People’s Republic of China - Financial Action Task Force

1 April 2019 Anti-money laundering and counter-terrorist financing measuresChinaAnti-money laundering and counter-terrorist financing measuresPeople s Republic of China Mutual Evaluation Report2019 The Financial Action T ask Force (F ATF) is an independent inter-governmental body that develops and promotes policies to protect the global Financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CTF) standard. For more information about the FATF, please visit the website: This document and/or any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

2 This assessment was led by staff of the International Monetary Fund, and adopted by the FATF at its February 2019 Plenary meeting. Citing reference: 2019 FATF-. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the FATF Secretariat, 2 rue Andr Pascal 75775 Paris Cedex 16, France (fax: +33 1 44 30 61 37 or e-mail: Photo Credit - Cover: Getty Images FATF (2019), Anti-money laundering and counter-terrorist financing measures People s Republic of China , Fourth Round Mutual Evaluation Report, FATF, Paris 1 Anti-money laundering and counter-terrorist financing measures in China - 2019 FATF, APG and EAG 2019 Table of Contents Key Findings.)

3 5 Risks and General Situation .. 6 Overall Level of Effectiveness and Technical Compliance .. 7 Priority Actions .. 14 Effectiveness and Technical Compliance Ratings .. 16 MUTUAL EVALUATION REPORT .. 19 Preface .. 19 CHAPTER 1. ML/TF RISKS AND CONTEXT .. 21 ML/TF Risks and Scoping of Higher-Risk Issues .. 22 Country s Risk Assessment and Scoping of Higher Risk Issues .. 26 27 Structural Elements .. 28 Background and Other Contextual Factors .. 28 CHAPTER 2. NATIONAL AML/CFT POLICIES AND CO-ORDINATION .. 41 Key Findings and Recommended Actions .. 41 Immediate Outcome 1 (Risk, Policy and Coordination) .. 42 CHAPTER 3. LEGAL SYSTEM AND OPERATIONAL ISSUES .. 49 Key Findings and Recommended Actions .. 49 Immediate Outcome 6 ( Financial Intelligence ML/TF) .. 52 Immediate Outcome 7 (ML Investigation and Prosecution) .. 69 Immediate Outcome 8 (Confiscation).

4 79 CHAPTER 4. TERRORIST FINANCING AND FINANCING OF PROLIFERATION .. 89 Key Findings and Recommended Actions .. 89 Immediate Outcome 9 (TF Investigation and Prosecution) .. 92 Immediate Outcome 10 (TF Preventive Measures and Financial sanctions ) .. 100 Immediate Outcome 11 (PF Financial sanctions ) .. 107 CHAPTER 5. PREVENTIVE MEASURES .. 113 2 Anti-money laundering and counter-terrorist financing measures in the People s Republic of China - 2019 FATF, APG and EAG 2019 Key Findings and Recommended Actions .. 113 Immediate Outcome 4 (Preventive Measures) .. 114 CHAPTER 6. SUPERVISION .. 131 Key Findings and Recommended Actions .. 131 Immediate Outcome 3 (Supervision) .. 133 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS .. 155 Key Findings and Recommended Actions .. 155 Immediate Outcome 5 (Legal Persons and Arrangements) .. 156 CHAPTER 8.

5 INTERNATIONAL CO-OPERATION .. 165 Key Findings and Recommended Actions .. 165 Immediate Outcome 2 (International Co-operation).. 166 TECHNICAL COMPLIANCE ANNEX .. 181 Recommendation 1 Assessing Risks and Applying a Risk-Based Approach .. 181 Recommendation 2 National Cooperation and Coordination .. 184 Recommendation 3 Money Laundering Offence .. 185 Recommendation 4 Confiscation and Provisional Measures .. 188 Recommendation 5 - Terrorist Financing Offence .. 190 Recommendation 6 - Targeted Financial sanctions Related to Terrorism and Terrorist Financing 192 Recommendation 7 - Targeted Financial sanctions Related to Proliferation .. 195 Recommendation 8 Non-Profit Organisations .. 197 Recommendation 9 Financial Institution Secrecy Laws .. 200 Recommendation 10 Customer Due 201 Recommendation 11 - Record-keeping .. 208 Recommendation 12 - Politically Exposed Persons.

