China's new anti-money laundering rules: What you need to know

China has recently issued a draft revision of its anti-money laundering law, which aims to strengthen the supervision and regulation of financial institutions and other entities involved in money laundering activities. The draft revision, which was published for public consultation on January 5, 2024, introduces several major changes to the current law, which was enacted in 2006 and amended in 2017. 

Here are some of the key points of the draft revision and their implications for businesses and individuals.

• The draft revision expands the scope of anti-money laundering obligations to cover not only financial institutions, but also non-financial institutions such as real estate agents, lawyers, accountants, trust companies, precious metals dealers, and internet platforms that provide financial services. These non-financial institutions will be required to establish internal anti-money laundering systems, conduct customer due diligence, report suspicious transactions, and cooperate with anti-money laundering authorities.
• The draft revision also increases the penalties for violating the anti-money laundering law, ranging from fines to revocation of business licenses, suspension of operations, or even criminal liability. The maximum fine for financial institutions will be raised from 5 million yuan ($780,000) to 10 million yuan ($1.56 million), while the maximum fine for non-financial institutions will be set at 5 million yuan ($780,000). In addition, individuals who are directly responsible for anti-money laundering violations will face fines of up to 500,000 yuan ($78,000) or imprisonment of up to three years.
• The draft revision also enhances the information sharing and cooperation mechanisms among anti-money laundering authorities, financial regulators, and law enforcement agencies. The draft revision stipulates that the People's Bank of China (PBOC), which is the main anti-money laundering authority in China, will establish a national anti-money laundering coordination mechanism with other relevant departments. The PBOC will also be authorized to exchange anti-money laundering information with foreign counterparts and international organizations, subject to certain conditions and safeguards.
• The draft revision also reflects China's efforts to align its anti-money laundering regime with international standards and best practices. The draft revision incorporates some of the recommendations of the Financial Action Task Force (FATF), which is the global watchdog for combating money laundering and terrorist financing. For example, the draft revision adopts a risk-based approach to anti-money laundering supervision and regulation, which requires financial institutions and non-financial institutions to assess and mitigate their own money laundering risks. The draft revision also clarifies the definition of money laundering and its predicate offenses, which include tax evasion, corruption, bribery, fraud, smuggling, and illegal fund-raising.

The draft revision of China's anti-money laundering law is expected to have a significant impact on the compliance obligations and operational costs of financial institutions and non-financial institutions in China. Businesses and individuals should pay close attention to the development of the draft revision and prepare for the potential changes in the anti-money laundering landscape in China.