China Proposes New Amendments in Anti-Money Laundering Law

China is on the eve of crucial reforms in its landscape of financial regulatory face. On September 10, 2024, the National People’s Congress (NPC) Standing Committee received the proposed modified Anti-Money Laundering (AML) law for a second reading.

It marks a new milestone in the fight of the country against money laundering and terrorist financing, whereby changes may reflect the first substantial update since the original law came into effect 17 years ago.

Key Amendments to the AML Law

The amendments will modernize the laws of China to become more contemporary and aligned with world standards, all within the premise of satisfying the extraordinary characteristics of changing financial crimes.

The following are some of the most notable features:

1. Emphasis on National Defence: As the amended AML Law makes evident for the first time, AML operations must advance both the national interest and national sovereignty. This means that the government’s emphasis on financial security pertains to national security.
2. Definition of Money Laundering: The definition of money laundering will expand to no longer be described strictly for the classic crimes but anything that hides the fruits of any illegitimate activities, including terrorist financing.
3. Increased Compliance Obligations of Non-Financial Institutions: The previous AML obligations largely targeted financial institutions. The new amendments expand the requirements to certain non-financial institutions, which are brought within the regulatory stranglehold and include real estate developers, accounting firms, and law firms.
4. General Protection of Personal Information: The draft law substantially strengthens the safeguards of personal information that may be collected in connection with AML compliance. It is treated as confidential and not disclosed unless there is a good, compelling reason for doing so, such as an order of a court.
5. Extended Jurisdiction: Amendments to extend jurisdiction over overseas money laundering and terrorist financing activities perpetrated against China’s Sovereignty. The amendment will bring jurisdiction over money laundering and terrorist financing overseas that threatens the sovereignty of China itself, and permit active investigation and enforcement action against entities abroad.
6. Focus on Beneficial Ownership: A new law will require the establishment of a system for managing information on the beneficial owners of legal persons. Financial institutions will have to scrutinize this information as part of their compliance obligations.
7. Strengthened Sanctions Against Non-compliance: The new amendments have major penalties against the violators. All malpractices and leniencies will be discouraged, and it will practice unwavering compliance with AML/KYC norms.

Rationale Behind the Amendments

The People’s Bank of China Governor, Pan Gongsheng, claims that significant advancements have been achieved in China’s current AML framework.

However, there are still a number of significant flaws, including the ineffective information exchange and supervisory systems, as well as the imperfect AML compliance of certain financial institutions.

The revised law will target those gaps as the risks from money laundering have continued to increase with corruption, cross-border gambling, and other underground bank activities.

Challenges Ahead

For foreign financial institutions doing business in China, the changes will be challenging. This is because the new law will see them ensure that both local and international AML standards are adhered to when they implement amended regulations in compliance.

Some of the current overseas parent companies’ practices will create conflict in sharing customer identity information or blocking transactions without necessarily informing Chinese authorities before doing so.

Extending the concerns for national security will expand AML enforcement issues way beyond the traditional issue to touch all other businesses and transactions in a given economy.

Looking Forward

An important update to China’s AML Law will mark an important stride forward in better equipping China to confront financial crimes, including ones relating to new technologies and digital currencies.

Across the process of legislation, stakeholders within the financial sector can expect changes and be prepared for enhanced regulatory oversight as a result of the amendments.

At this stage, there is no clear indication of what the effects of this amended AML Law are going to be fully.

There will be further amendments to the AML regulations, such as the reporting requirement for suspicious transactions.