Anti-money Laundering – China
With the increasing use of the Chinese Yuan in cross-border transactions, and internet financing, Chinese authorities are having to deal with enhanced risks of money laundering and terrorist financing.
China does not have a standalone piece of legislation governing money laundering risks. The legislative framework is made up of different statutes, regulations and guidelines as may from time to time be issued by the Chinese legislators and relevant authorities, including the following:-
- Criminal Law of the People’s Republic of China; and
- Anti-money Laundering Law of the People’s Republic of China.
In summary, a person commits an offence if he is aware that the relevant property is the income of or proceeds generated from any drug-related crime, organised crime, terrorism, smuggling, corruption or bribery, financial crimes, and disguises or conceals the origin or nature thereof. An offence may also be committed if the income or proceeds are generated from crimes other than those identified above if a person knowingly harbours, transfers, purchases or sells such property as an agent or disguises or conceals the same by any other means.
Specific legislation has been enacted for financial institutions which include:-
- The Rules for Anti-money Laundering by Financial Institutions, issued by the People’s Bank of China and effective as of 1 January 2007;
- Administrative Measures for the Financial Institutions’ Report of Large-sum Transactions and Suspicious Transactions, issued by the People’s Bank of China and effective as of 1 March 2007;
- Administrative Measures for Financial Institutions’ Report of Transactions Suspected of Financing for Terrorist Purposes, issued by the People’s Bank of China and effective as of 11 June 2007; and
- Measures on the Administration of Client Identity Identification and Materials and Transaction Recording of Financial Institutions, jointly issued by the People’s Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission, and effective as of 1 August 2007.
The effect of these laws and regulations is to bring Chinese laws broadly in line with international best practice. Financial institutions, such as banks, trust investment companies, securities companies, futures brokerage companies, insurance companies etc, are required to:-
- establish an internal control system and specific department for anti-money laundering;
- establish a Know Your Client system;
- establish a system for maintaining clients’ identity materials and transactional records;
- report large-sum transactions and suspicious transactions to the China Anti-money Laundering Monitoring & Analysis Centre established by the People’s Bank of China; and
- offer anti-money laundering training to its staff.
Penalties for money laundering criminal offences can be imprisonment of up to 10 years and fines up to a sum equivalent to 20% of the money laundered in addition to confiscation of crime proceeds.
Non-compliance of anti-money laundering obligations by financial institutions may trigger penalties of (a) fines of up to RMB 5million against such institutions, (b) fines of up to RMB500,000 against the directors/managers of such institutions or the person held directly responsible, (c) suspension of business or revocation of business licenses, and (d) directors/managers of such institutions or the person held directly responsible being disqualified or prohibited from engaging in any financial work.