Since joining the Financial Action Task Force (FATF) in June 2007, China has taken steps to develop and improve its anti-money laundering legislation so that it meets the FATF standards. The most recent such regulation, the Circular on Further Strengthening the Anti-money Laundering Work of Financial Institutions was issued by the People’s Bank of China on December 30, 2008. The Circular recognizes the anti-money laundering work that financial institutions and relevant regulatory departments have carried out since the implementation of the Anti-money Laundering Law of the PRC. Most importantly, it provides three additional requirements in combating money laundering. FATF recommended these requirements to Chinese legislators in its 2007 report, and the Chinese government is finally enforcing them for financial institutions through the Circular.
Following FATF’s advice urging organizations to develop anti-money laundering processes, the Circular requires financial institutions to refine their anti-money laundering operating rules and internal control systems. Financial institutions must specify persons among senior management to be responsible for the compliance management of anti-money laundering work, in order to ensure that relevant personnel are able to timely access information and other resources as needed. They must also strengthen their audit and publicity on anti-money laundering.
Additionally, the Circular emphasizes that due diligence investigations on clients must be constant and accurate to prevent money laundering risks. FATF identified the failure to conduct adequate customer due diligence as a major area of weakness in China’s anti-money laundering work in 2007. Under the Circular, financial institutions are required to strengthen the maintenance and management of client identity data. For clients who established business relationships with financial institutions before August 1, 2007, financial institutions will check these clients’ valid identity certificates or re-identify clients according to the provisions of the Administrative Measures for Client Identification and the Keeping of Client Identity Data and Transaction Records by Financial Institutions, which came into force on August 1st, 2007. The Circular also defines the term “individuals who actually control the clients and the actual beneficiaries of transactions,” as mentioned in the Identification Measures, to include (but not be limited to) persons in the following two categories: 1) the actual controllers of companies; and 2) persons who are not disclosed by the clients, but actually control the process of financial transactions, or finally enjoy the relevant economic benefits.
Finally, financial institutions are called upon to improve the anti-money laundering fund monitoring, and to strengthen the effectiveness of reports on large-sum and suspicious transactions. More specifically, the Circular spells out what transactions financial institutions can report as “suspicious,” and the steps these institutions need to take once they have identified a suspicious client.
Since financial institutions play a significant role in the fight against money laundering, the Circular further clarifies the responsibilities that these institutions must assume. Even though the Circular is one of many measures that signify the importance that China places on implementing a strategy against money laundering, China still has a long way to go. Besides adopting legislation, the government must ensure compliance with the requirements it sets out in the Circular and other similar regulations, and effectively enforce penalties for violations of these regulations.