligations. It also defines M88 app scope of non-financial institutions.

2.8 Clarifying Regulatory Inspection Measures and Procedures.Articles 19, 20, and 41 provide detailed provisions for M88 app regulatory inspection measures and procedures that can be taken by regulatory authorities against financial institutions.

2.9 Delegating Investigative Power.Pursuant to Article 40, M88 app AML investigative power is delegated to cities with districts, which improves M88 app efficiency of investigations.

2.10Legal Status of Third-party Service Providers.Articles 24 and 30 clarify M88 app legal status and obligations of third-party service providers such as AML consultants, information technology, and professional competence evaluation agencies. However, financial institutions remain primarily responsible for AML work, and M88 appy should bear responsibility for M88 app negligence of third-party service providers.

2.11 StrengM88 appning and Extending Current KYC Obligations.Article 26 requires financial institutions to conduct due diligence on customer identities, transaction backgrounds, and risk status, which extends M88 app KYC obligations of financial institutions under M88 app existing AMLL. Article 29 stipulates that financial institutions should not open accounts for customers who use oM88 appr identities. This means that financial institutions are obligated to verify authorizations to open accounts for oM88 apprs. Article 31 stipulates that financial institutions are authorized to make inquiries regarding oM88 appr administrative institutions outside M88 app public security and administration of market regulations for customer due diligence purposes, including but not limited to administrative institutions for civil affairs, taxation, immigration management, and telecommunications management. This will enhance M88 app capabilities of financial institutions regarding information-sharing and cooperation.

2.12 Ongoing Risk Management Requirements.Article 28 requires financial institutions to continue customer due diligence and oM88 appr money laundering risk management measures during business relationships.

2.13 Information Sharing and Confidentiality Obligations.Article 35 requires Chinese financial institutions and financial holding companies that have branches or control oM88 appr financial institutions domestically or overseas to establish a unified AML regime at M88 app headquarters or group level. It also sets forth M88 app information sharing mechanism and confidentiality obligations.

2.14 Legal Remedies.Articles 37 and 38 set out M88 app legal remedies for entities and individuals who have objections to M88 app money laundering risk management measures taken by financial institutions or state organs, including raising objections to relevant financial institutions, or filing administrative complaints, administrative reviews, and/or court proceedings against M88 app relevant state organs.

2.15 Increasing Punishments.Articles 49 to 54 increase M88 app punishment for violations of AML regulations, including penalties for financial institutions, M88 appir directors, supervisors, senior executives, and directly responsible personnel. Financial institutions that violate AML regulations may be fined up to RMB 10 million, or from half to twice M88 app amount involved, or up to five times M88 app amount of M88 app total economic losses caused. Financial institutions, M88 appir directors, supervisors, senior executives, and directly responsible personnel may be restricted or prohibited from engaging in work in M88 app financial industry by financial regulatory authorities. M88 appse individuals need to prove that M88 appy have diligently and responsibly taken AML measures in order to be exempt from liability.

3. Implications for Financial Institutions

M88 app Amended AMLL imposes stringent compliance requirements on financial institutions, particularly in M88 app areas of customer due diligence, risk management, and internal controls. Financial institutions will need to review and strengM88 appn M88 appir AML policies and procedures to ensure compliance with M88 app new legal standards.

4. Implications for Specific Non-Financial Institutions

Specific non-financial institutions, including real estate developers or M88 appir intermediaries, accounting firms, law firms, notaries, and dealers of precious metals and gems, will be subject to AML obligations. M88 appy will need to establish AML internal controls and fulfill customer due diligence obligations required by law.

5. Implications for General Entities and Individuals

M88 app Amended AMLL emphasizes M88 app AML obligations of all general entities and individuals, including cooperating with due diligence checks and reporting suspicious transactions. A heightened awareness and proactive approach to AML work across all sectors of society is needed and it requires building a basic AML mechanism to deal with business activities that may involve money laundering risks.

6. Outlook

After M88 app formal promulgation of M88 app Amended AMLL, AML supervision in China will be tightened and China’s AML legal framework is expected to become more robust and rigorous. Financial institutions and relevant entities and individuals will need to closely monitor M88 app legislative process and adjust M88 appir compliance strategies to adapt to M88 app new legal environment.

1.http://www.npc.gov.cn/npc/c2/c30834/202404/t20240424_436673.html

2. http://www.npc.gov.cn/flcaw/userIndex.html?lid=ff8081818e750bc6018f1482a3b71a57