NPCSC, People's Bank of China Pass New Regulations on Money Laundering

The Standing Committee of the National People's Congress enacted a new Anti-Money Laundering Law (Law) on October 31, according to a report (in Chinese) on the People's Daily Web site dated the same day. The following day, Xinhua reported (via the People's Daily) that the People's Bank of China (PBOC) would issue regulations "as soon as possible" to enforce the Law, which will become effective on January 1, 2007. On November 14, Xinhua reported that the PBOC had issued two regulations that it described as "complements to the anti-money laundering law." The regulations, the Provisions on Anti-Money Laundering for Financial Institutions (Provisions) and the Measures on the Administration of Reporting by Financial Institutions of Large Value and Suspicious Transactions (Measures), will become effective on January 1 and March 1, 2007, respectively. The Law, Provisions, and Measures replace the Rules on Anti-Money Laundering for Financial Institutions, Measures on the Administration of Reporting of Large Value and Suspicious Foreign Currency Cash Transactions, and Measures on the Administration of Reporting of Large Value and Suspicious Renminbi Transactions, which the PBOC promulgated in 2003.

China's state-run press reports indicate that some of the major reforms to be put in place by China's new anti-money laundering regulations include:

• Expanding the institutions subject to anti-money laundering monitoring and reporting requirements beyond banks to include securities companies, commodity brokerage companies, fund management companies, insurance companies, asset management companies, trust investment companies, vehicle financing companies, and currency brokerage companies (Law, Article 34).
• Imposing restrictions on the investigation of money laundering crimes to prevent government abuse, including requiring all investigations to be conducted by at least two people (Law, Article 23), and restricting how the government may use customer identity and transaction information obtained in accordance with the Law (Law, Article 5).
• Allowing municipal level government agencies to impose fines and recommend administrative punishments for financial institution personnel for violating the Law (Law, Articles 31 and 32). These provisions were added to the Law during its final review by the Standing Committee, according an October 28 Guangming Daily report (in Chinese).

In April 2005, a draft of the Law was submitted to the Standing Committee and the PBOC issued a series of draft regulations related to money laundering for public comment. At that time, several government officials expressed concern about how the proposed legislation handled the government's freezing of suspected money laundering accounts. Article 26 of the Law and Article 23 of the Provisions specify that suspect accounts may be frozen temporarily for a time not to exceed 48 hours. Within 48 hours of adopting temporary freezing measures, however, a financial institution must unfreeze an account unless the government notifies the institution to continue freezing the account. The new regulations, however, do not address other concerns raised during the drafting stage about either the conditions under which accounts could be frozen or what form of compensation should be given to enterprises whose accounts are frozen wrongfully.

Lang Sheng, Director of the Criminal Office of the NPC Standing Committee Legislative Affairs Commission, said in an October 31 Xinhua interview (in Chinese) that the Law and PBOC regulations are intended to "prevent money laundering, safeguard financial order, and restrain related crimes." He added that, pursuant to Chinese law, punishments for money laundering would be imposed pursuant to the Criminal Law, and that the Sixth Amendment to the Criminal Law, which was passed on June 29, 2006, included additional anti-money laundering provisions. Article 191 was amended to provide for seven upstream crimes (also known as predicate offenses) with respect to money laundering such as drugs, organized crime, terrorism, smuggling, corruption, bribery, violations of financial administration order, and financial fraud. An amendment to Article 312, which covers concealment of stolen goods, now provides for criminal prosecution of anyone who knows that something is income or other products from criminal activity and conceals, transfers, purchases, or helps to sell or otherwise covers up such income or products.

Liu Liange, Director of the State Council's Anti-Money Laundering Bureau, was cited in a November 1, 2006, People's Daily article (in Chinese), as saying that Chinese authorities planned to undertake to join the Financial Action Task Force (FATF) in June 2007. The FATF is an inter-governmental body established by the G-7 nations in 1989 to develop and promote national and international policies to combat money laundering and terrorist financing. Articles 27-29 of the Law include provisions relating to international cooperation:

• China will develop international cooperation regarding anti-money laundering in accordance with international treaties that have been concluded or that China is a party to, and the principles of equality and reciprocity;
• The PBOC will represent China to coordinate anti-money laundering cooperation with foreign governments and relevant international organizations, and exchange relevant information and materials with foreign anti-money laundering agencies.
• Judicial agencies will assist in the prosecution of anti-money laundering crimes "in accordance with relevant legal provisions."

China became an observer to the FATF in January 2005, and Zhou Yong, with the Ministry of Justice Crime Prevention Institute, said in a November 1 Shanghai Securities News report (via the People's Daily Web site, in Chinese), that by becoming an official member, the Chinese government can enjoy many advantages including participating in assembling lists of anti-money laundering "non-cooperative nations and regions," which would have a "big affect on their reputation." Zhou also said that as a full member, China would be able to "participate in the formulation of anti-money laundering international standards, and fully reflect China's interests and perspectives, enabling international policies to benefit China."

In an interview (in Chinese) published in the July 13 edition of Caijing Magazine, PBOC Anti-Money Laundering Bureau Director Ling Tao said that in recent years, graft, bribery, and corruption crimes have been consistently increasing, and one of the main reasons for this increase has been a failure to pursue the laundering of the monetary proceeds of these crimes. A November 1 China Economic News report (via Xinhua, in Chinese) also discussed the problem, and cited recent examples of officials laundering money gained through embezzlement, including the current prosecution of three former Bank of China branch managers in Kaiping, Guangdong province, who are accused of laundering US$485 million.

The state-controlled Chinese press generally has praised the new regulations, but the Shanghai Securities News report cited an unnamed expert from a securities oversight institution engaged in anti-money laundering research as saying that more work remains to be done:

[C]urrently the securities market is relatively lacking in a reporting system for large and suspicious transactions, and as for securities companies, fund companies, or commodity companies, there currently remain no regulations regarding under what circumstances a transaction is large, under what circumstances it is suspicious, what is the reporting method, what content is included in the essential factors of a report, at what time and within what scope there should be a report. Therefore, after the "Anti-Money Laundering Law" is issued, the securities market must take the initiative to work in this area.