China

China

  Back to search

Country contact

Simon Hui
Baker & McKenzie LLP
simon.hui@bakermckenzie.com

Haifeng Li
Baker & McKenzie Fenxun (FTZ) Joint Operation Office
haifeng.li@bakermckenziefenxun.com

Serene Shen
Baker & McKenzie FenXun (FTZ) Joint Operation Office
serene.shen@bakermckenziefenxun.com

Country contact - eporting by lawyers? Such obligation mainly applies to financial institutions. A financial institution shall report high-value transactions and suspicious transactions to:

  • the China Anti-Money Laundering Monitoring & Analysis Centre (the “China AML MAC”);
  • the Anti-Money Laundering Bureau.

Both of which are authorities within the People’s Bank of China (the “PBC”).

Where a financial institution, during the course of performing anti-money laundering review, discovers any suspected crime, it shall timely submit a written report to:

  • the local branch of the PBC; and
  • the local public security organ.

Money laundering is a crime in China. A person/entity is guilty of money laundering if he/she/it, knowing that the subject money is proceeds or profits from crimes involving drugs, organized gangs, terrorism, smuggling, corruption, disruption of financial regulations and financial frauds, commits one of the following acts:

  • the provision of a fund account;
  • the aiding of converting assets into cash, financial instruments and securities;
  • the aiding of in transferring funds by way of wire transfers or other settlement means;
  • the aiding of remitting funds abroad; or
  • the use of any other means

in order to disguise or conceal the sources and nature of such proceeds and profits.

  • People's Bank of China;
  • China Banking and Insurance Regulatory Commission (the "CBIRC");
  • China Securities Regulatory Commission (the “CSRC”);
  • Ministry of Public Security;
  • State Administrator of Foreign Exchange Administration.

A non-exhaustive list of the laws regarding anti-money laundering ("AML") is shown below.

