China’s First Anti-money Laundering Law Goes into Effect
China's first Anti-money Laundering Law, approved on October 31, 2006, by the Standing Committee of the National People’s Congress, the country’s top legislature, went into effect on January 1, 2007. The People’s Bank of China, the country’s central bank, issued new implementation rules on anti-money laundering through financial institutions.
- Provisions on Anti-money laundering through Financial Institutions (“Provisions”), effective date: January 1, 2007.
- Administrative Measures on the Reporting of Large and Suspicious Transactions by Financial Institutions (“Measures”), effective date: March 1, 2007.
China ’s Anti-money Laundering Law widens the definition of money laundering that previously only referred to drug trafficking, organized or terrorist crime, and smuggling to include corruption, bribery, and financial frauds.
The two rules apply to the following financial institutions: (1) commercial banks, urban credit cooperatives, rural credit cooperatives, postal savings institutions, policy banks; (2) securities companies, futures brokerage companies, fund management companies; (3) insurance companies, insurance asset management companies; (4) trust and investment companies, financial assets management companies, financial companies, financial leasing companies, auto finance companies, currency brokerage firms; (5) other financial institutions determined by the People’s Bank of China.
The Measures provide specific types of large transactions in RMB and foreign exchange.
- A single cash transaction exceeding RMB200,000 (US$25,400) or a transaction with a cumulative value of RMB200,000 within a day such as cash deposit, withdrawal, settlement, conversion, and remittance. For foreign currencies, the sum is US$10,000 or its equivalent.
- A single transfer exceeding RMB2,000,000 or a transfer with a cumulative value of RMB2,000,000 (US$254,000) within a day between a legal entity, organization, and sole proprietor’s bank account. For foreign currencies, the sum of the money transfer is US$200,000 or its equivalent.
- A single transfer exceeding RMB500,000 (US$63,500) or a transfer with a cumulative value of RMB500,000 within a day either between natural persons’ bank accounts or between bank accounts of a natural person and legal entity, organization, and sole proprietor. For foreign currencies, the sum of the money transfer is USD100,000 or its equivalent.
- A single cross-border transaction exceeding US$10,000 or a transaction with a cumulative value of US$10,000 with a natural person as one party.
The Provisions make clear-cut provisions on the freezing of funds: a temporary freezing may not exceed 48 hours. If a financial institution fails to receive a notice of continuing the freezing within 48 hours after it takes temporary freezing measures as required by the People’s Bank of China, it shall immediately lift the temporary freezing.
The anti-money laundering law will help China's accession to the world’s money policing agency, the Financial Action Task Force on Money Laundering (FATF). The FATF was established at the G-7 Summit in Paris in 1989 in response to mounting concern over money laundering. It has 33 members and China became an observer in 2005.
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