PRC amends its AML Law to regulate specific non-financial institutions
min readOn 8 November 2024, the Standing Committee of the National People's Congress of the PRC issued the newly amended Anti-Money Laundering Law of the PRC (the “AML Law”). The amended AML Law came into effect on 1 January 2025.
Most notably, under the previous version, only financial institutions (e.g., banks, insurance companies or payment companies) are required to comply with the AML Law. However, under the amended AML Law, such obligation also covers specific non-financial institutions. Pursuant to Article 64 of the amended AML Law, specific non-financial institutions include the following entities:
- real estate development companies or intermediaries providing real estate sales and brokerage services;
- accounting firms, law firms and notarial agencies entrusted with handling real estate transactions, managing funds, securities or other assets, supervising bank or securities accounts, raising funds for the establishment and operation of enterprises, and facilitating sale and purchase of operating entities;
- dealers engaging in spot trading of precious metals and gemstones above specified monetary thresholds; and
- other entities designated by the AML administrative department of the State Council of the PRC in coordination with relevant departments of the State Council based on assessed money laundering risks.
Pursuant to Article 42 of the amended AML Law, specific non-financial institutions are required to comply with the amended AML Law by reference with the AML obligations of financial institutions, taking into account the relevant industry characteristics, business scale, and money laundering risks.
As such, if a business is deemed to fall within the scope of specific non-financial institutions above, it is required to comply with the amended AML Law by reference with, among other things, the following key AML obligations of financial institutions:
A. Internal control and risk management
Article 27 of the amended AML Law requires financial institutions to establish and enhance their internal control systems for AML compliance. This includes setting up special departments or designate an internal unit to take lead on AML compliance initiatives. Financial institutions should provide AML trainings and awareness programs for their employees.
In addition, financial institutions are required to regularly assess money laundering risks, formulate risk management systems, and establish relevant information systems as needed. Financial institutions need to ensure the effectiveness of their internal control systems through internal or external audits.
B. Enhanced client due diligence (the “CDD”)
Financial institutions should establish a CDD system internally. A CDD is required in any of the following circumstances:
- where establishing a business relationship with a client or providing a one-time financial service above a specified amount;
- where there are reasonable grounds to suspect that a client or transaction is involved in money laundering activities; or
- where there are any doubts about the authenticity, validity, or completeness of previously obtained identification information of the client.
The CDD methods include verifying the identity and the beneficial owner of the client and understanding the purposes of the business relationships and the transactions. If the money laundering risks are relatively high, financial institutions should also understand the source and use of funds. The CDD should be tailored to align with money laundering risks. A simplified CDD is possible if the money laundering risks are relatively low.
C. Client monitoring and document retention
Financial institutions are required to continuously monitor the overall situations of the client’s transactions and understand the money laundering risks over the entire course of the business relationship. If any red flags are identified, financial institutions should verify the relevant transactions and amend the risk management measures as appropriate.
Financial institutions should establish a system for maintenance of client identity information and transaction records. Over the course of a business relationship, the identity information of the client should be updated in a timely manner if there is any change. Upon completion of the business relationship or the transaction, the identity information of the client should be retained for at least ten years.
D. Reporting of high-value transactions
Financial institutions are required to establish a high-value transaction reporting system under PRC laws. If a single transaction or cumulative transactions of the client within a certain period of time exceed specified monetary thresholds, financial institutions shall promptly report such transactions to PRC AML authorities.
It should be noted that under the relevant PRC regulations, the thresholds are divided into four categories for different types of transactions, with the lowest threshold being RMB 50,000 for cash receipts and payments cumulatively or in a single transaction per day. That said, in practice the reporting of high-value transactions to PRC AML authorities is quite complex. It is conducted through comprehensive high-value and suspicious transactions monitoring systems as developed by PRC financial institutions and approved by PRC authorities. Absent further guidance from PRC authorities, the reporting obligations of specific non-financial institutions remain unclear at this stage.
Our observation
While the amended AML Law has addressed many substantive issues, there remain some uncertainties, particularly with respect to specific non-financial institutions. It is expected that detailed implementation rules could be issued by PRC AML authorities in due course, which may shed more light on the relevant issues concerning specific non-financial institutions. As such, businesses operating in the PRC should have a heightened awareness to PRC AML compliance, especially regarding specific non-financial institutions.
As always, we will continue to closely monitor the situation and provide updates if there is any further development.
For further guidance and tailored advice on the PRC AML Law or anything else discussed in this Quick Read, please get in touch with your Charles Russell Speechlys contact
Charles Russell Speechlys LLP is an international law firm that is not qualified to advise on the laws of the People's Republic of China (PRC). We do not practice Chinese law, nor are we licensed as lawyers in the PRC. Our firm collaborates closely with local lawyers and can facilitate introductions to support our clients' needs within the PRC.
The information provided in this document has been prepared by Charles Russell Speechlys LLP as a general guide only and should not be considered as legal advice on any specific matter. We strongly recommend that you seek professional advice before taking any action. Charles Russell Speechlys LLP accepts no liability for any decisions made or actions taken or not taken in reliance upon the contents of this information.
