New Anti-Money Laundering Law: A New Journey to Financial Compliance

In today’s complex and volatile financial environment, anti-money laundering has become a key safeguard for maintaining the stability and security of the financial system.

On 8 November 2024, the 12th Meeting of the Standing Committee of the 14th National People’s Congress passed the newly amended Anti-Money Laundering Law (the “Law”) with a high vote. This Law is like a lighthouse pointing out the direction of the financial industry in the wave of anti-money laundering. It will come into force on 1 January 2025, marking that China’s anti-money laundering work is about to enter a new stage.

The newly amended AML Law has been substantially updated in terms of the definition of money laundering crimes, AML supervisory and management functions, AML obligations of financial institutions, AML penalties, and other dimensions.

Improve the regulatory system and mechanism

1. Clear division of responsibilities

• The administrative department in charge of anti-money laundering under the State Council is responsible for the supervision and administration of anti-money laundering throughout the country, and its dispatched agencies supervise and inspect within the scope of legal authorization.
• The relevant financial administration department of the State Council and the competent department of the relevant specific non-financial institution shall, within the scope of their respective duties, perform the supervision and administration of anti-money laundering.
• The competent department of the relevant specific non-financial institution may request the assistance of the administrative department in charge of anti-money laundering according to the needs, and the relevant departments shall strengthen cooperation.

• Risk Prevention and Control and Supervision

• The establishment of an anti-money laundering monitoring and analysis organization shall require it to improve the monitoring and analysis system, raise the level of monitoring and analysis, and provide feedback on the use of suspicious transaction reports in accordance with the regulations.
• The administrative department in charge of anti-money laundering under the State Council is responsible for carrying out anti-money laundering fund monitoring, assessing the risk of money laundering in the country and industry, monitoring the risk of new types of money laundering, strengthening anti-money laundering technological innovation, and clarifying supervisory and inspection measures and procedures.

• Other aspects

• Improve the information exchange mechanism between the administrative department in charge of anti-money laundering under the State Council and the relevant state authorities and make institutional arrangements for the transfer of money laundering-related clues and evidential materials, and feedback on the results of processing.
• Establish a system for the management and utilization of information on beneficial owners.

Refine the provisions on anti-money laundering obligations

1. Obligations of financial institutions
2. Establish and improve the internal control system for anti-money laundering in accordance with the law.
3. A customer due diligence system is established based on the identification system, and the applicable conditions and procedures are clearly defined.
4. Money laundering risk management measures are limited to the scope of business authority, reflecting the principles of reasonableness and appropriateness, and attention is paid to assessing the money laundering risks brought about by new technologies and the like.

• Obligations of Specific Non-Financial Institutions

When engaging in specific businesses, they should fulfill their anti-money laundering obligations regarding the provisions of financial institutions.

• Requirements for companies and individuals

Not to engage in money laundering activities or provide facilities, cooperate with customer due diligence, and take special preventive measures for specific targets.

• System Improvement:

Improve the anti-money laundering investigation system and relevant provisions on international cooperation in anti-money laundering.

Further improve the legal liability

In view of the fact that the subject of anti-money laundering obligations involves many industries, and the scale of operation varies greatly, the Law, while moderately increasing the cost of violating the law, has set up different grades of legal liabilities for financial institutions as well as responsible persons for the relevant violations of the law, in accordance with the principle of equalization of penalties and excesses.

At the same time, given the nature of specific non-financial institutions and their actual ability to fulfill anti-money-laundering obligations, the Law has set up more scientific and reasonable standards of specific penalties for their illegal acts, which are different from those of financial institutions; and given the “underground moneylenders” and other illegal channels for money-laundering, it has further clarified the connection with the criminal law. It is stipulated that those who utilize financial institutions and specific non-financial institutions to commit money-laundering crimes or do so through illegal channels shall be held criminally liable in accordance with the law.

In addition, the Law also authorizes the competent administrative department of the State Council in charge of anti-money-laundering to consolidate all aspects of the situation and to formulate relevant administrative penalty discretionary benchmarks.

Safeguard the legitimate rights and interests of companies and individuals

This amendment further balances the relationship between anti-money-laundering work and the protection of the normal financial activities of companies and individuals.

The Law has added provisions in the General Provisions section that anti-money-laundering work should be carried out in accordance with the law to ensure that relevant measures are compatible with the risk of money laundering, to safeguard normal financial services and the smooth flow of funds, and to safeguard the lawful rights and interests of companies and individuals as the basic work requirements for anti-money-laundering work. At the same time, additional provisions, financial institutions to carry out customer due diligence, should be based on the characteristics of the customer and the nature of the transaction activities, the risk situation; for the lower risk of money laundering involved in the customer due diligence should be simplified under the circumstances.

The Law also clarifies the conditions for financial institutions to adopt risk management measures for money laundering, stipulating that they shall not adopt measures that are incompatible with the risk status of money laundering and that they shall safeguard the basic and necessary financial services related to medical care, social security, public utility services and other services enjoyed by their customers in accordance with the law.

Strengthening data security and personal information protection is also a key point of this amendment. The Law increases the protection of personal privacy based on the existing AML Law which strictly regulates the provisions on the use of AML information, and explicitly requires that institutions providing AML services and their staff shall properly handle data and information obtained as a result of the provision of services in accordance with the law to ensure the security of the data and information; adds the provision that the sharing of AML information within a company and among group members shall comply with legal provisions on the protection of information; adds the provision that the sharing of AML information within a company and among group members shall comply with the relevant information protection; and adding provisions on the legal responsibility of staff members of relevant State organs for disclosing anti-money-laundering information.

For more observations, please keep on following us.