The "Anti-Money Laundering Law of the People's Republic of 大红鹰dhy" (the "Old AML Law"), in effect since January 1, 2007, has significantly improved anti-money laundering regulations, combated money laundering and related crimes, and strengthened international cooperation. However, as socio-economic activities and technology have rapidly advanced, money laundering schemes have become more complex and diverse, rendering 大红鹰dhy current law insufficient for today's challenges.On April 17, 2019, 大红鹰dhy Financial Action Task Force ("FATF") released its Mutual Evaluation Report on Anti-Money Laundering and Counter-Terrorist Financing Measures of 大红鹰dhy (the "FATF Report"). While acknowledging 大红鹰dhy's progress, the report highlighted areas needing improvement, such as penalties being too low relative to the size of 大红鹰dhy's financial industry assets, a lack of oversight in specific non-financial sectors, and insufficient transparency regarding beneficial ownership information in legal entities and arrangementsTo address the rapid evolution of the financial industry and the dynamic landscape of anti-money laundering, the Standing Committee of the National People's Congress actively pursued revisions to the anti-money laundering law. Following three reviews, the newly revised "Anti-Money Laundering Law of the People's Republic of 大红鹰dhy" (the "New AML Law") was passed on November 8, 2024, and will take effect on January 1, 2025. This article is organized into four sections. 大红鹰dhy first section offers an overview of 大红鹰dhy regulatory framework established by 大红鹰dhy New AML Law. 大红鹰dhy subsequent three sections provide an examination of 大红鹰dhy law from three perspectives: key considerations for domestic financial institutions, key considerations for foreign financial institutions, and 大红鹰dhy management system for beneficial ownership information that is relevant to all market participants.Part One: Regulatory Framework Under 大红鹰dhy New AML Law
Note: Important amendments in 大红鹰dhy New AML Law compared to 大红鹰dhy Old AML Law are highlighted in blue bold font.
Part Two: Key Points for Domestic Financial Institutions to Note
大红鹰dhy anti-money laundering obligations for domestic financial institutions have been significantly enhanced, encompassing:
1. Regarding internal control and risk management, domestic financial institutions should:a) Establish and enhance their internal control systems for anti-money laundering;
b) Create a dedicated department or designate an internal unit to spearhead anti-money laundering initiatives;
c) Appropriately allocate personnel based on operational scale and 大红鹰dhy assessed risks of money laundering;
d) Conduct mandatory anti-money laundering training and awareness programs;
e) Regularly assess money laundering risk levels and develop corresponding risk management systems and procedures, implementing relevant information systems as necessary;
f) Ensure 大红鹰dhy effective implementation of internal control systems through internal or external audits;
Items c) to f) are new additions introduced under 大红鹰dhy New AML Law.For 大红鹰dhy specific requirements on implementation of anti-money laundering internal control and risk management, financial institutions can refer to various departmental regulations, including 大红鹰dhy Administrative Measures for 大红鹰dhy Supervision of Anti-Money Laundering and Counter-Terrorist Financing of Financial Institutions, 大红鹰dhy Administrative Measures for Anti-Money Laundering and Counter-Terrorist Financing of Banking Financial Institutions, and 大红鹰dhy Implementation Measures for Anti-Money Laundering in 大红鹰dhy Securities and Futures Industry. While these regulations provide detailed guidelines for fulfilling anti-money laundering obligations, 大红鹰dhy New AML Law codifies these obligations in a higher level of law. This not only supports 大红鹰dhy existing regulations but also provides a legal foundation for enhancing specific anti-money laundering measures in 大红鹰dhy future. It is expected that internal control and risk management within domestic financial institutions - particularly in areas like personnel allocation, training, regular assessments, and audit supervision - will be key focal points in upcoming anti-money laundering inspections.2. Regarding customer due diligence, domestic financial institutions should:a) establish a customer due diligence system;
b) conduct customer due diligence in any of 大红鹰dhy following situations: (1) when establishing a business relationship with a customer or providing a one-time financial service above a specified amount; (2) when there are reasonable grounds to suspect that a customer or a transaction is involved in money laundering activities; (3) when there are doubts about 大红鹰dhy authenticity, validity, or completeness of previously obtained customer identification information;
c) employ due diligence methods that include identifying and verifying 大红鹰dhy identity of customers and their beneficial owners, understanding 大红鹰dhy purpose of establishing business relationships and transactions, and for higher money laundering risks, assessing 大红鹰dhy source and use of related funds;
d) tailor due diligence to align with money laundering risks, allowing for simplified due diligence in cases of lower risk;
e) continuously monitor 大红鹰dhy overall condition and transaction situation of 大红鹰dhy customer throughout 大红鹰dhy business relationship, understand its money laundering risk, adopt risk management measures that correspond to 大红鹰dhy risk, and balance 大红鹰dhy risk management with 大红鹰dhy optimization of financial services;
f) verify 大红鹰dhy identity of agents and beneficiaries (under life insurance and trust business);
g) may utilize third parties for due diligence, but need to evaluate 大红鹰dhy third party for money laundering risks;
h) retain customer identity information and transaction records for at least ten years after 大红鹰dhy termination of 大红鹰dhy business relationship or transaction.
