On April 17, 2019, the Financial Action Task Force (FATF) published Mutual Evaluation Report on Anti-Money Laundering and Counter-Terrorist Financing Measures of the People’s Republic of China (hereinafter referred to as the Report).
The FATF is the world’s most influential inter-governmental body that promotes policies to combat money laundering and terrorist financing and sets standards for global anti-money laundering and counter-terrorist financing (AML/CFT). China became a full member of the FATF in 2007. In 2012, the FATF released the newly revised International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: the FATF Recommendations. Based on the Recommendations, the FATF has been conducting mutual evaluations for its members on the effectiveness and technical compliance of their AML/CFT measures from 2014 to 2022. In 2018, the FATF commissioned the International Monetary Fund (IMF) staff-led international assessment team to conduct a one-year mutual evaluation for China. The team paid an onsite visit to Beijing, Shanghai and Shenzhen, and conducted face-to-face interviews with more than 900 representatives from over 100 institutions. The People’s Bank of China (PBC) along with the other member ministries of the Anti-Money Laundering Joint Ministerial Conference (AMLJMC) made conscientious preparations and assisted in the completion of the mutual evaluation. In February 2019, the Mutual Evaluation Report on Anti-Money Laundering and Counter-Terrorist Financing Measures of the People’s Republic of China was adopted by the FATF at its second Plenary meeting of FATF-XXX.
The Report fully recognizes China’s progress in the work of AML/CFT in recent years and concludes that China has the foundation for a sound system to tackle AML/CFT. The Report holds that China has established a multi-tiered national money laundering risk assessment system, and formulated and implemented AML/CFT strategies and policies nationwide. The AMLJMC operates effectively. China’s AML/CFT supervisory system has made positive progress in the financial sector, and financial institutions and non-banking payment institutions have a full understanding of their AML/CFT obligations. Law enforcement authorities, with access to a wide range of financial intelligence, has made remarkable achievements in combating predicate crimes including corruption, illegal fundraising and drug trafficking, and pursued and confiscated a large amount of criminal proceeds. China attaches great importance to CFT and implements effective investigations, prosecutions and conviction of crimes regarding terrorist financing. In terms of international cooperation, China has established a sound legal framework and has carried out Special Operations “Skynet” and “Fox Hunting” to help with the recovery of enormous overseas criminal assets.
Meanwhile, it is pointed out in the Report that some problems still need to be addressed in China’s AML/CFT. For instance, given the size and composition of China’s financial sector, the sanctions applicable are yet to be enhanced; the lack of coverage of designated non-financial businesses and professions (DNFBPs) by the AML/CFT supervisory system remains a vulnerability and the awareness of ML risks and AML/CFT obligations in the DNFBPs sector is generally insufficient; there are still deficiencies in the transparency of beneficial ownership of legal persons and legal arrangements; law enforcement authorities emphasize predicate crimes in case investigations and prosecutions, the use of financial intelligence, and the engagement in international cooperation, while relatively insufficient attention is given to ML crimes; and China still faces institutional inadequacy in relation to the implementation of United Nations Security Council (UNSC)-targeted financial sanction regimes, including deficiencies in the scopes of persons and entities with AML/CFT obligations, types of assets and contents of obligations, and untimely circulation of new UNSC resolutions (UNSCRs) within the government.
The Report recommends that China expand the information sources for its national ML/FT assessment; improve the AML/CFT legal framework for the DNFBPs sector, strengthen risk assessment of financial institutions and DNFBPs, and step up supervision and monitoring for better technical compliance and risk management; improve working procedures of the Financial Intelligence Unit (FIU) and intensify the crackdown on ML/FT crimes; consider building a centralized registration system for beneficial ownership to boost the transparency of legal persons and legal arrangements; and improve the timeliness of legal assistance and other international cooperation so as to create a comprehensive legal framework for the implementation of UN-targeted financial sanctions and raise the efficiency of domestic circulation of new resolutions within the government.
In general, the Report provides a summary of China’s AML/CFT measures by the FATF and pertinent evaluations of China’s national risk assessments and policy coordination, supervision and monitoring of DNFBPs, law enforcement, and international cooperation. The recommended actions it offers are conducive to China’s efforts in enhancing the level of compliance and effectiveness of AML/CFT measures. However, due to the differences in the legal frameworks and cultures among FATF member economies as well as the limitations of the evaluation procedure and time arrangements, improperness is inevitable in some aspects. For the next step, relevant Chinese departments will take the opportunity to draw on appropriate recommendations raised in the report on the basis of China’s national conditions to push forward China’s AML/CFT measures and make contribution to the prevention of major risks and maintenance of financial security.
