With the adoption of the Anti-Money Laundering Law of the People’s Republic of China (hereinafter referred to as AML Law) by the National People's Congress Standing Committee on October 31, 2006, China's AML work has operated under the rule of law for 10 years. Over this decade, influenced by international politics and economic factors, profound and complex changes have taken place regarding international and domestic anti-money laundering and the combating of terrorist financing (hereinafter referred to as AML/CFT). China's AML work has withstood various tests, fulfilling the role of preventing and combating money-laundering activities and becoming a guardian of China's financial security and economic and social stability.
Compared with most developed countries and emerging economies, China's AML work as a whole began late. Nonetheless, it commenced at a higher standard with stricter requirements, greater efforts, and more rapid and effective development, demonstrating strong late-mover advantages. Over the past decade, China's AML work has gradually formed an AML supervisory and management system with a well-established legal system, sound mechanisms, and smooth operation. Each type of financial and non-banking payment institution (hereinafter referred to as "regulated institutions") has effectively fulfilled implementation of AML legal obligations, and has significantly improved awareness of and ability to address money laundering risks. This has provided strong financial intelligence support to prevent and combat money laundering and predicate offenses. As the most authoritative international organization on AML/CFT, the Financial Action Task Force (hereinafter referred to as FATF) is the global standard setter and evaluator of AML. The AML/CFT mutual evaluation method developed by the FATF is recognized by the international community as an assessment system on whether an individual country’s AML/CFT work is in compliance with internationally accepted standards, and whether it is effective. In February 2012, China passed the FATF third round of AML/CFT mutual assessment, becoming the 13th country to pass such an assessment among more than 30 FATF members.
The AML Legal System Based on National Conditions and International Standards Compliance
China has been committed to strengthening the AML legal system. With a comprehensive legal framework for AML largely in place, it is engaged in a program of continuous improvement.
In regards to criminal legislation on AML, China decisively criminalized money-laundering in the Criminal Law of the People’s Republic of China (1997 Revision). Since then, in order to meet the requirements of combating money-laundering and terrorist crimes, China has amended relevant provisions five times and gradually improved the scope of money-laundering and terrorist financing (hereinafter referred to as TF) crimes. The Supreme People's Court issued three targeted judicial interpretations which further defined application of the law on trials of money-laundering cases and improved the AML criminal legal system. China has been approved to join the "United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances", the “United Nations Convention against Transnational Organized Crime", the “United Nations Convention against Corruption" and the "International Convention for the Suppression of the Financing of Terrorism", etc., and China’s criminal legislation for combating money laundering and terrorism offenses has always been consistent with the requirements of international standards.
In regards to the development of the money-laundering prevention system, since the introduction of AML Law, the People's Bank of China (hereinafter referred to as PBC) either solely or in conjunction with other financial regulators, such as the China Banking Regulatory Commission, China Securities Regulatory Commission, China Insurance Regulatory Commission, has developed and released a series of AML regulations such as "Rules for Anti-money Laundering by Financial Institutions", “Administrative Rules for the Reporting of Large-Value and Suspicious Transactions by Financial Institutions", “Administrative Rules for the Reporting of Transactions Suspected of Financing for Terrorist Purposes by Financial Institutions", "Measures on the Administration of Customer Identification, Customer Identity Data and Transaction Recording of Financial Institutions", and "Administrative Measures on Anti-money Laundering and Combating the Financing of Terrorism of Payment Institutions". These regulations together specify, define and provide guidance on the AML obligations of regulated institutions to establish a sound AML preventative system of internal control and risk management mechanisms. Such mechanisms include customer identification, large value transactions reporting (LVTR), suspicious transactions reporting (STR), customer due diligence (CDD) and transaction record keeping.
In regards to the regulation and supervision of the financial sector, the PBC, insisting on a "risk-based" regulatory philosophy, has formed a regulatory policy system based on risk assessments with integrated use of diverse monitoring tools and an approach that combines education with punishment. The AML regulatory rules applicable to China's regulated institutions are in line with international standards set by FATF. This regulatory rule-making approach based on China's national conditions and compliance with international AML regulatory standards, will advance continued compliance with international AML trends, and benefit the two-way opening of the financial sector.
