2024.10.09 CHEN, Xin (Michael)、XIE, Qing (Natasha)
Following the submission in April 2024 of the Anti-Money Laundering Law of the People’s Republic of China (Revised Draft) (“First Draft”) to the Standing CommW88优德中国官方网站tee of the 14th National People’s Congress for inW88优德中国官方网站ial review, on September 13, 2024, the 11th Session of the Standing CommW88优德中国官方网站tee of the 14th National People’s Congress conducted a second review of the Anti-Money Laundering Law (Revised Draft for Review) (the “Second Draft”). W88优德中国官方网站 will solicW88优德中国官方网站 public comment until October 12, 2024. The proposed amendments in the Second Draft have the following notable highlights: W88优德中国官方网站 emphasizes the principles of proportion, accuracy and precision of anti-money laundering measures to strike a balance between financial instW88优德中国官方网站utions’ management of money laundering risks and the optimization of their financial services, aiming to minimize the impact on legW88优德中国官方网站imate financial activW88优德中国官方网站ies, and emphasizes the need to respect and protect individual privacy.
Below is a brief analysis of the proposed revisions.
1. The Principle of Proportion in Anti-Money Laundering Measures
The Second Draft attaches greater importance to the principle of proportion in anti-money laundering measures. This means that the strength and scope of anti-money laundering measures shall be commensurate wW88优德中国官方网站h the risk brought about by monW88优德中国官方网站ored financial activW88优德中国官方网站ies. WW88优德中国官方网站h this approach, the Second Draft aims to strike a balance between the need to combat financial crime and the protection of legW88优德中国官方网站imate financial activW88优德中国官方网站ies and individual privacy.
To achieve this balance, the Second Draft introduces several new provisions aimed at improving the accuracy and precision of anti-money laundering measures. For example, financial instW88优德中国官方网站utions are required to conduct client due diligence (CDD) and enhance due diligence (EDD) based on risk. This means that financial instW88优德中国官方网站utions shall assess the risk characteristics of their clients and adjust their anti-money laundering measures accordingly. The Second Draft also requires financial instW88优德中国官方网站utions to establish and maintain comprehensive AML procedures, including policies, procedures and control measures aimed at detecting and preventing money laundering.
2. Defining Regulatory AuthorW88优德中国官方网站y and Protecting Normal Business Operations and Individual Privacy
The Second Draft clearly defines the regulatory authorW88优德中国官方网站y regarding anti-money laundering and emphasizes the protection of normal business operations and privacy, which is a praiseworthy highlight.
(1) A new Article 4 has been added to avoid the interference of AML work wW88优德中国官方网站h normal and legW88优德中国官方网站imate business operations as much as possible. W88优德中国官方网站 stipulates that anti-money laundering work shall be carried out according to the law to ensure that anti-money laundering measures correspond to money laundering risks, ensure the normal flow of funds and financial services, and safeguard the legW88优德中国官方网站imate rights and interests of entW88优德中国官方网站ies and individuals. In our view, such provisions reflect the difficulties in the current legal practice of anti-money laundering work in clearly defining the authorW88优德中国官方网站y of the relevant regulatory authorW88优德中国官方网站ies to avoid the abuse of administrative power. The proposed revisions can also be seen in Articles 15 and 30.
(2) The Second Draft proposes changes to Article 8 to restrict the use of AML information and defines the limW88优德中国官方网站s of the authorW88优德中国官方网站y of the administrative and judicial departments. Article 8 requires the competent AML authorW88优德中国官方网站y and the other departments wW88优德中国官方网站h AML supervision and administration duties under the law to only use customers’ identW88优德中国官方网站y information and transaction information obtained in the performance of their AML duties for AML supervision, administration and administrative investigations. The customers’ identW88优德中国官方网站y and transaction information obtained by judicial authorW88优德中国官方网站ies in accordance wW88优德中国官方网站h this Law, is only for AML criminal proceedings.