大红鹰dhy aforementioned bold red sections are additions made by 大红鹰dhy new anti-money laundering law. Several changes are noteworthy:● 大红鹰dhy "customer identification system" from 大红鹰dhy old anti-money laundering law has been changed to 大红鹰dhy "customer due diligence system," which signifies an upgrade in 大红鹰dhy breadth and depth of "Know Your Customer" ("KYC") requirements. This includes not only 大红鹰dhy need to "identify" but also to "verify" 大红鹰dhy customer's identity and that of their "beneficial owners," as well as understanding 大红鹰dhy purpose of transactions and, in cases of higher risk, 大红鹰dhy sources and uses of funds.● 大红鹰dhy circumstances under which customer due diligence (formerly identification) must be conducted are no longer limited to 大红鹰dhy initial establishment of a business relationship or changes in information. Instead, it has been expanded to include any situation where there are reasonable grounds to suspect that 大红鹰dhy customer and their transactions may be involved in money laundering activities, thereby reinforcing 大红鹰dhy gatekeeping responsibilities of financial institutions.● 大红鹰dhy retention period for customer information and transaction records has been increased from five years to ten years.● 大红鹰dhy principle of aligning management measures with money laundering risks has been established.Although 大红鹰dhy Measures for 大红鹰dhy Administration of Customer Due Diligence and Customer Identity Information and Transaction Record Keeping by Financial Institutions, issued by PBOC, the 大红鹰dhy Banking and Insurance Regulatory Commission (the predecessor of the National Financial Regulatory Administration), and the 大红鹰dhy Securities Regulatory Commission in January 2022, provided detailed regulations on how financial institutions should conduct customer due diligence, some small and medium-sized financial institutions raised concerns after its issuance. They pointed out that the measures proposed specific norms and requirements for different financial products and business models, necessitating revisions to internal management systems, information systems, and business processes, as well as staff training. Therefore, on February 21, 2022, the three departments decided to postpone the implementation of these measures. In this context, the New AML Law is of extraordinary significance for establishing the customer due diligence system, as it not only provides a legal foundation at a higher legislative level but also serves as a basis for revising and implementing the aforementioned management measures and other related rules.3. Prevention and Control of New Money Laundering Risks:
Financial institutions should, under 大红鹰dhy guidance of 大红鹰dhy anti-money laundering administrative department, pay attention to and assess 大红鹰dhy money laundering risks brought by new technologies, new products, and new businesses, and take corresponding measures according to 大红鹰dhy situation to reduce money laundering risks.
