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China passes revised Anti-Money Laundering Law

last updated on 20. December 2024 | reading time approx. 10 minutes

On 8 November 2024, the National People's Congress of China approved a major revision of the Anti-Money Laundering Law, which will take effect on 1 January 2025. The revision replaces the Anti-Money Laundering Law, which has been in force since 2007. The revised Law aims to prevent money laundering activities, curb money laundering and related crimes, strengthen and re-regulate the fight against money laundering, and protect financial order, public social interests and state security.

Combating money laundering »
Main addressees of the Law »
Duties to act and report for financial institutions »
Duties to act and report for non-financial institutions »
Filing of “beneficial ownership” information »
Duty to cooperate »
Remedies in the event of a transaction being rejected »
Authorities' powers and investigations »
International Cooperation »
Sanctions »
Recommendations »

Combating money laundering

"Combating money laundering" under the amended Law means taking the measures specified in the Law to prevent money laundering activities. Money laundering activities are activities aimed at concealing and disguising the source and nature of proceeds and income from drug offences, organized crime in the form of criminal organizations, terrorist offences, smuggling offences, offences of bribery and corruption, offences of disruption of financial management, offences of financial fraud and other offences. The Law is also intended to prevent activities aimed at the financing of terrorism, but does not apply in this area where other laws provide for more specific regulations. Money laundering activities include, in particular, the following acts:

Providing financial accounts
Assisting in the conversion of assets into cash, financial instruments and securities
Facilitating the transfer of funds through wire transfers or other payment methods
Facilitating the transfer of funds abroad

The above activities are mainly carried out with the involvement of financial institutions and mainly relate to the transfer and conversion of funds. However, they do not include activities that do not require the involvement of a financial institution. Therefore, a catch-all clause has been introduced, at least in the criminal law sense, according to which the concealment or disguise of proceeds and profits by "other means" can also be considered as money laundering. The term "other means" covers actions that go beyond the use of financial institutions, namely:

Aiding and abetting the conversion or disguise of proceeds of crime by commingling them with operating income from cash-intensive businesses such as shopping centers and restaurants
Aiding and abetting the conversion of proceeds of crime through the purchase and sale of lottery or raffle tickets
Aiding and abetting the conversion of criminal proceeds and profits into gambling proceeds through participation in gambling activities

Main addressees of the Law

In addition to provisions for the anti-money laundering authorities, the Law contains provisions for financial institutions in particular, but also for other specified economic entities (non-financial institutions).

Financial institutions within the meaning of the Law include the following institutions located in the territory of China:

Financial institutions engaged in banking, securities, fund and futures business, insurance and trust business
Payment institutions other than banks
Other financial institutions designated and notified by the anti-money laundering authority

Non-financial institutions established in the territory of China within the meaning of the Law include, in particular, the following:

Real estate development companies or real estate brokers who act as intermediaries in the purchase or sale of real estate
Accounting firms, law firms and notary offices that engage in the purchase and sale of real estate, the management of funds, securities or other assets on a commission basis, the management of bank accounts and securities accounts on a commission basis, the raising of funds for the establishment and operation of enterprises, or the brokering of the purchase and sale of enterprises on behalf of their clients
Dealers engaged in spot trading in precious metals or precious stones with a value above the threshold
Other entities that are required to comply with anti-money laundering obligations as determined by the anti-money laundering authority under the State Council in conjunction with the relevant departments of the State Council based on the money laundering risk profile

Duties to act and report for financial institutions

The main anti-money laundering obligations for financial institutions are to know your customer (customer due diligence) and to report “large value transactions”.

Customer Due Diligence

The Law requires financial institutions to verify all customers as part of their due diligence obligations (customer due diligence). This applies in particular to the verification of the customer's identity. Financial institutions are prohibited from providing services or transactions to unidentified customers, opening anonymized or pseudonymized accounts or opening accounts for customers who fraudulently use the personal data of another person.

The Law specifies the obligation to carry out customer due diligence in the following cases in particular:

Establishment of a business relationship with the customer or provision of a one-off financial service to the customer that exceeds the threshold value
The existence of reasonable suspicion that the customer or his transaction is involved in money laundering
Where there are doubts as to the authenticity, validity or completeness of the documents previously obtained to establish the customer's identity

In addition to establishing the identity of the customer, the verification should include taking appropriate measures to verify the identity of the customer, the identification of the beneficial owner(s), the purpose of the proposed business relationship and/or transaction, and the origin and intended use of the funds used. As part of the customer due diligence process, financial institutions may access relevant information from the public security authorities, the market regulation authority, the civil affairs authority, the tax authorities, the immigration authority, the telecommunications authority and other authorities required by law to cooperate.

