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The
General Assembly of the State Council of the PRC resolved to adopt
the new PRC Anti-Money Laundering Law (AML Law) at its 24th meeting
on 31 October 2006. The new AML Law will be effective from 1 January
2007. Subsequently, the People’s Bank of China (POBC) issued the
Financial Institutions Anti-Money Laundering Regulations (effective
from 1
January
2007) (AML Regulations) and the Financial Institutions
Reporting and Monitoring Schemes for Large and Suspicious
Transactions (effective from 1 March 2007) (AML Reporting Schemes)
on 14 November 2006. This article will briefly describe the content
of the new AML Law, the AML Regulations and the AML Reporting
Schemes.
The
AML Law is relatively short (37 articles) compared with
corresponding laws overseas. Nevertheless, it is an important
milestone in the progress of the PRC towards fulfilling its
obligations under the United Nations Convention on Corruption and
other conventions, as well as towards becoming a member of the
Financial Action Task Force on Money Laundering (FATF) which was
established at the G7 Summit held in Paris in 1989.
The AML Law comprises seven Chapters. It describes AML policies in a
broad sense. All article references below are to the AML Law unless
otherwise stated.
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The
contents of the AML Law are:
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Chapter 1 |
General (articles 1 to 7)
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Chapter 2 |
Supervision of Anti-Money Laundering (articles 8 to 14) |
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Chapter 3 |
The obligations of Financial Institutions towards Anti-Money
Laundering (articles 15 to 22) |
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Chapter 4 |
Investigation of Suspected Money Laundering Activities (articles
23 to 26) |
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Chapter 5 |
Co-operation with International Organisations on Anti-Money
Laundering (articles 27 to 29) |
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Chapter 6 |
Legal Obligations (articles 30 to 33) |
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Chapter 7 |
Ancillary Rules (articles 34 to 37) |
The objective of the AML Law
The
objective of the AML Law is to prevent money laundering activities,
maintain good order in the financial system, and combat money
laundering activities and relevant crimes (article 1).
The
AML Supervisory Bureau
The
State Council Anti-Money Laundering Bureau is responsible for
supervising the anti-money laundering work and co-ordinating their
work with the judiciary and other relevant organisations in the PRC
(article 4).
It
is important to note that the PRC Customs Office is required to
promptly report instances of individuals who carry cash or
negotiable marketable securities of a value exceeding a prescribed
amount (to be determined jointly by the State Council AML
Supervisory Bureau and the Chief Customs Office) to the State
Council Anti-Money Laundering Supervisory Bureau (article 12).
Confidentiality during AML investigations
The
AML Law requires relevant AML administrative departments to keep
information obtained about the identities of relevant parties and
details of transactions confidential during the investigation of
suspected money laundering activities (article 5).
The
responsibility of Financial Institutions
The
term “Financial Institutions” is widely defined in article 34 to
include the following organisations established under the relevant
PRC laws and engaged in financial business:
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strategic banks; |
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commercial banks; |
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credit co-operation units; |
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postal savings institutions; |
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trust investment companies; |
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securities companies; |
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commodity broker firms; |
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insurance companies; and |
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other companies as confirmed and announced by the State Council
AML Administrative Department |
Financial Institutions are required to set up proper internal
control systems and establish or designate a specific department to
handle AML matters. Financial Institutions are required to know
their clients and obtain proper documentation to substantiate the
identities of their clients (articles 15 to 20).
Financial Institutions are required to comply with the reporting
systems as prescribed by the State Council AML Administrative
Department in respect of large and suspicious transactions (articles
20 and 21).
Financial Institutions are required to co-operate with the State
Council AML Administrative Department during the AML investigation
process if AML investigation officers (at least two) produce proper
identity cards or an authorisation letter issued by the State
Council AML Administrative Department or the first class Provincial
Police Bureau (articles 23 to 25).
Co-operation with international AML organisations
The State Council authorises the AML Administrative Department to enter
into mutual AML co-operation agreements with overseas countries or
AML international organisations.
