The New PRC Anti-Money Laundering Law And Ancillary Regulations

The General Assembly of the State Council of the PRC resolved to adopt the new PRC Anti- Money Laundering Law (AML Law) at its 24th meeting on 31 October 2006. The new AML Law will be effective from 1 January 2007. Subsequently, the People’s Bank of China (POBC) issued the Financial Institutions Anti-Money Laundering Regulations (effective from 1 January 2007) (AML Regulations) and the Financial Institutions Reporting and Monitoring Schemes for Large and Suspicious Transactions (effective from 1 March 2007) (AML Reporting Schemes) on 14 November 2006. This article will briefly describe the content of the new AML Law, the AML Regulations and the AML Reporting Schemes.

The AML Law is relatively short (37 articles) compared with corresponding laws overseas Nevertheless, it is an important milestone in the progress of the PRC towards fulfilling its obligations under the United Nations Convention on Corruption and other conventions, as well as towards becoming a member of the Financial Action Task Force on Money Laundering (FATF) which was established at the G7 Summit held in Paris in 1989.

The AML Law comprises seven Chapters. It describes AML policies in a broad sense. All article references below are to the AML Law unless otherwise stated.

The contents of the AML Law are:

The objective of the AML Law is to prevent money laundering activities, maintain good order in the financial system, and combat money laundering activities and relevant crimes (article 1).

The State Council Anti-Money Laundering Bureau is responsible for supervising the anti-money laundering work and co-ordinating their work with the judiciary and other relevant organisations in the PRC (article 4).

It is important to note that the PRC Customs Office is required to promptly report instances of individuals who carry cash or negotiable marketable securities of a value exceeding a prescribed amount (to be determined jointly by the State Council AML Supervisory Bureau and the Chief Customs Office) to the State Council Anti-Money Laundering Supervisory Bureau (article 12).

The AML Law requires relevant AML administrative departments to keep information obtained about the identities of relevant parties and details of transactions confidential during the investigation of suspected money laundering activities (article 5).

The term "Financial Institutions" is widely defined in article 34 to include the following organisations established under the relevant PRC laws and engaged in financial business:

• strategic banks;

• commercial banks;

• credit co-operation units;

• postal savings institutions;

• trust investment companies;

• securities companies;

• commodity broker firms;

• insurance companies; and

• other companies as confirmed and announced by the State Council AML Administrative Department

Financial Institutions are required to set up proper internal control systems and establish or designate a specific department to handle AML matters. Financial Institutions are required to know their clients and obtain proper documentation to substantiate the identities of their clients (articles 15 to 20).

Financial Institutions are required to comply with the reporting systems as prescribed by the State Council AML Administrative Department in respect of large and suspicious transactions (articles 20 and 21).

Financial Institutions are required to cooperate with the State Council AML Administrative Department during the AML investigation process if AML investigation officers (at least two) produce proper identity cards or an authorisation letter issued by the State Council AML Administrative Department or the first class Provincial Police Bureau (articles 23 to 25).

The State Council authorises the AML Administrative Department to enter into mutual AML cooperation agreements with overseas countries or AML international organisations.

The AML Law imposes administrative sanctions on enforcement, supervisory and administrative officers if they illegally carry out their investigation or asset-freezing duties; disclose national, commercial or private secrets acquired during the course of AML investigation; illegally impose penalties on target organisations or officers; or carry out any misconduct contrary to the AML Law (article 30).

Financial Institutions, their directors and responsible officers are liable for penalties, both monetary and non monetary, if they do not fulfil their legal obligations under the AML Law, e.g. entering into transactions with suspicious individuals or opening accounts for them in a false name; failure to maintain proper records or report suspicious transactions, etc. (articles 31 to 33).

The AML Law is silent on this matter. However, the "People’s Bank of China Law" provides that PBOC is the authority in charge of anti-money laundering issues in the financial industry. The PBOC website has also confirmed that PBOC is the administrative department of the State Council in charge of anti-money laundering matters.

The PBOC issued the AML Regulations and AML Reporting Schemes on 14 November 2006. These list the transactions that Financial Institutions must report. The definition of "Financial Institutions" in the AML Regulations is the same as that under the AML Law. Effective from 1 January 2007, the AML Regulations supersede the old anti-money laundering regulations issued by PBOC on 3 January 2003. Article 5 of the AML Regulations empowers PBOC to assume the following supervisory duties over antimony laundering matters:

• formulation of anti-money laundering regulations for financial institutions with or without the involvement of the PRC Banking Supervisory Committee, PRC Securities and Exchanges Committee, and PRC Insurance Supervisory Committee;

• monitoring of anti-money laundering matters in both RMB and foreign currencies;

• supervision and review of the status of Financial Institutions’ compliance with anti-money laundering obligations;

• investigation of suspicious transactions within the ambit of PBOC;

• reporting of suspected money laundering crimes to the investigative departments;

• co-operation and exchange of information about AML matters with overseas AML institutions;

• other relevant duties as prescribed by the PRC State Council.

The AML Reporting Schemes require Financial Institutions to report the following four types of large value transactions to the AML Monitoring Centre which is accountable to PBOC:

1. Daily cash payments, receipts, exchange, or remittance, either individually or cumulatively, of sums more than RMB200,000 or US$10,000 equivalent;
2. Daily inter-bank transfers between the accounts of legal entities, other organisations or individual commercial/industrial entities, either individually or cumulatively, of sums more than RMB2 million or US$200,000;
3. Daily inter-bank transfers between the accounts of individuals, individual and legal entities, other organisations and individual commercial/industrial entities, either individually or cumulatively, of sums more than RMB500,000 or US$100,000;
4. Daily cross border transactions, either individually or cumulatively, of sums more than US$10,000 where one of the parties to the transactions is an individual.

When Financial Institutions temporarily freeze certain funds that are being investigated by investigative departments in accordance with provisional instructions from PBOC, the relevant funds must be unfrozen immediately if no notice to continue to freeze the funds is received from the investigative department within 48 hours from the time when the notice of temporary freezing of funds was given (Article 23 of the AML Regulations).

Financial Institutions and their officers are legally protected by Article 16 of the AML Regulations for reporting large transactions to PBOC. The AML Regulations confer wide investigative powers on PBOC in fulfilling its duties as the AML Administrative Department. At the same time, there are articles in the AML Regulations to protect the rights of the suspects.

The new PRC AML Law and AML Regulations show the commitment of the PRC Government to join with international AML organisations in combating cross-border money laundering transactions, criminal activities and terrorism. It is good to see that the new law provides more descriptive regulations and guidance. It is expected that the PRC government will continue to close the loopholes in AML issues with reference to international experiences.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.