Financial institutions are not required to follow a rigid template for customer due diligence, but should tailor the scope of the due diligence to the specific money laundering risk of the individual customer. This may be due to particular characteristics of the customer or the nature and risk profile of the proposed transactions. If the money laundering risk is lower, the scope of the screening may be reduced accordingly.

Reporting obligations for “large value transactions”

The Anti-Money Laundering Law imposes a reporting obligation on financial institutions when they carry out “large value transactions”. Large value transactions are defined as single transactions or cumulative transactions within a certain period that exceed the threshold. The Law does not define the threshold. According to the Administrative Measures on Reporting of Large Amount Transactions and Suspicious Transactions by Financial Institutions issued by the People's Bank of China on 28 December 2016, which became effective on 1 July 2017, financial institutions are currently required to report transactions involving the amounts listed below:

The amount of a single transaction or the cumulative amount of transactions on the same day for cash deposit, cash withdrawal, foreign exchange purchase and sale, currency exchange, cash transfer, cash instruction and other forms of cash receipt and payment is RMB 50,000 or more or the equivalent of USD 10,000 or more.
The amount of a single cash transaction or the cumulative amount of cash transactions on the same day between the bank account of a non-natural person and one or more other bank accounts is RMB 2 million or more or the equivalent of USD 200,000 or more.
The amount of a single cash transaction or the cumulative amount of cash transactions on the same day between a natural person's bank account and one or more other bank accounts is RMB 500,000 or more, or the equivalent of USD 100,000 or more.
The amount of a single cross-border cash transaction or the cumulative amount of cross-border cash transactions on the same day between an individual's bank account and one or more other bank accounts is RMB 200,000 or more, or the equivalent of USD 10,000 or more.

The above amounts may be adjusted as necessary. The cumulative transaction amount is calculated on an individual customer basis and reported as funds are received or paid.

Duties to act and report for non-financial institutions

If the business activities of non-financial institutions are subject to the above large value transaction reporting requirements, they are also required to report the transaction. Reporting must take into account the particular circumstances of the sector, the volume of the transactions and the risk of money laundering.

Filing of “beneficial ownership” information

Already on 29 April 2024, the Supplementary Administrative Measures on Beneficial Ownership Information (“Measures”) were published. The Measures were issued by the People's Bank of China (PBC), reviewed by the State Administration for Market Regulation (SAMR) and approved by the State Council. They came into force on 1 November 2024 and require legal persons and entities to submit, update and retain “beneficial ownership” information in connection with certain transactions. Companies that meet the following requirements are required to file as of 1 November 2024:

Registered capital of more than RMB 10 million, or
At least one shareholder is a legal person or a partnership, or
There is a natural person as a controlling person or beneficiary who is not a (direct) shareholder.

This means, for example, that all foreign-invested companies that have a legal entity as a shareholder (e.g. a limited liability company in Europe as a shareholder) must undertake such a filing.

Sole proprietors do not have to provide details of the beneficial owner. Sole proprietors are natural persons registered by law to carry on a business or commercial activity. In addition, companies (other than sole proprietorships) are exempt from filing if they meet all of the following requirements :

Registered capital does not exceed RMB 10 million; and
All shareholders/partners are natural persons; and
No natural person other than the shareholders/partners actually controls the company or derives any benefit from it

Newly formed companies that are required to file must submit the information either when they apply for company registration or no later than 30 days after registration. Companies incorporated before 1 November 2024 and required to file have until 1 November 2025 to do so.

Duty to cooperate

The provisions of the Anti-Money Laundering Law impose obligations not only on the relevant authorities, financial institutions or non-financial institutions, but also on any natural or legal person who wishes to establish or maintain a business relationship with a financial institution. In particular, bank customers are obliged to cooperate in the customer due diligence process by

Providing accurate and complete information about their identity
Providing authentic and valid identification or other proof of identity; and
Providing authentic documents, records and documentation relating to the transactions and funds.

If a bank customer refuses to cooperate with a financial institution in carrying out customer due diligence, the financial institution may take measures to manage the money laundering risk. These may include, in particular, restricting or rejecting proposed transactions, refusing or terminating a business relationship and reporting the suspicious transaction to the competent authority.

In addition, all natural and legal persons are subject to their own duties of care to prevent possible money laundering. This includes, in particular, the obligation to observe the lists of natural persons and organizations ("name lists") published by the authorities in this context and to take preventive measures in this respect. This applies to the following name lists:

The name lists of terrorist organizations and terrorists drawn up by the national leading body for anti-terrorism efforts and published by body’s office.
The name list of organizations and individuals subject to targeted financial sanctions issued by the Ministry of Foreign Affairs of China in implementation of United Nations Security Council Resolutions.
The name list of organizations and individuals that pose a significant risk of money laundering, which may have serious consequences if no action is taken against them, issued by the anti-money laundering authority or the anti-money laundering authority in cooperation with relevant State organs.

