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On November 8, 2024, the Standing Committee of the National People's Congress adopted the revised Anti-money Laundering Law, which will come into force on January 1, 2025. The new Law also expands the scope of upstream money laundering crimes, focuses on and monitors new-pattern money laundering risks, ensures the compatibility between anti-money laundering measures and risks, promotes the operability of anti-money laundering supervision and investigation, specifies the obligations of financial institutions and certain non-financial institutions, strengthens the international anti-money laundering cooperation and strengthens the penalties on money laundering activities.

I、Broadening the types of upstream crimes of money laundering

In order to adapt to the new situation and requirements, Article 2 of the newly revised Anti-Money Laundering Law further improves the description of the scope of upstream money laundering crimes, and on the basis of retaining the seven major types of upstream money laundering crimes, stipulates that the act of covering up or concealing the sources and nature of criminal gains and incomes generated from "other crimes" also belongs to money laundering activities. 

The Supreme People's Court and the Supreme People's Procuratorate released on August 19, 2024 the Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Money Laundering. Such judicial interpretations restate the 7 types of upstream crimes of money laundering as specified in Article 191 of the Criminal Law of the People's Republic of China and the Amendment XI to the Criminal Law of the People's Republic of China, and Article 12 thereof specifies again that: "The upstream crimes as mentioned in these Interpretations refer to drug-related crimes, organized crimes of gangland, crimes of terrorist activities, crimes of smuggling, crimes of corruption and bribery, crimes of disrupting the financial management order and crimes of financial frauds as specified in Article 191 of the Criminal Law of the People's Republic of China."

Regarding the predicate crime of money laundering, there seems to be some inconsistencies between the newly revised Anti-Money Laundering Law and the current Criminal Law, but in fact, the legislature has fully taken this into consideration, and the first and second drafts of the revised draft have been adjusted repeatedly, but considering the severity of the situation, the new law has been finalized to a broader scope. This broadens the scope of anti-money laundering monitoring over upstream crimes, such as tracing the activities of such criminals as telecommunication fraud and online gambling, and also provides room for penalties against more complex and diversified money laundering activities.

II 、 New Challenges for Specific Non-financial Institutions in AML Work

Although the old version of the Anti-Money Laundering Law includes certain non-financial institutions into the subjects subject to anti-money laundering obligations, it does not define the scope of "certain non-financial institutions" at the legal level. Previously, in the Circular on Strengthening the Anti-Money Laundering Supervision over Specific Non-Financial Institutions released and implemented by the General Office of the PBOC in July 2018, the PBOC for the first time enumerated eight types of institutions as "specific non-financial institutions". Article 64 of the newly revised Anti-Money Laundering Law adopts the legislative mode of "list + miscellaneous particulars", including: (1) real estate developers and real estate agencies; (2) accounting firms, law firms and notary agencies; (3) dealers for spot transactions of precious metals and precious stones; and (4) other institutions determined to perform the obligations of anti-money laundering. This comprehensive coverage not only fills the blind area of the traditional anti-money laundering supervision, but also builds up a "full-chain and multi-level" anti-money laundering prevention and control network in an innovative way, reflecting the systematic thinking of combating money laundering.

It should be noted that Paragraph 1 of Article 15 of the newly revised Anti-Money Laundering Law specifies that "the relevant department in charge of specific non-financial institutions under the State Council shall formulate, or the competent anti-money laundering authority under the State Council shall, in conjunction with the aforesaid department, formulate administrative regulations on anti-money laundering for specific non-financial institutions", which grants the competent anti-money laundering authority under the State Council and the relevant department in charge of specific non-financial institutions the power to adjust the scope of supervision in light of risk status. Meanwhile, it also stipulates that all institutions shall perform anti-money laundering obligations differentially in light of industrial characteristics, fully reflecting the flexibility and pertinence of supervision. This kind of system design not only responds to the practical challenge of constant evolution of new money laundering methods, but also provides stronger legal support for restraining the complex money laundering crimes across multiple industries and fields. Therefore, we also recommend that certain non-financial institutions pay close attention to the relevant detailed rules and cases of their respective industries to adapt to the anti-money laundering requirements in the new era. 

Ⅲ、Promoting the implementation of the due diligence system

The revised AML further establishes the due diligence system on the basis of the client identification system, and clarifies the application conditions and procedures of the system. Meanwhile, it is stipulated in the Revised AML that entities and individuals shall not engage in money laundering activities or provide convenience for money laundering activities, and shall cooperate with the due diligence conducted by financial institutions and specific non-financial institutions.

