The International Monetary Fund estimates the total amount of laundered money to be 2-5% of the global GDP in one year. Money laundering refers to transforming illegal money generated from criminal activity(such as drug trafficking, extortion, illegal arms sales, insider trading, fraud and so) into legitimate money. Such illegal actions are considered in most jurisdictions as a serious criminal crime. Therefore, many companies establish robust Anti-Money Laundering policies to prevent indirect criminal violations.
Equally, new technologies in the digital era has forged new forms of money laundering activities and terrorist financing activities. The anonymity of digital channels permits money to be laundered with little detection. Therefore, it is vital for enterprises investing in unfamiliar jurisdiction such as China to implement Anti Money Laundering (“AML”) policies into their subsidiary to prevent related investigations and protect the companies’ reputations.
In August 2021, the Amended Anti-Money Laundering Law of the People’s Republic of China (“Amended AML Law”) came into effect. In the below, we highlight the key takeaways.
1. Increased scope
The scope has been substantially extended compared to the previous AML Law. Financial institutions and some specific non-financial institutions, such as loan companies, asset management subsidiaries of commercial banks, insurance agents, etc. are included (‘FI and non FI institutions’) .
2. Client due diligence
FI and non FI institutions are required to identify and verify the beneficial owners of clients and keep in custody client identity data and each transaction record.
Beneficial owners refer to natural persons who ultimately own, actually control, or enjoy the ultimate benefits of entities.
3. Extension of the AML obligations for all individuals and organizations
The Amended AML Law requires also all other organisations and individuals operated in China to perform relevant AML obligations. Main obligations are as follows:
- Adopt special preventive measures against money laundering;
- Cooperate with the financial and non-financial institutions to perform AML investigations;
- Perform the declaration of “large amount of cash” payments in accordance with the law;
- Keep and use properly financial accounts and other financial tools with payment and receipt functions. Individuals and organisations shall not rent, lend, or trade such tools, or conduct any other activities that facilitate money laundering activities.
4. Extraterritorial application
Relevant entities and individuals will be punished for money laundering and terrorist financing activities occurring outside China which infringe China’s national security and sovereignty, or the legitimate rights and interests of Chinese citizens, legal persons and other organisations, or disrupt the order of China’s financial management.
5. Significant Penalties
The Amended AML Law provisions detailed and complete penalties and increased penalties on the basis of the previous Anti-Money Laundering Law. For instance, financial institutions that fail to conduct client due diligence in accordance with the AML regulations will be fined up to 2 million yuan in severe circumstances.
The amended AML Law in China reflect the government stepping up efforts to combat money laundering activities. Enterprises should thoroughly audit their financial transactions and establish safeguards to ensure the company isn’t exposed to money laundering and other financial crime risks. Usually, lack of specific AML procedures, especially in their foreign subsidiaries – or existing KYC and AML controls can increase risks.
At Horizons, we seasoned experts in the potential AML related risks and damages caused by absent procedures. We have advised large to medium sized companies in structuring and executing AML compliance programs.
The program provides investors with significant instruments, starting from common procedures based on and customised according to the applicable local laws and rules.
If you are looking for legal professionals to evaluate whether your AML controls are compliant please contact Horizons at firstname.lastname@example.org, and our Partner in charge will be in touch.