Specific preventive measures to combat money laundering include

The immediate cessation of the provision of financial and other services, anddie Bereitstellung von Geldern und anderen Vermögenswerten
Ceasing to provide financial and other assets

to the listed persons and to the organizations directly or indirectly controlled by them. This also applies to organizations and persons acting on their behalf. In addition, immediate restrictions are imposed on the transfer of the funds and assets concerned.

Individuals and organizations on the name lists can request an official review and, if necessary, removal from the list. It is also possible for individuals and organizations to apply to the authorities to use restricted funds and assets for basic and other necessary expenses.

Remedies in the event of a transaction being rejected

If, as part of its preventive measures to manage the risk of money laundering, a financial institution takes a decision to the detriment of a customer, the customer concerned may appeal to the financial institution and request a new decision. The financial institution must decide on the objection within 15 days. If the objection concerns an essential and necessary financial service for the customer, the financial institution is obliged to process the objection without delay and to inform the customer. If the objection is not dealt with or if the financial institution is unable to remedy the situation, the customer concerned may lodge a complaint with the competent anti-money laundering authority. Irrespective of such a complaint, the customer concerned may also take direct legal action and file a complaint with the competent People's Court.

Authorities' powers and investigations

Local anti-money laundering authorities can start an investigation if they suspect money laundering or any other activity that may violate the Anti-Money Laundering Law. They may also involve other authorities to obtain information. Financial and non-financial institutions are obliged to cooperate in the investigation. In particular, they must provide requested documents in a timely manner. On the part of the anti-money laundering authority, two staff members must generally work together on a case. The authority has a wide range of powers, from interviewing staff of the financial or non-financial institution; obtaining statements of relevant information; inspecting and copying account information, transactions and other relevant documents; sealing documents to protect them from being transferred, concealed, tampered with or destroyed; and temporarily freezing accounts if the account holder attempts to transfer or withdraw funds from the accounts concerned. An account freeze can last up to 48 hours and must be reported to the higher anti-money laundering authority. If the higher authority does not respond to the temporary freeze within 48 hours, the financial institution may unfreeze the frozen accounts.

International Cooperation

China participates in international anti-money laundering cooperation within the framework of international conventions that China has concluded or acceded to, or in accordance with the principles of equality and reciprocity. Where the necessary international legal framework is in place, Chinese anti-money laundering authorities may contact and exchange information with relevant foreign authorities.

In the course of lawful investigations of money laundering and terrorist financing, the relevant Chinese authorities may also directly request the cooperation of foreign financial institutions that have opened correspondent bank accounts in Chinese territory or have other close financial relations with China, on the basis of reciprocity or with the consent of the country in which the foreign financial institution is located.

When Chinese financial institutions receive a request from a foreign country or a foreign authority to provide identity and transaction information of customers, or to seize, freeze or transfer domestic funds or assets, or to take other measures in violation of the principles of equality and reciprocity, they must forward the foreign request to the competent anti-money laundering authority. The financial institution may only comply with the foreign request once it has been authorized. The same applies to foreign requests for the transfer of other information, such as a customer's business information, which must also comply with Chinese data protection laws for the cross-border transfer of personal and “important” data.

Sanctions

The Anti-Money Laundering Law provides for significant sanctions against financial and non-financial institutions for failure to comply with its requirements. These range from warnings to substantial fines.

However, the Law also provides for sanctions against natural and legal persons who are not financial institutions or non-financial institutions. They may be warned or, in serious cases, fined if they fail to comply with their obligations to take special preventive measures to combat money laundering, or if they do so inadequately and do not remedy the situation within a specified period. The fine can be up to RMB 200,000 for legal entities and up to RMB 50,000 for natural persons.

In addition, legal entities or unincorporated organizations may be required to correct their beneficial ownership information within a specified period if they have not provided such information as required. A fine of up to RMB 50,000 may be imposed for refusal to provide information, providing false or untrue information or failing to provide information within the time limit.

In general, the Anti-Money Laundering Law does not affect the criminal liability for money laundering under the Criminal Law. Under this law, offenders are liable to imprisonment for up to 5 years and, in serious cases, for at least 5 to 10 years. If a legal person, organization or institution commits money laundering, it is liable to a fine, while the person directly responsible and other persons directly liable may be sentenced to imprisonment.

Recommendations

Not least to avoid delays or refusals of transactions, companies should comply with their obligations to cooperate under the Anti-Money Laundering Law. This includes, in particular, keeping the verifications and documents deposited with the banks up to date and informing the banks immediately of any changes. This may concern changes in the persons responsible within the company, but also, for example, reorganizations at parent company level and changes in the ultimate beneficial owner.

In addition, companies should implement the specific preventive measures required by the Law to combat money laundering, in particular by complying with the name lists specified in the Law and regularly checking them for updates.