(Ⅰ) Three types of due diligence and the content of such due diligence

Paragraph 1 of Article 29 of the Revised AML clarifies the three types of due diligence conducted by financial institutions, including: (1) establishing business relationship with the clients or providing clients with one-off financial services whose value is above the specified amount; (2) there are reasonable grounds to suspect that clients and their transactions are suspected of money laundering activities; and (3) there are doubts about the authenticity, validity and completeness of the clients' identity materials obtained previously. Compared with the old AML, the Revised AML adds the circumstance of "there are reasonable grounds to suspect that clients and their transactions are suspected of money laundering activities or any other illegal or criminal activity", and expands the scope of due diligence conducted by financial institutions. Meanwhile, Article 30 of the Revised AML provides "continuous due diligence", which requires financial institutions to continuously pay attention to and assess the overall status and transactions of clients and understand the money laundering risks of clients throughout the duration of the business relationship.

Paragraph 2 of Article 29 of the Revised AML specifies the content of due diligence, which includes identifying and taking reasonable measures to verify the identity of clients and their beneficial owners, understanding the purpose of the business relationship established by clients and the purpose of the transactions, as well as the source and use of relevant funds where money laundering risk is involved. Meanwhile, in order to balance money laundering risk management and financial service optimization, Paragraph 3 of Article 29 of the Revised AML provides that financial institutions shall conduct due diligence based on the characteristics of the clients, as well as the nature and risk status of the transactions. For transactions with low money laundering risk, financial institutions shall simplify due diligence as the case may be. 

(II) Duties of all entities and individuals to cooperate in due diligence

Article 10 of the new CPL provides that entities and individuals shall cooperate with due diligence conducted by financial institutions and specific non-financial institutions. Article 38 of the new CPL provides that entities and individuals who have business relationship with financial institutions shall cooperate with due diligence conducted by financial institutions. The specific duties include: providing authentic and valid ID documents or other ID documents, filling in accurate and complete ID information, and providing true documents relating to transactions and funds. Financial institutions may take money laundering risk management measures such as restricting or refusing to handle business, and terminating business relationship with clients who refuse to cooperate with such measures, and submit suspicious transaction reports according to the circumstances.

Article 33 of the new CPL expands the scope of departments supporting due diligence by financial institutions. It provides that financial institutions may lawfully verify clients' ID information through anti-money laundering authorities, public security authorities, market regulation authorities, civil affairs authorities, tax authorities, immigration authorities and telecommunications authorities, and the relevant authorities shall provide support according to law. 

IV 、 Imposing heavier penalties on anti-money laundering and holding accountable persons accountable

A major highlight of the newly revised Anti-Money Laundering Law is that the chapter "Legal Liabilities" has been fully specified and the punishments on acts and persons violating the regulations have been strengthened.

(I) Expanding scope of penalties and imposing heavier penalties

The new AML not only expands the scope of non-compliance, but also imposes heavier penalties (see the table below for details). For example, with regard to the internal control of anti-money laundering, Article 52 increases the number of irregularities from three to nine and puts "failure to allocate staff based on business scale and money laundering risks as required; failure to conduct money laundering risk assessment or improve relevant risk management systems as required; failure to formulate and improve monitoring standards of suspicious transactions as required; failure to conduct internal audit or social audit of anti-money laundering as required; failure to conduct training of anti-money laundering; failure to establish information system related to anti-money laundering that should have been established or improve such information system as required; and principal persons in financial institutions fail to effectively perform their duties of anti-money laundering" into the list of items subject to administrative penalties as required by the PRC law. Meanwhile, on the basis of "ordering the violator to make rectification within a specified time limit", Article 52 further stipulates that "in relatively serious circumstances, a warning or a fine of not more than RMB 200,000 shall be imposed; in serious circumstances or failure to make rectification within the specified time limit, a fine between RMB 200,000 and RMB 2,000,000 shall be imposed, and the relevant financial administration authorities may, within the scope of its duties, restrict or ban the violator's relevant business as the case may be."For another example, for special anti-money laundering obligations such as due diligence on clients, Article 53 and 54 of the new AML increase the number of non-compliance items from 7 to 11. 

(II) Prescribing severe punishments for acts that lead to serious consequences such as crimes and terrorism.

Article 55 of the new Law provides that, where a financial institution "... causes criminal gains and the proceeds thereof to be covered up or hidden through the institution, or causes the consequence of terrorism financing, the anti-money laundering administrative authority of the State Council or its branches at the level of a city divided into districts or above shall order the financial institution to make rectification within a specified time limit. Where the amount involved is less than RMB 10,000,000, a fine ranging from RMB 500,000 to RMB 10,000,000 shall be imposed; where the amount involved is more than RMB 10,000,000, a fine ranging from 20% to 200% of the amount involved shall be imposed; and in serious circumstances, the financial management authorities may, depending on the circumstances and within the scope of their duties, impose or recommend the relevant financial management authorities to restrict or ban the violator from carrying out the relevant business, suspend business operations for rectification, or revoke its business license or impose other penalties."