  • Circular on Strengthening the Anti-money Laundering Supervision of Designated Non-financial Businesses Institutions (General Office of the PBC, issued and effective on 13 Jul 2018) [Applicable to lawyers and law firms]
  • Criminal Law of the People’s Republic of China, Article 191, 312, 349 (revised and effective on 4 Nov 2017) [Applicable to lawyers as natural persons]
  • Administrative Measures for Anti-money Laundering and Counterterrorism Financing by Internet Finance Service Agencies (Trial Implementation) (Joint Order of PBC, CBIRC and CSRC, issued on 10 Oct 2018 and effective on 1 Jan 2019)
  • Administrative Measures for Freezing of Assets Involving Terrorist Activities (Joint Order of PBC, Ministry of Public Security and Ministry of National Security [2014] No.1, issued and effective on 10 Jan 2014)
  • Administrative Measures for Identifying the Financial Institutions' Clients and Preserving Their Identity Information and Transaction Records (Joint Order of PBC, CBRC, CSRC, CIRC [2007] No.2, issued on 21 Jun 2007 and effective on 1 Aug 2007)
  • Administrative Measures for the Reporting of Large-value and Suspicious Transactions by Financial Institutions (PBC Order [2016] No. 3, issued on 28 Dec 2016 and effective on 1 July 2017, and revised and effective on 26 Jul 2018)
  • Anti-Money Laundering Law of the People’s Republic of China (Issued on 31 Oct 2006 and effective on 1 Jan 2007)
  • Anti-Money Laundering Work Guideline for Members of the China Futures Association (Issued and effective on 19 May 2008)
  • Anti-terrorism Law of the People’s Republic of China (Issued on 27 Dec 2015 and effective on 1 Jan 2016, and revised and effective on 27 April 2018)
  • Anti-money Laundering Guidelines for Securities Companies (Issued and effective on 28 April 2014)
  • Circular on Further Improving Identity Identification of Beneficiary Owners (PBC, Yin Fa [2018] No. 164, issued and effective on 27 Jun 2018)
  • Circular on Issuing the Administrative Measures for the Class-based Rating of the Anti-money Laundering Efforts of Legal-person Financial Institutions (for Trial Implementation) (PBC, Yin Fa [2017] No.1, issued and effective on 3 Jan 2017)
  • Circular on Strengthening Account-opening Management and the Follow-up Control Measures after Suspicious Transaction Reporting (PBC, Yin Fa [2017] No.117, issued and effective on 12 May 2017)
  • Circular on Strengthening Client Identification for Anti-money Laundering (PBC, Yin Fa [2017] No.235, issued and effective on 20 Oct 2017)
  • Circular on the Issue of Data Interface Specification for Anti-Money Laundering Field Inspection of Non-Bank Payment Institutions (Trial Implementation) (PBC, Yin Fa [2017] No.301, issued and effective on 29 Dec 2018)
  • Detailed Implementing Rules for the Measures for the Administration of Payment Services of Non-Financial Institutions (PBC Order [2010] No.17, issued and effective on 1 Dec 2010)
  • Detailed Rules for Anti-money Laundering Investigations (Trial Implementation) (PBC, Yin Fa [2007] No.158, issued and effective on 21 May 2007)
  • Insurance Law of the People’s Republic of China (Revised and effective on 24 Apr 2015)
  • Law of the People’s Republic of China on the People’s Bank of China (Revised on 27 Dec 2003 and effective on 1 Feb 2004)
  • Law of the People’s Republic of China on Banking Regulation and Supervision (Revised on 31 Oct 2006 and effective on 1 Jan 2007)
  • Measures for the Administration of Anti-money Laundering Work in the Insurance Sector (CIRC, Bao Jian Fa [2011] No.52, issued on 13 Sep 2011 and effective on 1 Oct 2011)
  • Measures for the Administration of Payment Services of Non-Financial Institutions (PBC Order [2010] No.2, issued on 14 Jun 2010 and effective on 1 Sep 2010)
  • Measures for the Supervision of Anti-money Laundering by Financial Institutions (for Trial Implementation) (PBC, Yin Fa [2014] No.344, issued and effective on 15 Nov 2014)
  • Notice on Clarifying Implementation Issues of Suspicious Transaction Reporting Regime (PBC, Yin Fa [2010] No.48, issued and effective on 10 Feb 2010)
  • Notice on Further Strengthening Anti-Money Laundering and Anti-Terrorist Financing (PBC, Yin Ban Fa [2018] No.130, issued and effective on 26 Jul 2018)
  • Notice on Further Strengthening AML Work of Financial Institutions (PBC, Yin Fa [2008] No.391, issued and effective on 20 Dec 2008)
  • Notice on Regulating House Purchase Financing and Strengthening Anti-Money Laundering Work (MOHURD, PBC, CBRC, Jian Fang [2017] No. 215, issued and effective on 29 Sep 2017)
  • Notice on Strengthening the Anti-money Laundering Work in the International Remittance Agency Business (PBC, Yin Ban Fa [2008] No.170, issued and effective on 2 Jun 2008)
  • Notice on Strengthening the Anti-Money Laundering in Cross-Border Remittances (PBC, Yin Fa [2012] No.199, issued and effective on 12 Aug 2012)
  • Notice on Strengthening the Anti-money Laundering Work of Financial Institutions in their Cross-border Business Cooperations (PBC, Yin Fa [2012] No.201, issued and effective on 19 Aug 2012)
  • Opinions on Improving the Regulatory Systems and Mechanisms for Fighting against Money Laundering, Terrorist financing and Tax Evasion (General Office of the State Council, Guo Ban Han [2017] No.84, issued and effective on 29 Aug 2017)
  • Provisions on Anti-Money Laundering Through Financial Institutions (PBC Order [2006] No.1, issued on 14 Nov 2006 and effective on 1 Jan 2007)
  • Securities Law of the People’s Republic of China (Revised and effective on 31 Aug 2014)
  • State Security Law of the People’s Republic of China (Issued and effective on 1 Jul 2015)
  • Administrative Measures for Anti-money Laundering and Counter-terrorism Financing for Banking Financial Institutions (Draft for Comment) (CBIRC, issued on 26 Oct 2018)

Yes

If yes, to what extent?

China's criminal law has jurisdiction over anybody within the territory of PRC (excluding Hong Kong and Macau). Foreigners will therefore be subject to the penalty under local anti-money laundering laws if they commit money laundering within China (excluding Hong Kong and Macau).

The reporting obligations apply to financial institutions and the customs authorities.

There is no specific guidance for lawyers. However, on 13 Jul 2018, the PBC issued the Circular on Strengthening the Anti-money Laundering Supervision of Designated Non-financial Businesses Institutions, which came into force upon issuance (the "Circular").

The Circular generally states that law firms carrying out or preparing for transactions for their clients concerning the buying and selling of real estate or business entities, management of money, securities or other assets of clients, management of bank or securities accounts of clients, organization of contributions for the creation or operation of enterprises, are considered to be designated non-financial institutions which have AML and counter-terrorist financing ("CFT") obligations. However, the new rule doesn't provide detailed stipulations as to the specific AML/CFT obligations that should be undertaken by lawyers. Therefore, the AML/CFT obligations imposed on lawyers and law firms remain quite unclear.

Although the Ministry of Justice is responsible for supervising lawyers, and lawyers must respect the Code of Ethics issued by the All China Lawyer Association (the “ACLA”), the Ministry of Justice and the ACLA are not specifically required by the PRC Law on Lawyers or the Code of Ethics to supervise lawyers in respect of AML obligations.

