Since the 2019 People’s Republic of China (China) mutual evaluation report (MER) by the Financial Action Task Force (FATF), the country has taken a number of actions to strengthen its anti-money laundering/counter-terrorist financing (AML/CTF) framework. This article provides an update on China’s efforts to combat money laundering and terrorist financing in recent years and reviews the effectiveness of these efforts.
Upgraded Legal Framework: The Criminalization of Money Laundering and Terrorist Financing
China has a good legal framework with respect to the criminalization of money laundering and terrorist financing, national coordination arrangements, the powers and responsibilities of law enforcement authorities, and arrangements for international cooperation.
In order to improve the legal system further and make up for the defects of existing laws, China passed the 11th Amendment to the Criminal Law of the People’s Republic of China on December 26, 2020. According to the announcement, effective January 3, 2021, the crime of money laundering has been modified and enacted. More specifically, the crime of “self-laundering”1 has been clearly defined and included in the criminalization of money laundering. After making the specific amendment, the predicate crimes of money laundering as stipulated in Articles 191 and 312 of the Criminal Law also include all crimes in the legislation and self-laundering can result in a separate conviction.
As highlighted in its MER, China faces a serious terrorism threat. From 2011 to 2016, China registered 75 terrorist-related incidents that killed 545 people. The main conflict area and focus for the authorities is the northwest province of Xinjiang, from where the Eastern Turkistan Islamic Movement (ETIM) operates, but attacks have occurred throughout China. Given this situation, China established a relatively complete legal system against terrorism, including the Criminal Law, the Criminal Procedure Law, National Security Law, Counterterrorism Law and other laws to combat terrorism and terrorist financing activities.
Effectiveness in Combating Money Laundering and Terrorist Activities
In order to crack down on telecom network fraud, China has carried out various efforts.2 As of October 2020, China has identified and cracked down on 155,000 telecom network fraud cases and arrested 145,000 suspects, up 65.6% and 74.1% respectively from the same period last year. A total of 210,000 fraudulent domain name websites were blocked, over 51 million fraudulent phone calls were intercepted and disposed of, over 630 million fraudulent text messages were received and over 100 billion yuan ($15.4 billion) of funds involved in the case were successfully stopped and frozen.
China has also achieved fruitful results in cracking down on cross-border gambling crimes.3 By the end of September 2020, the Ministry of Public Security of China accomplished the following:
- Established more than 8,800 cross-border gambling cases
- Arrested more than 60,000 suspects
- Knocked out more than 1,700 gambling-related platforms, more than 730 illegal technical teams and more than 820 gambling promotion platforms
- Eliminated more than 1,400 illegal payment platforms and underground banks
- Identified billions of yuan of illicit funds
- Seized and froze a large number of funds involved
- Successfully stopped several illegal money channels controlled by large overseas gambling groups in China, effectively deterring international gambling groups from infiltrating into the country
At the same time, China overcame the adverse effects of the COVID-19 pandemic, innovated law enforcement cooperation and worked closely with the relevant national police to capture 590 overseas Chinese gambling suspects.
To further combat corruption and economic crimes, China has launched various special operations. For example, the Central Commission for Discipline Inspection carried out Special Operation “Skynet,” the Supreme People’s Procuratorate carried out special operations related to international fugitive repatriation and asset recovery on corruption-related crimes and the Ministry of Public Security launched Special Operation “Fox Hunt.” Between 2014 and 2020, 7,831 individuals who had previously fled China were recaptured from 120 countries and total assets accumulating to 19.65 billion Chinese yuan (about $3.04 million) were recovered.4 In 2015, Interpol China National Central Bureau released a 100 fugitives list (Red Notice) of persons involved in corruption cases. By the end of 2020, 60 out of 100 individuals were caught.
China has achieved increasingly remarkable results in cracking down on money laundering crimes. Since 2011, the reporting quality of suspicious transactions by financial institutions (FIs) have continuously improved and the valuable crime clues provided by FIs have been increasing. The monitoring and investigation of anti-money laundering (AML) funds have played an important role in the fight against crimes, involving corruption and bribery, terrorist financing, underground banks, drugs, illegal fundraising, telecommunication fraud and financial fraud. In 2019, for example, all branches of the primary regulator, People’s Bank of China (PBOC), assisted in the investigation of 447 cases involving serious criminal cases, 1,902 cases involving corruption, 1,190 cases of transferring clues to underground banks, 1,044 cases of assisting in the investigation of underground banks, 395 cases of providing tax-related clues and 524 cases of assisting in the investigation of tax-related cases.5
Strengthened Supervision of FIs and DNFBPs
The 2019 mutual evaluation also highlighted that China’s supervision of FIs and designated nonfinancial businesses and professions (DNFBPs) was not effective, dissuasive, nor proportionate given the size of the banks and other FIs in the financial sector, as well as the lack of initial responses to remedial measures. The MER especially noted that no AML/CTF remedial actions or sanctions have been applied to any online lending institutions or to DNFBPs.