(III) Enhancing the accountability of the responsible persons and providing exemptions from liability

In addition to the penalties imposed on the institution, the anti-money laundering administrative authority of the State Council or its branches at the level of a city divided into districts or above may, depending on the circumstances of the case, issue a warning to or impose a fine up to RMB 200,000 on the directors, supervisors, senior managers or other personnel directly responsible for the violation; where the violation has caused serious consequences, a fine ranging from RMB 200,000 to RMB 1 million shall be imposed on the directors, supervisors, senior managers or other personnel directly responsible for the violation; where the violation is serious, the anti-money laundering administrative authority of the State Council or its branches at the level of a city divided into districts or above may, depending on the circumstances, impose or recommend the relevant financial management authorities to impose such penalties as revoking the qualification of the violator, prohibiting the violator from engaging in financial work, etc.

It is worth mentioning that Article 56 of the AML reflects the orientation of "exemption of liability for those who have fulfilled their duties", stipulating that punishment is not necessary if the directors, supervisors, senior managers or other directly responsible persons of a financial institution can prove that they have diligently and dutifully taken anti-money laundering measures.

V 、 Improving determination of criminal liability and strengthening connection with laws

By clarifying that "criminal liability shall be investigated in accordance with the law" for three types of money laundering activities, the Revised Law has effectively connected with the AML administrative supervision and the Criminal Law. As for the money laundering activities conducted "by utilizing financial institutions", such as those conducted in form of bank transfer and securities trading, relevant provisions of the Criminal Law shall apply; as for the money laundering activities conducted by "specific non-financial institutions", such as money laundering conducted in form of real estate transaction and precious metals trading, the new Law clarifies the nature of criminal liabilities thereof, eliminating the ambiguity in the application of law; especially for the regulation and control over "illegal channels" (such as underground banks), the new Law provides more powerful legal weapons for cracking down on such illegal activities through definite connection with the Criminal Law. The close combination of administrative supervision and criminal punishment reflects the severity of anti-money laundering governance and improves the path for prosecution of money laundering crimes, which makes it difficult for the persons involved to take legal measures and ensures the legal effect of anti-money laundering work. 

VI 、 Compliance recommendations and practical path

（I）Establishment of an institution prevention and control system

1. First line of defense: daily control of business departments

Establishing a customer classification rating system and implementing differential management

Improving transaction monitoring standards and paying attention to abnormal indicators

Setting up risk early warning points of business links and implementing real-time monitoring

Establishing customer archive management system and ensuring complete and traceable data

2. Second line of defense: overall management of compliance department

Formulating complete AML internal control system and operating guidelines

Establishing a cross-departmental information sharing and coordination mechanism

Organizing to conduct risk assessment and update control measures in a timely manner

Supervising and inspecting the implementation of various systems

3. Third line of defense: independent supervision of internal audit department

Regularly conducting special audits to assess effectiveness of system

Tracking the rectification of problems to ensure the formation of closed-loop management

Reporting material risks in a timely manner and making recommendations for improvement

Assessing the adequacy and appropriateness of the compliance management system

(II) Fulfillment of compliance duties of practitioners

1. Responsibilities of senior management

Formulating a compliance management strategic plan and annual targets

Allocating necessary human and technical resources support

Establishing Performance Appraisal and Accountability Mechanism

Maintaining effective communication with regulatory authorities

2. Duties of department heads

Detailing the department's compliance management process and operating criteria

Organizing to conduct relevant training and evaluation

Supervising the implementation of compliance in daily business

Establishing a quick response mechanism to handle abnormal situations

3. Requirements for front-line employees

Strictly implementing customer identification procedure

Accurately recording and preserving transaction information

Timely identifying and reporting suspicious transactions

Maintaining professional sensitivity and vigilance

(III) Scientific and technological empowerment and continuous optimization

1. Application of technical tools

Using big data to achieve an accurate risk profile

Applying artificial intelligence to improve monitoring efficiency

Establishing an intelligent compliance management platform

Achieving automation of key processes

2. Improvement of management mechanisms

Establishing a regular assessment and update mechanism

Improving emergency disposal and response plan

Strengthening data quality and system security management

Driving continuous improvement of compliance management

3. Integration of external resources

Strengthening policy communication with regulatory authorities

Developing peer exchanges to learn best practices

Introducing professional agencies to provide advisory guidance

Participating in industry standard development and research

This multi-level and omni-directional compliance management system not only ensures the effective implementation of regulatory requirements, but also takes into account the feasibility of actual operations. Institutions can appropriately adjust and optimize various measures according to their own characteristics and business scale, and establish a compliance management model suitable for their own.