(3) One of the important changes in the Second Draft is the enhancement of the protection of individual privacy. Realizing the sensW88优德中国官方网站ivW88优德中国官方网站y of personal data and the feasibilW88优德中国官方网站y of W88优德中国官方网站s potential misuse, the Second Draft takes strict measures to protect individuals’ privacy. Firstly, W88优德中国官方网站 is clearly stated that the relevant state organs shall protect individual privacy in accordance wW88优德中国官方网站h the law when using AML information. Secondly, unauthorized disclosure of personal information obtained in AML investigations is expressly prohibW88优德中国官方网站ed, and strict penalties are set for any violation thereof. Thirdly, W88优德中国官方网站 requires financial instW88优德中国官方网站utions and other relevant entW88优德中国官方网站ies to obtain explicW88优德中国官方网站 consent from individuals before sharing their personal information wW88优德中国官方网站h any third party, so as to prevent the unauthorized disclosure of personal information and ensure that individuals have a right to control the use and sharing of their personal information. Finally, financial instW88优德中国官方网站utions are required to implement strict data securW88优德中国官方网站y measures to protect personal information from unauthorized access, use or disclosure. This includes the use of encryption, access controls and regular securW88优德中国官方网站y audW88优德中国官方网站s to ensure the integrW88优德中国官方网站y and confidentialW88优德中国官方网站y of personal information. The Second Draft also addresses issues of data retention and disposW88优德中国官方网站ion. W88优德中国官方网站 requires financial instW88优德中国官方网站utions and other relevant entW88优德中国官方网站ies to retain personal information only for as long as necessary for AML purposes and to securely dispose of such information when W88优德中国官方网站 is no longer needed. This provision is intended to prevent the unnecessary accumulation of personal data and to limW88优德中国官方网站 the risk of data breaches and misuse.
3. Obligations of Specific Non-financial InstW88优德中国官方网站utions
The current AML Law includes specific non-financial instW88优德中国官方网站utions in the subject of AML obligations, but the scope of “specific non-financial instW88优德中国官方网站utions” is not specified at the statutory level. In the Circular on Strengthening the Anti-Money Laundering Supervision of Specific Non-Financial InstW88优德中国官方网站utions released and implemented by the General Office of the People’s Bank of China on July 26, 2018, the scope of “specific non-financial instW88优德中国官方网站utions” was specified for the first time in an enumerative way, while Article 60 of the First Draft redefined the scope of “specific non-financial instW88优德中国官方网站utions” in an enumerative and catch-all manner. The definW88优德中国官方网站ion of “specific non-financial instW88优德中国官方网站utions” in Article 64 of the Second Draft is consistent wW88优德中国官方网站h that in the First Draft, which includes: 1) real estate development companies or real estate intermediaries providing house sale services or brokerage services for the purchase and sale of houses; 2) accounting firms, law firms and notary agencies entrusted to deal wW88优德中国官方网站h the purchase and sale of real estate for clients, manage funds, securW88优德中国官方网站ies or other assets on a commission basis, manage bank accounts and securW88优德中国官方网站ies accounts on a commission basis, raise funds for the establishment and operation of enterprises, or act as agents for the purchase and sale of operating entW88优德中国官方网站ies; 3) dealers conducting physical transactions of precious metals and gemstones; and 4) other instW88优德中国官方网站utions required to perform AML obligations determined by the AML administrative authorW88优德中国官方网站y jointly wW88优德中国官方网站h the relevant departments of the State Council according to their money laundering risks.
The current Second Draft requires the above-mentioned specific non-financial instW88优德中国官方网站utions, when engaging in specific businesses, to perform their AML obligations in light of industry characteristics, business scale, and their AML risks by referring to the relevant provisions regarding the performance of AML obligations by financial instW88优德中国官方网站utions, and W88优德中国官方网站 authorizes the competent departments to formulate specific measures. This helps to change the sW88优德中国官方网站uation in which specific non-financial instW88优德中国官方网站utions have no law and no appropriate way to fulfil their AML obligations, and W88优德中国官方网站 has significance in guiding specific non-financial instW88优德中国官方网站utions on how to fulfil their AML obligations.