6 209 Recommendation 13 - Correspondent Banking .. 210 Recommendation 14 - Money or Value Transfer Services .. 212 Recommendation 15 - New Technologies .. 213 Recommendation 16 - Wire Transfers .. 213 Recommendation 17 Reliance on Third Parties .. 217 Recommendation 18 Internal Controls and Foreign Branches and Subsidiaries .. 217 Recommendation 19 - Higher-Risk Countries .. 219 Recommendation 20 - Reporting of Suspicious Transactions .. 220 Recommendation 21 - Tipping-off and Confidentiality .. 222 3 Anti-money laundering and counter-terrorist financing measures in China - 2019 FATF, APG and EAG 2019 Recommendation 22 - DNFBPs: Customer Due Diligence .. 222 Recommendation 23 - DNFBPs: Other Measures .. 226 Recommendation 24 - Transparency and Beneficial Ownership of Legal Persons .. 227 Recommendation 25 - Transparency and Beneficial Ownership of Legal 230 Recommendation 26 Regulation and Supervision of Financial Institutions.

7 231 Recommendation 27 - Powers of Supervisors .. 237 Recommendation 28 - Regulation and Supervision of DNFBPs .. 238 Recommendation 29 - Financial Intelligence 240 Recommendation 30 - Responsibilities of Law Enforcement and Investigative Authorities .. 245 Recommendation 31 - Powers of Law Enforcement and Investigative Authorities .. 246 Recommendation 32 - Cash Couriers .. 247 Recommendation 33 - Statistics .. 250 Recommendation 34 - Guidance and 251 Recommendation 35 - sanctions .. 252 Recommendation 36 - International Instruments .. 256 Recommendation 37 - Mutual Legal Assistance .. 256 Recommendation 38 - Mutual Legal Assistance: Freezing and Confiscation .. 258 Recommendation 39 - Extradition .. 260 Recommendation 40 - Other Forms of International Cooperation .. 261 Summary of Technical Compliance Key Deficiencies .. 267 Glossary of Acronyms.

8 275 Executive Summary 1. This report provides a summary of the anti-money laundering/combating the financing of terrorism (AML/CFT) measures in place in the People s Republic of China ( China )1 as at the date of the onsite visit (July 9 27, 2018). It analyses the level of compliance with the Financial Action Task Force (FATF) 40 Recommendations and the level of effectiveness of China s AML/CFT system, and provides recommendations on how the system could be strengthened. Key Findings a) China has undertaken a number of initiatives since 2002 that have contributed positively to its understanding of ML/TF risk, although some important gaps remain. Its framework for domestic AML/CFT co-operation and co-ordination is well established. b) China s de-centralised FIU arrangement consisting of CAMLMAC, AMLB and 36 PBC provincial branches has high potential to produce Financial intelligence that supports the operational needs of competent authorities but its current functioning results in incomplete access by all parts of the FIU to all data, a fragmented analysis and disseminations, and limits the development of a holistic view.

9 Therefore, major improvements are needed. c) LEAs have access to and use a wide range of Financial intelligence throughout the lifetime of an investigation, but Financial intelligence is not driving ML investigations. When using Financial intelligence, LEAs identify predicate criminal behaviours and actively investigate these. Predicate crime investigation outcomes reflect that China has capable LEAs that are skilled in the investigation of complex Financial crime and associated predicate crime. Effective, proportionate, and dissuasive sanctions are available and are applied for ML. d) China has an institutional framework in place to investigate and prosecute TF activities, in line with its understanding of TF risks and in line with its strategy to prevent TF and disrupt TF channels. Since the implementation 1 The following territories were not included as part of this assessment: Hong Kong Special Administrative Region (Hong Kong, China ), Macau Special Administrative Region (Macau China ) and Chinese Taipei.

10 6 6 FATF/ME(2019)5 6 Anti-money laundering and counter-terrorist financing measures in the People s Republic of China - 2019 FATF, APG and EAG 2019 6 | EXECUTIVE SUMMARY of a new counterterrorism law in 2015 and related interpretations, the number of TF prosecutions and convictions has increased. e) The implementation of TF and PF targeted Financial sanctions is negatively affected by three fundamental deficiencies, related to (i) scope of coverage of the requirements and a lack of a prohibition covering all persons and entities; (ii) the types of assets and funds of designated entities that can in practice be frozen, and the type of transactions that can be prohibited; and (iii) a lack of implementation without delay for non-domestic designations. That said, the CTL and relevant PBC Notice are a good starting point for future updates to the legal system in line with revised FATF standards, and to improve effective implementation.