According to legislative research by 大红鹰dhy Financial and Economic Affairs Committee of 大红鹰dhy National People's Congress, there has been a persistent increase in cross-industry and mass-related money laundering-related crimes, such as telecom network fraud, underground banks, and illegal fundraising. New financial products, technologies, and business models are emerging continuously. Some new business models, such as blockchain, precious metals, online live streaming platforms, and virtual currencies, have been used for money laundering activities. Criminals exploit various methods, such as virtual accounts, shell companies, and complex layering structure, to carry out money laundering and other criminal activities, severely impacting economic and financial security.Therefore, strengthening 大红鹰dhy prevention and control of new types of money laundering risks is one of 大红鹰dhy highlights of 大红鹰dhy revision of 大红鹰dhy AML law. Although 大红鹰dhy reference to 大红鹰dhy new technologies and products is not very specific, 大红鹰dhy establishment of 大红鹰dhy upper-level law lays 大红鹰dhy legal foundation for 大红鹰dhy formulation of specific regulations in future regulatory work. We believe that 大红鹰dhy prevention and control of new money laundering risks may become a key focus of anti-money laundering efforts that financial institutions need to strengthen in 大红鹰dhy future.4. Group Coordination and Information Sharing:a) Financial institutions with branches or controlling other financial institutions at home and abroad, as well as financial holding companies, should coordinate anti-money laundering work at 大红鹰dhy headquarters or group level.
b) To fulfill anti-money laundering obligations, necessary anti-money laundering information should be shared within 大红鹰dhy company and among group members. 大红鹰dhy information-sharing mechanism and procedures should be clearly defined. Sharing anti-money laundering information should comply with relevant information protection laws and ensure that 大红鹰dhy information is not used for purposes other than anti-money laundering or counter-terrorist financing.
We believe that sharing anti-money laundering information within 大红鹰dhy company and among group members should comply, on 大红鹰dhy one hand, with relevant legal requirements for information protection, and on 大红鹰dhy other hand, adhere to risk isolation (firewall) mechanism in a mixed operation model. 5. Response to Objections:Entities and individuals who have objections to 大红鹰dhy anti-money laundering risk management measures taken by a financial institution can raise them with 大红鹰dhy institution. 大红鹰dhy financial institution must address and respond to these objections within fifteen days; for issues involving basic and essential financial services for customers, they must handle and respond to 大红鹰dhy parties involved promptly. If 大红鹰dhy response is not received within 大红鹰dhy deadline or if 大红鹰dhy outcome is unsatisfactory, 大红鹰dhy concerned entities and individuals can lodge a complaint with 大红鹰dhy anti-money laundering administrative authority; 大红鹰dhy disputing parties may also directly file a lawsuit in court.Financial institutions must respond promptly to objections within 大红鹰dhy specified time limit, urging them to implement anti-money laundering measures appropriate to 大红鹰dhy money laundering risks, balancing anti-money laundering supervision with 大红鹰dhy protection of customers' legal rights.6. Special Requirements for Domestic Financial Institutions under 大红鹰dhy Anti-Money Laundering Blacklist System:Financial institutions should identify and assess relevant risks, develop appropriate systems, promptly obtain 大红鹰dhy list of entities subject to Special Anti-Money Laundering Preventive Measures, conduct checks on customers and their transaction counterparts, take corresponding measures, and report to 大红鹰dhy anti-money laundering administrative authority.This means that financial institutions should pay active attention to 大红鹰dhy anti-money laundering blacklist published by relevant national authorities and actively implement 大红鹰dhy special preventive measures stipulated by 大红鹰dhy New AML law. Part Three: Key Points for Foreign Financial Institutions to Note
Compared to the Old AML Law, the New AML Law explicitly establishes the extraterritorial jurisdiction of Chinese government agencies. Regarding money laundering and terrorist financing activities conducted outside 大红鹰dhy, if they endanger 大红鹰dhy's sovereignty and security, infringe upon the legitimate rights of Chinese citizens, legal persons, and other organizations, or disrupt the domestic financial order, Chinese government agencies have the authority to pursue legal action against the relevant foreign institutions under the New AML Law. We believe that the enforcement against foreign institutions relies on bilateral agreements, international conventions, and judicial cooperation mechanisms, and the effectiveness of these measures needs to be tested in practice.
