BEIJING REVAMPS LEGISLATION TO FIGHT MONEY LAUNDERING

Revised law will address cryptocurrency-related risks and comes ahead of review by global body

China’s lawmakers are revamping the country’s law on money laundering to bolster a crackdown on illegal activities and address cryptocurrency-related risks, a measure that will also align its practices with global standards as it faces stricter international scrutiny.

A draft revision of the law is now under review at the ongoing session of the Standing Committee of the National People’s Congress, China’s top legislative body when the full congress is not in session.

“It’s necessary to root our anti-money-laundering law in the actual needs of our country and integrate into new [international] demands,” said Pan Gongsheng, governor of the People’s Bank of China, according to state news agency Xinhua. “[We need to] seize the moment to improve the law.”

The revision is likely to include scrutiny of digital assets – including cryptocurrencies which are banned on the mainland – and non-financial institutions which could have previously allowed for loopholes in the system, according to analysts.

“These changes will expand the coverage of money laundering channels [to include] digital currencies and bitcoin, as well as the [medium of laundering through] non-financial institutions, which enhance the safety of China’s financial system and national financial security,” said Dong Jinyue, principal economist at BBVA Research.

Hong Kong’s position as the cryptocurrency hub in Asia should also be protected, Dong said.

“As long as cryptocurrency is not used as a way to launder money or [support] other illegal activities in Hong Kong, its position should be sustained,” he said. “The legal usage and development of cryptocurrency in Hong Kong will be protected, rather than being hit by the law.”

The planned revision comes in advance of a fifth review by the Financial Action Task Force, an international organisation that sets standards to combat money laundering and the financing of terrorism.

China’s anti-moneylaundering law went into effect in 2007, the same year it joined the task force. The intergovernmental agency was founded in 1989 on the initiative of the Group of Seven countries to coordinate efforts to fight money laundering. In 2001, its mandate was expanded to include the funding of terrorism.

China narrowly passed the fourth round of assessments in 2019. The review stated some of the country’s financial institutions had weak obligations in the control of money laundering, and the system lacked transparency regarding legal arrangements.

China’s central bank had previously warned the risk of money laundering was high in the country as well as Southeast Asia, and emphasised the need to address weak points in compliance management and improve regulatory technology to handle the complex nature of financial crimes and the burgeoning fintech sector.

The central bank released a draft for public feedback in 2021, when improving the law was listed as one of the major tasks for the top legislature to tackle.

The draft version of the anti-money-laundering law comprises 62 articles in seven chapters, and will require financial institutions to establish and enhance internal control mechanisms, carry out due diligence with customers and save their identity information and transaction records.

A new organ will be set up to monitor and analyse the transfer of “large sums” and “suspicious” transactions for signs of illicit activity, according to the draft.

Chen Zhiwu, chair professor of finance at the University of Hong Kong, said the enforcement of anti-money-laundering rules was already tough on the mainland, with domestic financial institutions stepping up their reporting to the central bank in recent years to comply with recommendations from the Financial Action Task Force.

The new iteration of the law would also bolster the supervision and management of anti-moneylaundering operations, advance provisions of obligations and clarify the scope of non-financial institutions that must comply, Xinhua said.

Pan noted the revision was based on a “risk-centric” principle and protected “national security”, coordinated “development and safety” and would “perfect” the anti-money-laundering system.

In a report released last year, the consultancy Oliver Wyman said the fifth-round assessment by the Financial Action Task Force would focus on “effectiveness” and “results”. “Although the fourth examination has affirmed certain work from China, like new technology, internal control, telegraphic transfer, non-profit organisations and financing of terrorism and proliferation, the fifth review is still going to be challenging to the country and its financial industry,” said Qian Hang, a partner at Oliver Wyman.