However, Article 49 of the PRC Law on Lawyers allows the justice administrative authority to revoke a lawyer’s practicing certificate if a criminal penalty is imposed on him for an intentional crime.

This requirement only applies to financial institutions and not to lawyers/law firms. A financial institution shall maintain special AML posts, to which full-time personnel responsible for reporting high-value transactions and suspicious transactions are assigned, and provide necessary resources and information support to those posts.

There are no such requirements on lawyers. However, Article 11 of the Rules on Legal Counsel for Lawyers issued by the ACLA indicates that for clients who are legal persons, lawyers are required to determine (1) whether that legal person is a “legal establishment or has a legal existence”; (2) its current conditions; (3) the scope of its business as confirmed in its business license; and (4) its actual major business scope. For clients who are natural persons, lawyers are required to determine those natural persons' nationality, residence, vocation and “other natural conditions”. Lawyers are also required to keep a working diary of legal services provided. The Rules on Lawyers Engaging in Securities Business (Trial Implementation) also require lawyers engaging in securities work to keep their working papers for 10 years.

However, the report published by the Financial Action Task Force on Money Laundering ("FATF") in 2007 notes that the provisions under the abovementioned Article 11, in respect of CDD and record keeping, are not fit for the purpose of AML as per the guidance provided by FATF.

According to the report published by the FATF in 2012 (at [181], [191], [209] and [211]), although China has significantly strengthened the AML/CFT requirements in industries such as real estate, China has not yet extended these comprehensive requirements to lawyers.

Law firms may conduct CDD for financial institutions, as financial institutions can rely on a third party's CDD (Article 17 of the PRC Anti-Money Laundering Law). Accountability for whether sufficient CDD has been performed will fall to the financial institution rather than the law firm.

No, there are currently no CDD requirements that must be undertaken by lawyers, on a risk-based approach or otherwise.

No, there is no information available with regards to simplified CDD measures for certain types of clients.

No, there is no information available in respect of whether lawyers have to undergo enhanced CDD for certain types of clients.

According to Article 129 of the Company Law of the People's Republic of China, a company has the power to issue bearer shares.

In China, beneficial owners are also permitted. The Circular on Strengthening Client Identification for Anti-money Laundering and the Circular on Further Improving Identity Identification of Beneficiary Owners provide the following standards for the identification of beneficial owners of entities:

  1. In terms of a company, the beneficial owner shall be identified according to the following standards in sequence:
    a) a natural person who directly or indirectly owns more than 25% of the company's stock rights or voting rights;
    b) a natural person controlling the company by HR affairs, financial affairs or any other form;
    c) a senior executive of the company; and
    d) other natural person who has effective control or actual influence on the company.
  2. In terms of a partnership, the beneficial owner refers to a natural person who owns more than 25% of the rights and interests of the partnership.
  3. In terms of a trust, the beneficial owner refers to the trustor, trustee, beneficiary and other natural persons who have ultimate valid control over the trust.
  4. In terms of a fund, the beneficial owner refers to a natural person who owns more than 25% equity shares or any other natural person controlling the fund.
  5. In terms of other entities, the criteria for the identification of the beneficial owner of a company may be taken as a reference to identify the beneficial owner of such entities.

Both of the circulars require the financial institutions to strengthen the identification of the beneficial owners of the non-natural person clients when establishing or maintaining business relations with such clients.

There is no information available with regards to whether lawyers are permitted to rely on third party’s CDD or not.

There is currently no law specifically obliging a lawyer to report suspicious transactions. However, Article 110 of the PRC Criminal Procedure Law (amended in 2018) provides that "…[a]ny entity or individual, upon the discovery of the facts of a crime or a criminal suspect shall have the right and the obligation to report the crime or criminal suspect to a public security authority, a people's procuratorate, or a people's court…". Therefore, lawyers have a general obligation to report a money laundering crime.

In addition, under Article 38 of the PRC Law on Lawyers, lawyers are under a duty to reveal information obtained from a client, which pertains to endangering state/public security (e.g. suspicions of terrorist financing). Article 38 should be read in conjunction with Article 17 of the State Security Law of the People’s Republic of China, which requires any citizen that finds an act which endangers state security to report directly or through work channels to a state security or public security organ without delay.

Lawyers are therefore required to promptly report any information obtained from their clients pertaining to suspicions/knowledge of terrorist financing.

There is currently no specific law which provides that attorney/client privilege and/or duties of confidentiality provide a defense or partial/total exception to reporting suspicious transactions.

In fact, Article 38 of the PRC Law on Lawyers provides that as an exception to client confidentiality, lawyers must reveal information that relates to the commissioning/preparation of a crime which will endanger state or public security or seriously endanger another person’s personal safety or safety of property.