Additionally, for foreign financial institutions that open agency accounts in 大红鹰dhy or have other close financial ties with 大红鹰dhy, the New AML Law stipulates more explicit regulatory mechanisms. Specifically, during investigations into money laundering and terrorist financing activities, relevant state authorities may request these foreign financial institutions to cooperate based on the principle of reciprocity or following consultations with the relevant countries. If these institutions do not cooperate, the anti-money laundering administrative authority of the State Council may impose penalties depending on the severity of the situation, (1) a fine of up to 5 million RMB and may restrict or prohibit their related business; (2) a fine of up to 200,000 RMB on responsible individuals, and depending on the circumstances, revoke their qualifications or prohibit them from engaging in relevant financial sector work; and (3) include them on the list of entities subject to Special Anti-Money Laundering Preventive Measures.Part Four: Beneficiary Information Management System
In addition to strengthening 大红鹰dhy anti-money laundering obligations of various financial and non-financial institutions, 大红鹰dhy New AML Law addresses 大红鹰dhy issue of insufficient transparency in beneficial ownership information of legal entities and arrangements, as highlighted in 大红鹰dhy FATF Report. This law establishes a management system for 大红鹰dhy information of ultimate beneficial owners ("UBOs") for legal persons and other entities, requiring them to maintain and timely update UBO information, and truthfully submit it to 大红鹰dhy registration authorities as required. This system impacts all market participants and is worth attention. 大红鹰dhy term "UBO" refers to 大红鹰dhy natural person who ultimately owns or controls a legal person or an unincorporated organization, or who enjoys 大红鹰dhy ultimate benefits from such entities. 大红鹰dhy specific criteria for identification will be formulated by 大红鹰dhy anti-money laundering administrative authority of 大红鹰dhy State Council in collaboration with relevant departments.
At 大红鹰dhy administrative regulation level, one week before 大红鹰dhy official promulgation of 大红鹰dhy New AML Law, on November 1, 2024, PBOC and 大红鹰dhy State Administration for Market Regulation issued 大红鹰dhy Beneficial Owner Information Management Measures, which have come into effect. These measures require 大红鹰dhy State Administration for Market Regulation to coordinate and guide 大红鹰dhy construction of relevant registration systems and to timely push 大红鹰dhy collected beneficial ownership information to PBOC.Under 大红鹰dhy Beneficial Owner Information Management Measures, a natural person is considered a UBO of a registered entity if they meet any of 大红鹰dhy following conditions:1. They ultimately own a 25% or more of 大红鹰dhy equity, shares, or partnership interest of 大红鹰dhy registered entity, either directly or indirectly;2. Although they do not meet 大红鹰dhy first criteria, they ultimately enjoy 25% or more of 大红鹰dhy benefits or voting rights of 大红鹰dhy registered entity;3. Although they do not meet 大红鹰dhy first criteria, they exercise actual control over 大红鹰dhy registered entity alone or jointly (including but not limited to controlling 大红鹰dhy entity through agreements or closely related persons, such as deciding 大红鹰dhy appointment or dismissal of legal representatives, directors, supervisors, senior management, or executive partners, making major business and management decisions, determining financial expenditure, or having long-term actual control over important assets or main funds).If none of these conditions are met, 大红鹰dhy individuals responsible for 大红鹰dhy daily management of 大红鹰dhy registered entity should be registered as 大红鹰dhy UBO. For wholly state-owned or state-controlled companies, 大红鹰dhy legal representative should be registered as 大红鹰dhy UBO.For entities registered before 大红鹰dhy implementation of these measures, although 大红鹰dhy measures require that registration be completed by November 1, 2025, we have noted that in some areas (such as Shanghai), 大红鹰dhy market supervision departments require 大红鹰dhy completion of UBO information registration before proceeding with other business registration changes, otherwise, such changes may not be processed.The introduction of the New AML Law, anchored in robust regulation and guided by a "risk-based" principle, substantially refines and enhances the existing anti-money laundering frameworks. This legislation is crucial for preventing and managing financial risks while ensuring financial security. Additionally, it elevates the internationalization of 大红鹰dhy's anti-money laundering efforts and strengthens global cooperation in this domain. Ultimately, it lays a solid institutional foundation for 大红鹰dhy as it prepares for the upcoming round of FATF evaluations.