Ensuring Smooth Operation of AML Mechanisms
National AML work requires joint participation of administrative bodies, judicial agencies and relevant competent authorities, in addition to regulated institutions, to work together in a multi-party effort to eradicate the breeding grounds for money laundering. At the national level, a mechanism of Joint Inter-Ministerial Conference for Anti-Money Laundering was established in 2004, led by the PBC with participation from more than 20 Central Ministries and Agencies including the Supreme People's Court, Supreme People's Procuratorate, Ministry of Foreign Affairs, Ministry of Public Security, Ministry of Supervision, Ministry of Justice and other competent authorities responsible for directing national AML work, formulating national policies and international cooperative AML measures, coordinating various departments and mobilizing the whole society to carry out AML work.
Based on the joint Inter-Ministerial Conference for Anti-Money Laundering, the PBC, in close coordination with other members, strictly performs its duties according to law and has gradually formed AML regulatory coordination mechanisms and money-laundering investigation mechanisms with a clear division of responsibilities and smooth operation. Taking money-laundering investigations for example, the PBC provides supervision and guidance for regulated institutions to perform customer identification and other AML obligations. Regulated institutions then carry out monitoring and identification of various types of transaction activities, screening and analyzing suspicious transactions and suspicious behavior and timely reporting them to the China Anti-Money Laundering Monitoring and Analysis Center (hereinafter referred to as CAMLMAC) and local AML departments of the PBC. After comprehensive analysis and carrying out the necessary AML investigation, the local AML departments of the PBC will transfer the suspected money laundering or predicate offense intelligence to the investigating authorities. The investigating authorities will then investigate the transferred intelligence, after which the People’s Procuratorate as a public prosecutor will file a lawsuit and the People's Court will conduct a trial to punish criminals in accordance with the law. Over the past decade, nationwide, the People's Courts have operated in accordance with Articles 191, 312 and 349 of the Criminal Law of the People’s Republic of China, having conducted hearings and pronounced judgment of more than 101,000 cases of money laundering and delivered verdicts for approximately 108,000 defendants.
Efficient analysis and transfer of suspicious transaction information is an important operational component of effective AML mechanisms. In order to sufficiently fulfill the functions of receiving STRs and conducting STR analysis, the PBC established CAMLMAC. Currently, CAMLMAC headquarters have established channels for electronic data submission with more than 2,600 regulated institutions covering banking, securities and futures, insurance, non-banking payment and other sectors. From receiving and processing LVTRs submitted by these regulated institutions, the PBC has deepened its level of specialization and improved monitoring and analysis capabilities. The PBC has transferred a large number of intelligence to law enforcement authorities in accordance with regulation, providing strong financial intelligence support for preventing and combating money laundering and predicate offenses. Over the past decade, the AML departments of the PBC have carried out AML investigation of nearly ten thousand items of suspicious transaction intelligence and reported or transferred nearly ten thousand items of intelligence to investigating authorities. In 2015 alone, CAMLMAC transferred or submitted 588 intelligence reports to relevant authorities and PBC branches carried out 3,623 AML investigations and transferred 1,540 intelligence reports to investigating authorities, an increase of 67.4% compared with the same period of the previous year. These intelligence reports have played an important role in efforts to combat money laundering and predicate offenses and the value of such efforts has been widely recognized by law enforcement agencies. At the same time, the PBC, in accordance with relevant provisions of the AML Law, and the Counter-Terrorism Law of the People’s Republic of China, provides guidance for regulated institutions to report suspected TF transactions, transfer TF intelligence, and strengthen STR analysis, providing strong support for national counter-terrorism work.
In addition, the PBC has actively participated in national anti-corruption and anti-drug efforts, fulfilling the role of reporting large-value and suspicious transaction information for the discovery and combating of all kinds of criminal activities. Over the past decade, the AML departments of the PBC have assisted in the investigation of nearly 20,000 cases, and, in conjunction with relevant departments, jointly launched the "Special Operation on Fighting Against Transfer of Illicit Money through Offshore Companies and Underground Banks", "Anti-drug Campaign in 100 Cities" and other major initiatives which have generated a significant deterrent effect on money laundering and predicate offenses.
Recently, in order to recover losses for telecommunication fraud victims in a timely manner, the PBC, together with the Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Industry and Commerce, jointly established the "Mechanism of Urgent Countermand of Payment and Fast Freezing of Accounts Involving Telecommunications Network Crimes", an information management platform among banking institutions, payment institutions and police to facilitate the emergency cease of payments, rapid freezing of assets, information sharing and Quick Search functions for criminal accounts. This has greatly improved the efficiency to freeze funds involved in crime and recover the losses of victims.