Legal
responsibilities
The
AML Law imposes administrative sanctions on enforcement, supervisory
and administrative officers if they illegally carry out their
investigation or asset-freezing duties; disclose national,
commercial or private secrets acquired during the course of AML
investigation; illegally impose penalties on target organisations or
officers; or carry out any misconduct contrary to the AML Law
(article 30).
Financial
Institutions, their directors and responsible officers are liable
for penalties, both monetary and non monetary, if they do not fulfil
their legal obligations under the AML Law, e.g. entering into
transactions with suspicious individuals or opening accounts for
them in a false name; failure to maintain proper records or report
suspicious transactions, etc. (articles 31 to 33).
Which
organisation is the AML Administrative Department?
The
AML Law is silent on this matter. However, the “People’s Bank of
China Law” provides that PBOC is the authority in charge of
anti-money laundering issues in the financial industry. The PBOC
website has also confirmed that PBOC is the administrative
department of the State Council in charge of anti-money laundering
matters.
The
major provisions of the AML regulations and AML reporting schemes
The
PBOC issued the AML Regulations and AML Reporting Schemes on 14
November 2006. These list the transactions that Financial
Institutions must report. The definition of “Financial
Institutions” in the AML Regulations is the same as that under the
AML Law. Effective from 1 January 2007, the AML Regulations
supersede the old anti-money laundering regulations issued by PBOC
on 3 January 2003. Article 5 of the AML Regulations empowers PBOC to
assume the following supervisory duties over anti-money laundering
matters:
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formulation
of anti-money laundering regulations for financial
institutions with or without the involvement of the PRC
Banking Supervisory Committee, PRC Securities and Exchanges
Committee, and PRC Insurance Supervisory Committee; |
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monitoring
of anti-money laundering matters in both RMB and foreign
currencies; |
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supervision
and review of the status of Financial Institutions’
compliance with anti-money laundering obligations; |
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investigation
of suspicious transactions within the ambit of PBOC; |
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reporting
of suspected money laundering crimes to the investigative
departments; |
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co-operation
and exchange of information about AML matters with overseas
AML institutions; |
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other
relevant duties as prescribed by the PRC State Council. |
The
AML Reporting Schemes require Financial Institutions to report the
following four types of large value transactions to the AML
Monitoring Centre which is accountable to PBOC:
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Daily
cash payments, receipts, exchange, or remittance, either
individually or cumulatively, of sums more than RMB200,000 or
US$10,000 equivalent; |
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Daily
inter-bank transfers between the accounts of legal entities,
other organisations or individual commercial/industrial
entities, either individually or cumulatively, of sums more
than RMB2 million or US$200,000; |
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Daily
inter-bank transfers between the accounts of individuals,
individual and legal entities, other organisations and
individual commercial/industrial entities, either individually
or cumulatively, of sums more than RMB500,000 or US$100,000; |
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Daily
cross border transactions, either individually or
cumulatively, of sums more than US$10,000 where one of the
parties to the transactions is an individual. |
Temporary freezing
of funds
When
Financial Institutions temporarily freeze certain funds that are
being investigated by investigative departments in accordance with
provisional instructions from PBOC, the relevant funds must be
unfrozen immediately if no notice to continue to freeze the funds is
received from the investigative department within 48 hours from the
time when the notice of temporary freezing of funds was given
(Article 23 of the AML Regulations).
Other
major articles under the AML Regulations
Financial
Institutions and their officers are legally protected by Article 16
of the AML Regulations for reporting large transactions to PBOC.
The
AML Regulations confer wide investigative powers on PBOC in
fulfilling its duties as the AML Administrative Department. At the
same time, there are articles in the AML Regulations to protect the
rights of the suspects.
Conclusion
The
new PRC AML Law and AML Regulations show the commitment of the PRC
Government to join with international AML organisations in combating
cross-border money laundering transactions, criminal activities and
terrorism. It is good to see that the new law provides more
descriptive regulations and guidance. It is expected that the PRC
government will continue to close the loopholes in AML issues with
reference to international experiences.
peter.wong@gthk.com.hk
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