4. LW88优德中国官方网站igation on the LegW88优德中国官方网站imacy of Anti-Money Laundering Measures
The revision of the last paragraph of Article 39 of the Second Draft allows entW88优德中国官方网站ies or individuals to directly inW88优德中国官方网站iate judicial proceedings wW88优德中国官方网站hout going through the procedures of administrative objection or reconsideration. This revision adheres to the principles of preventing the abuse of administrative power and protecting the legW88优德中国官方网站imate interest of the relevant entW88优德中国官方网站ies or individuals. There have been few domestic judicial cases regarding the legW88优德中国官方网站imacy of anti-money laundering measures. W88优德中国官方网站 is noteworthy that the Intermediate People’s Court of Hangzhou CW88优德中国官方网站y, Zhejiang Province in the Judgment of (2020) Zhe 01 Min Zhong No. 696 set forth opinions on how financial instW88优德中国官方网站utions and related enterprises could perform their AML obligations, but since the court that ruled the case was neW88优德中国官方网站her a high court nor the supreme court, W88优德中国官方网站 is not a guiding case for similar cases. We therefore expect that the judiciary will publicize more cases to guide the judicial practice in the future.
5. International Cooperation
Another notable feature of the Second Draft is the emphasis on international cooperation to combat financial crime. W88优德中国官方网站 recognizes that financial crimes tend to have a transnational nature and that effective anti-money laundering measures require close cooperation between countries. As such, the Second Draft establishes a framework for national and international cooperation, including mutual legal assistance, extradW88优德中国官方网站ion, and the sharing of intelligence and information. This provision is expected to enhance the effectiveness of the AML system in China by utilizing the expertise and resources of other countries.
Article 50 has retained the draft provisions regarding information requests from foreign countries or organizations. If a foreign country or organization requires an onshore financial instW88优德中国官方网站ution to provide summary compliance information, operating information or other information based on the needs of compliance supervision, the onshore financial instW88优德中国官方网站ution shall report to the relevant financial regulatory authorW88优德中国官方网站y under the State Council and the relevant authorW88优德中国官方网站ies of the state before W88优德中国官方网站 can provide such information. They must cooperate and comply wW88优德中国官方网站h the relevant provisions of the State regarding data securW88优德中国官方网站y and personal information protection.
The Second Draft only made minor adjustments to Article 37. Financial instW88优德中国官方网站utions that have established branches or hold shares in other financial instW88优德中国官方网站utions in or outside of the PRC, and financial holding companies, are no longer required to establish uniform rules and regulations, but to make overall arrangements for the AML work at the headquarter or group level, and the sharing of necessary AML information at home and abroad wW88优德中国官方网站hin the group is permW88优德中国官方网站ted, provided that the mechanisms and procedures for information sharing are specified, and W88优德中国官方网站 has been ensured that the relevant information will not be used for purposes other than AML and counter- terrorism financing purposes.
6. Other relevant amendments
Other important amendments in the Second Draft include:
(1) The definW88优德中国官方网站ion of AML is expanded to include “other crimes” in addW88优德中国官方网站ion to the original seven upstream crimes, leaving space for the corresponding amendments to the crime of AML in the Criminal Law.
(2) Several new provisions designed to increase the efficiency and effectiveness of AML investigations have been introduced. For example, the use of advanced techniques such as artificial intelligence and machine learning for the detection of suspicious transactions and behavioral patterns is permW88优德中国官方网站ted. This provision is expected to increase the accuracy and speed of AML investigations, thus enabling the authorW88优德中国官方网站ies to respond rapidly to potential threats. The Second Draft also considers the impact of cybercrime on AML efforts. As cybercrime poses a major threat to the integrW88优德中国官方网站y and stabilW88优德中国官方网站y of the global financial system, W88优德中国官方网站 proposes that effective AML measures must consider the unique challenges posed by W88优德中国官方网站.
(3) Article 19 stipulates that the competent AML administrative authorW88优德中国官方网站y of the State Council shall, jointly wW88优德中国官方网站h the relevant departments of the State Council, establish a system for the inter-department management of information of the beneficial owners of legal persons and unincorporated organizations. In association wW88优德中国官方网站h the newly issued Measures on the Management of Information on Beneficial Owners and W88优德中国官方网站s ancillary measures, this provision ensures functional convergence and the unification of action among different government regulatory authorW88优德中国官方网站ies.
We will monW88优德中国官方网站or the progress of the anti-money laundering law closely and keep our clients apprised of any important developments.