Continuous In-depth AML Regulation
Over the past decade, in order to supervise regulated institutions to effectively implement AML laws and regulations, the PBC has fulfilled its AML supervisory duties, strictly abided to international standards and increased its supervision of AML efforts. The PBC has established an AML regulatory and supervisory system covering banking, securities and futures, insurance, non-banking payment institutions and other sectors, and provided guidance for regulated institutions and their employees to perform their AML duties. These actions have built a strong “first defense” for the prevention and combating of money laundering and predicate offenses.
After years of practice, the PBC, drawing from advanced international experience, has gradually formed a set of effective AML supervisory mechanisms through the following actions: establishing an evaluation and rating system for regulated institutions on their capacity for money laundering risk control; conducting regular risk assessments for various types of regulated institutions; tracking dynamic changes in money laundering risks; mapping the weaknesses of regulated institutions in AML prevention and control; and offering guidance to institutions to strengthen AML capacities. When problems are identified during a risk assessment, the PBC guides institutions on how to take effective rectification measures and uses integrated methods of supervision throughout the process, including off-site supervision, on-site visits, executive interviews, on-site inspection, etc., and fines institutions in cases of serious violations according to law and regulation. Over the past decade, the AML departments of the PBC have carried out more than 25,000 AML on-site inspections and fined more than 2,500 institutions in violation of AML regulations. Continuous and strict AML supervision has made regulated institutions uncover vulnerabilities and improve their work accordingly. This has become an important impetus for regulated institutions to improve their ML risk prevention and control capabilities.
Over the past decade, the PBC has advanced problem-oriented and timely measures to improve AML policies and regulations, continuing to promote regulated institutions to enhance AML performance ability, and consolidate the foundation of AML work. In recent years, the PBC has actively carried out ML typology analysis and gradually established a multilevel ML analysis system covering national, regional, and institutional levels. Using this multileveled typology analysis, the PBC has produced in-depth analyses, conclusions and summaries of the main types, characteristics and suspicious transaction identification points of money-laundering faced by the country, regions and various regulated institutions. The PBC has issued a number of major money-laundering suspicious transaction recognition models, guiding regulated institutions to establish and improve the monitoring indicators of abnormal transactions in line with their own operational characteristics in order to strengthen abnormal transactions analysis and findings. Under the guidance of the PBC, regulated institutions have gradually improved their ability to identify suspicious transactions, the effectiveness of having ML risks pre-identified is gradually appearing, and the quality of reporting of suspicious transactions have improved.
The PBC has always attached great importance to AML personnel training and knowledge promotion, actively promoting the establishment of a sound AML multi-level education and training system to achieve full coverage of regulated institutions from front-line employees to senior management. Since 2012, through its network platform, the PBC has offered AML training courses to employees of all kinds of regulated institutions with the cumulative number of trainees exceeding 400,000.
Effective Performance of Duties by Regulated Institutions
Regulated institutions are the first defense in the prevention of money-laundering, an important source of intelligence and evidence required by the judiciary to fight money-laundering and predicate offenses, and an indispensable and important part of the national AML system. Over the past decade, under the guidance and supervision of the PBC and related financial regulatory authorities, regulated institutions have increasingly channeled resources into AML efforts, overcoming weak AML foundations, a lack of experienced talents, an imperfect support system and other difficulties. Regulated institutions’ AML performance and abilities have consequently improved significantly.
With the continuous improvement of regulated institutions’ operational practices and money-laundering risk management measures, previously weak AML foundations have made a qualitative leap, and capacities for ML risk prevention and control have significantly improved. Under the guidance of AML regulatory authorities, regulated institutions have regularly carried out money laundering risk assessments, identifying money laundering risks from multiple sources including from customers, product and services, and geography; proactively identifying the existence of any laundering risk loopholes, and constantly improving control mechanisms accordingly. Regulated institutions have gradually embedded laundering risk control requirements into their business activities, actively resolving and controlling various money laundering risks, and gradually achieving the following results: the curbing of customers using forged identity documents to open accounts and conduct business; the improvement of the authenticity, validity and integrity of registered customer identity information filed by regulated institutions; strengthened depth and breadth of due diligence on high-risk business customers; increasingly stringent review of transaction backgrounds and the authenticity of fund sources; and the continuous increase of the proportion of STRs converted to intelligence for public security and judicial bodies.