As such, knowledge/suspicions of financing for terrorism would need to be reported regardless of confidentiality.

There is currently no law which provides any criminal or civil indemnity to a lawyer who has reported a suspicious transaction. However, where a lawyer has reported a suspicious transaction, the lawyer's details shall be kept confidential by the authorities.

There is currently no law which allows a lawyer to proceed with legal advice or a transaction once a suspicious transaction report has been filed. Article 17 of the State Security Law does not provide advice on what to do after the relevant authorities have been notified.

There is currently no law requiring lawyers to undergo on-going monitoring for existing clients.

C.f. Under Article 9 of Provisions on Anti-Money Laundering Through Financial Institutions, financial institutions are required to re-check a client’s identity when detecting any abnormal phenomenon or questioning the authenticity of any identity documents previously obtained.

There is currently no relevant rule available. However, Article 11 of the Rules on Legal Counsel for Lawyers issued by the ACLA may be taken as a reference. Article 11 indicates that before accepting the offer as being a legal counsel of a natural person, lawyers shall determine the natural person’s nationality, residence, vocation and “other natural conditions”. Therefore, the lawyer may require and review the relevant documents to verify the abovementioned situations concering the natural person.

There is currently no relevant rule available. However, Article 11 of the Rules on Legal Counsel for Lawyers issued by the ACLA may be taken as a reference. Article 11 indicates that before accepting an offer to be the legal counsel of a legal person, a lawyer shall determine (1) whether the legal person is a “legal establishment or has a legal existence”; (2) its current conditions; (3) the scope of its business as confirmed in its business license; and (4) its actual major business scope. Therefore, the lawyer may require and review the relevant documents to verify the abovementioned particulars of a potential client.

Articles 32 and 48 of the PRC Law on Lawyers provide that lawyers can refuse to take on a client if they believe that the nature of the work would violate the law, or the lawyer’s services would be used to engage in illegal activities. Accordingly, lawyers would be permitted to reject clients based on their knowledge or belief that the work would involve facilitating money laundering or terrorist financing.

Yes, the FATF published the First Mutual Evaluation Report on Anti-Money Laundering and Combating the Financing of Terrorisom of the People’s Repulic of China on 29 June 2007, the Follow-up Report to the Mutual Evaluation Report of China on 17 February 2012, and a new Mutual Evaluation Report of China on 17 April 2019.

34. If yes, what were the findings concerning Lawyers' compliance with the FATF 40+9 recommendations?

FATF’s first mutual evaluation took place in 2006. The feedback by the FATF in relation to designated non-financial businesses and professions (“DNFBP”), including lawyers, was that:

  • There are only very limited customer identification and record keeping requirements apply to dealers in precious metals and stones, lawyers, notaries, real estate agents and company service providers;
  • Dealers in precious metals and stones, lawyers, notaries, real estate agents and company service providers are not required to establish internal AML/CFT control programs;
  • Dealers in precious metals and stones, lawyers, notaries, real estate agents and company service providers are not monitored or supervised for compliance with AML/CFT requirements, since no such requirements yet apply to them.

Since then, the PRC has had 8 follow-up evaluations, and the follow-up report released in February 2012 concluded that China has made significant overall progress since the first mutual evaluation report. In terms of findings concerning lawyers' compliance, the follow-up report indicates that:

  • China has significantly strengthened the AML/CFT requirements applicable to trust service providers (“TSPs”), and taken some action to strengthen CDD and record keeping requirements in the real estate sector. However, China has not yet extended comprehensive customer identification and record keeping requirements to dealers in precious metals and stones, lawyers, notaries, real estate agents and company service providers.
  • China has strengthened the obligations for TSPs to establish internal AML/CFT control programs. However, it has not yet extended similar requirements to any other type of DNFBP, i.e. dealers in precious metals and stones, lawyers, notaries, real estate agents and company service providers.
  • China has made some progress in establishing in the real estate sector a joint coordination mechanism on AML/CFT supervision. Additionally, work is underway to supervise the real estate sector for compliance with AML/CFT requirements. However, dealers in precious metals and stones, lawyers, notaries, real estate agents, and company service providers are not yet monitored or supervised for compliance with AML/CFT requirements, as comprehensive AML/CFT requirements do not yet apply to them.

On 17 April 2019, a new Mutual Evaluation Report was released, concluding that in the PRC, except for precious metals trading venues and dealers, DNFBPs (including lawyers) are not subject to AML/CFT obligations due to the absence of an explicit designation. The report further stated that the PBC is working with competent departments of relevant industries to establish the AML/CFT administration systems for lawyers and notaries, which will stipulate obligations on CDD, recordkeeping, Politically Exposed Persons, new technologies, internal controls, enhanced CDD measures against the higher-risk countries, and tipping-off and confidentiality for these DNFBPs.