However, since then, the situation has much improved. Soon after the publication of the mutual evaluation results, the PBOC announced a report on AML/CTF supervision and oversight work,6 highlighting 658 AML/CTF thematic inspections and 1,086 comprehensive inspections containing AML content, resulting in 202 million yuan ($31.2 million) in penalties against 525 institutions. In addition, 838 individuals were also fined 13.41 million yuan ($2.07 million), making the total for AML/CTF penalties in 2019 more than 215 million yuan ($33.2 million). This AML/CTF penalty total represents a 13.7% increase from 2018. In 2020, the total amount of fines was about twice that of 2019. The PBOC has imposed AML penalties on 385 FIs and DNFBPs, resulting in 438 million yuan ($67.7 million) against institutions and individual penalties totaling about 19 million yuan ($2.9 million). The total amount of fines was around 457 million yuan ($70.6 million).
Best Practices in Tackling Internet Financial Money Laundering
China has strengthened the AML requirements for internet companies within traditional FIs. FIs are expected to sign cooperation and agency agreements that include AML and financial crime prevention requirements in accordance with relevant laws and regulations when collaborating with internet companies. They should also ensure that the AML and financial crime enforcement standards are not lowered due to cooperation and agency relationships.
The National Internet Finance Association of China (NIFA), a national self-regulatory organization for the internet finance industry, was established on December 31, 2015. NIFA promotes the development and implementation of self-regulatory conventions on AML/CTF by various types of institutions. To promote AML/CTF information sharing in internet finance, NIFA has built an internet network monitoring platform. Regulatory authorities, institutions and self-regulatory organizations can exchange AML/CTF work information through monitoring platforms, sharing work experience, jointly discussing industry challenges and issues, and simultaneously developing AML/CTF compliance technologies and tools, while sharing relevant data resources that comply with confidentiality system requirements.
The latest FATF follow-up report affirms the progress of China’s AML efforts
NIFA also has established a standard platform for internet financial identity verification.7 One end of the platform connects data sources of various channels and the other end connects with over 400 internet finance enterprises in China. Through collaboration between associations and relevant mainstream channels, it integrates ID information, operator information, bank card information and a variety of authentication channels to achieve identity verification. The platform can now verify capabilities on 13 interfaces in five aspects, namely citizenship information verification, bank card account information verification, network operator information verification, digital certificate verification and facial recognition. The platform is connected to commercial banks, third-party payment platforms, internet lending information agencies and other institutions to help perform customer identification tasks effectively.
China has demonstrated meaningful efforts to combat money laundering and terrorist financing, reflecting its continued commitment to be aligned with international standards. China’s various government departments, FIs and DNFBPs cooperated to explore the risk-based AML governance method and put it into practice, with meaningful success. The latest FATF follow-up report8 affirms the progress of China’s AML efforts. In the report, FATF has rerated the country on Recommendation 26 (Regulation and Supervision of Financial Institutions) from partially compliant to largely compliant; Recommendation 34 (Guidance and Feedback) from partially compliant to largely compliant; and upgraded the rating for Recommendation 15 (New Technologies) from partially compliant to largely compliant. China continues to strengthen its AML/CTF supervisory framework, and the world looks forward to its continued commitment to fighting financial crime.
Hue Dang, CAMS-Audit, VP & global head of business development & new ventures, senior Asia Pacific leader, ACAMS
Lynn Li, CAMS-Audit, China AML director, CAMS-Audit, ACAMS
- Gu Jidong Zhao Xuemin, “’Self-laundering’ is a situation in which the same person perpetrates both the primary offence and the money laundering offence,” The Supreme People’s Procuratorate of the People’s Republic of China, August 7, 2019, https://www.spp.gov.cn/spp/llyj/201908/t20190807_427724.shtml
- “The State Council’s Inter-Ministerial Joint Conference on Cracking down on New Types of Illegal Crimes in Telecommunications Networks decided to carry out a nationwide ‘broken card’ operation,” Chinese Ministry for Public Security,http://www.gov.cn/xinwen/2020-10/11/content_5550326.htm
- “The crackdown on cross-border gambling has achieved important phased results,” Chinese National Immigration Administration, October 22, 2020, https://www.nia.gov.cn/n897453/c1349418/content.html
- “From 2014 to June 2020, 7831 people chased and fled and recovered 19.654 billion yuan,” Xinhuanet, August 11, 2020, http://www.xinhuanet.com/legal/2020-08/11/c_1126350970.htm
- “Liu Honghua: Fully promote the in-depth development of anti-money laundering work,” Xinhuanet, June 5, 2020, http://www.xinhuanet.com/fortune/2020-06/05/c_1126076850.htm
- “The overall situation of the People’s Bank of China’s anti-money laundering supervision and management in 2019,” People’s Bank of China, April 30, 2020, http://www.pbc.gov.cn/fanxiqianju/135153/135163/135169/4017063/index.html?from=timeline
- “China’s progress in strengthening measures to tackle money laundering and terrorist financing,” Financial Action Task Force, 2020, https://www.fatf-gafi.org/publications/mutualevaluations/documents/fur-china-2020.html