Regulated institutions apply advanced techniques in support of AML efforts. Various regulated institutions have developed AML monitoring and analysis systems, achieving electronic monitoring of all kinds of abnormal transactions and real-time monitoring of high-risk customers and transactions to achieve full electronic filing of suspicious transactions. In recent years, some regulated institutions have explored the use of big data technology, for example in support of customer due diligence, high-risk customer identification, suspicious transaction monitoring and analysis and other AML work, which has achieved positive results.
While strengthening electronic infrastructures, regulated institutions have simultaneously increased efforts to train AML personnel. Regular AML training for employees has become an important component of developing internal control of regulated institutions. The number of AML professionals continues to grow and industry-wide AML awareness and abilities have significantly improved. Regulated institutions from some provinces and cities have established AML self-regulatory organizations, strengthening self-management and self-education through peer exchange and organizing and mobilizing more social forces to participate in national AML efforts, creating broader AML defenses.
The Challenges of Increasing Cross-border Money Laundering and Money Laundering Related to Public-related Economic Crimes
In recent years, worldwide cross-border money laundering has shown an upward trend, with developing countries often the destination for the outflow of funds and the transit point for money laundering, suffering a double loss of economic interest and national reputation. China is no exception. There have been signs of growth in cross-border money laundering, telecommunication fraud, internet fraud and other types of economic crime that directly affect the interests of the public, becoming major potential risks for financial security and economic and social stability. In this regard, the PBC attaches great importance to the prevention and combating of cross-border money laundering activities, strengthening coordination and cooperation between departments and paying close attention to possible exogenous risks, thus achieving remarkable results.
The PBC has actively responded to the risk of abnormal cross-border capital flows. Based on existing balance of payments statistics and foreign exchange management, the PBC explored the use of AML mechanisms to increase efforts in monitoring and analysis, strengthening the transfer of intelligence between investigating authorities and judiciary departments to maintain pressure against cross-border money laundering activities. For example, money-laundering activities through cross-border trade and investment have a strong hidden character, often concealed by means of offshore accounts and "underground banks", the Hawala system or other alternative remittance system outside the formal regulatory system, posing a challenge to national regulatory authorities and becoming a public nuisance to the international community. In recent years, through strengthening the monitoring of funds, transfer of intelligence, and investigation capabilities, the PBC jointly with relevant authorities organized special action to crack down on illegal and criminal activities in this area. In 2015, the PBC in conjunction with the Ministry of Public Security, Supreme People's Court, Supreme People's Procuratorate, and the State Administration of Foreign Exchange, launched a nationwide special operation to “Combat the Use of Offshore Companies and Underground Banks for Transfer of Illicit Money", focusing on combating the illegal and criminal activities of "underground banks" and the use of offshore company accounts, non-resident accounts and others to assist corruption, bribery and other predicate offenses of cross-border money-laundering activities. 380 serious cases were uncovered by this special operation.
To impede the growth in recent years of money laundering activities related to public-related economic crimes, the PBC takes an active role in researching the various types of money laundering crimes and summarizing case characteristics and related red flags. The PBC have successively released money laundering risk notifications for the opening of accounts with other persons’ identity documents and the opening of accounts by specific groups relevant to public-related economic crimes, such as telecommunication fraud, illegal fund-raising, online gambling and underground banking. Moreover, the PBC guides regulated institutions to enhance customer identification and STR, improve transaction monitoring models, and carry out preventative and advisory education to customers so as to improve institutional capacity to recognize and anticipate illegal and criminal activities. Meanwhile, the PBC actively cooperates with the police to conduct case investigations and has achieved clear results. In cases involving telecommunication fraud, for instance, the PBC was active in detecting and handing over important intelligence for 28 cases suspected of telecommunication fraud and money laundering in 2015. The PBC assisted the police to conduct the AML investigation of “4·02” telecommunication fraud case, and, by means of fund analysis, helped uncover more than 20 cross-border telecom fraud gangs.
Extensive and In-depth International Cooperation
Money laundering and terrorist financing offenses are global threats, and, as such, all countries must strengthen cooperation to effectively cope with and combat these criminal activities. Extensive and in-depth participation in international cooperation of AML is not only an inherent requirement for advancing AML efforts, but also a significant source of protection for driving two-way opening of the financial sector. In recent years, great achievements have been made in the international cooperation of AML in accordance with national diplomatic strategy and service for the opening of the financial sector.
In December 2004, six countries, including Russia and China, jointly established the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG), representing the pivotal step for China’s entrance onto the international stage of AML. At present, EAG consists of 9 European and Asian countries, including China, Russia and India, thus becoming a FATF-style regional body covering the largest territories and populations in the world, as well as an important platform for China’s increasing cooperation with Central Asia and South Asia in non-traditional security areas. As of June 2007, China has become a formal member of FATF for the purpose of wider participation in AML international cooperation. In July 2009, China reclaimed legal status in the Asia/Pacific Group on Money Laundering (APG) and has since become a significant member.
Following comprehensive improvement of both national strength and AML work, China has continuously strengthened its influence on international and regional AML bodies and successively served as Vice-Chairman of EAG and Co-Chairman of APG. Now, China is one of 9 members of the FATF Steering Group, the decision-making core of FATF. Depending on the significant platform of international and regional AML bodies, China vigorously advocates the concepts of equality, cooperation and win-win situations; strives to safeguard the interest of developing countries, and plays a vital role in the formulation of international standards and internal governance of international/regional bodies.
In recent years, China has further strengthened international exchange and cooperation of AML financial intelligence. CAMLMAC has successively established formal AML/CFT information exchange and cooperation relationships with FIUs in 38 countries and regions, such as the Republic of Korea (South), Russia, France, Japan and New Zealand. In addition, international investigation applications have increased each year. In 2015, 565 items of overseas intelligence were received and 353 were sent abroad. In December 2015, based on common understanding by the presidents of the USA and China, CAMLMAC signed a memorandum of understanding for the financial intelligence exchange and cooperation of AML/CFT with Financial Crimes Enforcement Network (FinCEN) of the Department of Treasury, the U.S. financial intelligence unit, symbolizing China’s major achievement in the establishment of bilateral AML intelligence cooperation.
Continuous improvement of AML/CFT system
With the evolution of the international political and economic environment, as well as the rapid development of the domestic financial sector, China’s AML work faces increasingly sensitive and complicated environments both at home and abroad. The PBC’s AML departments, imbued with high consciousness of political responsibility and historical mission, will face these difficulties and work to continuously improve and complete the AML system.
Firstly, CFT will be of great importance for AML work. Recently, terrorist attacks have struck major European countries, resulting in large casualties of innocent people. As domestic and foreign violent and terrorist gangs collude with each other and TF in some regions is on the rise, China is confronted with this increasing threat. The development of counter-terrorist situations has raised new and more stringent requirements for CFT. For this reason, AML departments will continue to further enhance CFT efforts, vigorously cooperate with counter-terrorist departments to monitor and freeze terrorist-related funds, track financial activities of terrorist groups and terrorists, cut off TF sources and safeguard national security.
Secondly, AML departments will actively respond to the growth of internet finance and associated challenges for AML. In recent years, China’s internet industry has witnessed an explosive growth and innovations in internet finance continue to emerge. While providing convenient financial services for the public, internet finance also provides new channels for money laundering. As most organizations engaging in internet finance have not yet been brought under AML regulation and supervision, the PBC will accelerate the development of the AML system in key sectors of internet finance and gradually bring internet financial institutions into the AML supervision system in order to ensure the long and healthy development of the industry. Recently, the PBC has worked with relevant departments to conduct special regulation of internet financial risks so as to regulate the state of the internet financial market. AML departments will take an active part in regulation, drawing on functional advantages to conduct effective analysis of fund monitoring and assist investigations of lawbreaking organizations.
Thirdly, combating public-related economic crimes will be the priority of AML work. Public-related economic crimes, such as illegal fund-raising, telecommunication fraud and illegal pyramid schemes, have severely disturbed the economic and social order, violated people’s property security and resulted in huge losses to countless families. In recent years, such criminal activities have been conducted by specialized criminal gangs, spanning high-level crimes and money laundering crimes, multinational crimes and cross-border transfer of illicit money; making case detection and the recovery of illicit money extremely difficult. As such, AML departments will further guide related bodies to closely monitor suspicious funds and accounts suspected of public-related economic crimes, improve standards of screening and analysis of suspicious transactions, control the level of funds facilitating public-related economic crimes, and effectively safeguard the property security of the people.
For decades, the PBC’s AML departments have performed responsibilities specified by AML Law and made concerted efforts together with related departments to drive the completion of national AML mechanisms, thus laying a firm foundation for the prevention and combating of money laundering crimes. From now on, the AML departments will fulfill the task specified in the 13th Five-Year Plan of “perfecting AML, CTF and anti-tax evasion supervision and control measures and completing risk control mechanisms” so as to make great contributions towards the safety and stability of the economy and society.
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