## 1chnea2019001 ## Source details **Canonical URL:** [1chnea2019001](https://www.imf.org/-/media/files/publications/cr/2019/1chnea2019001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1chnea2019001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1chnea2019001.pdf.json) --- ### EXECUTIVE SUMMARY — Overview and Key Findings - Onsite visit: July 9–27, 2018. - Scope: Assessment of AML/CFT measures in the People’s Republic of China (China) against FATF 40 Recommendations and 2013 Methodology; Hong Kong, Macau, and Chinese Taipei were not included. - Overall observations: - China has undertaken initiatives since 2002 contributing positively to ML/TF risk understanding, but important gaps remain. - Domestic AML/CFT cooperation and coordination framework is well established (AMLJMC). - Decentralized FIU arrangement (CAMLMAC, AMLB, and 36 PBC provincial branches) has high potential but current functioning produces incomplete data access, fragmented analysis/disseminations, and limits holistic intelligence — therefore major improvements needed. - LEAs use financial intelligence widely to support predicate investigations; financial intelligence is not driving ML investigations. - Law enforcement demonstrates capability in complex financial and predicate crime investigations; effective sanctions for ML are available and applied. - TF institutional framework exists and prosecutions/convictions increased after CTL implementation (2015/2016), but TFS implementation suffers three fundamental deficiencies (scope/coverage; asset/transaction freezing limitations; lack of implementation without delay for non-domestic designations). - FIs generally understand obligations but have insufficient risk understanding; mitigation measures generally not commensurate with risk. - AML/CFT supervisory system focused on financial sector; DNFBPs largely not covered or supervised. - Mutual legal assistance (MLA) and extradition follow domestic laws and treaties but decision-making structure is complicated and often protracted; expedited procedures exist for urgent cases. ### ML/TF Risks, Threats, and Vulnerabilities - Main proceeds-generating predicate crimes identified: illegal fundraising; fraud; trafficking in illicit drugs; corruption and bribery; tax crimes; counterfeiting of products; illegal gambling; telecommunications and internet fraud. - Terrorism: - From 2011 to 2016: 75 terrorist incidents that killed 545 people. - Main focus: Xinjiang province (ETIM); attacks occur throughout China. - Around 60 people each year from China have participated as foreign terrorist fighters in Syria and Iraq. - Financial sector profile: - Banks dominate with total assets of approximately RMB 252 trillion. - Banks considered highly vulnerable to ML/TF due to product nature and volume. - Rapid increase in online lending entities via mobile platforms. - Significant vulnerabilities: - Lack of DNFBP coverage by AML/CFT framework. - Absence of coverage of domestic PEPs (serious given prominence of corruption and state-owned-enterprises). - Cross-border flows and illicit proceeds: - Large amount of illicit proceeds flow out of China annually. - NRA: between 2014 and 2016, illicit proceeds totaling RMB 8.64 billion repatriated to China from over 90 countries. - Underground banking operations used to move proceeds offshore. - Abuse of legal persons facilitated by ineffective BO registration/retention arrangements. ### Financial Intelligence (IO.6) — FIU Arrangement and Performance - FIU structure: - CAMLMAC (central) receives STRs and LVTRs and information in key STRs; analyzes and disseminates to central LEAs or forwards to AMLB/provincial branches. - AMLB responsible for supervision, administrative investigations, policy oversight, and overall coordination of PBC AML/CFT work. - 36 PBC provincial branches: primary recipients of key STRs; conduct administrative investigations and disseminate to local LEAs. - Key limitations: - CAMLMAC, AMLB, and provincial branches largely operate independently; provincial branches maintain stand-alone databases not accessible to other components. - Dissemination by provincial branches requires signature of the president of the branch — potential limit on FIU operational independence. - STR requirements extend only to FIs; implementation insufficient; other sources (customs declarations, BO information) limited or nonexistent. - CAMLMAC’s spontaneous disseminations are limited by high thresholds; statistics (2016 CAMLMAC): total disseminations 3,421 (720 spontaneous, 2,701 on LEA request) contributing to 2,786 criminal investigations (85 from spontaneous, 2,701 from requests) — CAMLMAC spontaneous disseminations represent 3 percent of resulting criminal investigations. - LVTR volumes very high: LVTRs reached 4.94 billion in 2016. - Recommended actions (selected): - Review FIU functioning to ensure all information received, analyzed and disseminated by all three components is readily available and accessible centrally and provincially; create a unified database. - Remove requirement for signature of provincial branch president as a condition for dissemination to competent authorities to ensure FIU operational independence. - CAMLMAC and provincial branches should include financial intelligence from counterpart FIUs in analysis/dissemination. ### ML Investigation, Prosecution, and Confiscation (IO.7 / IO.8) - ML criminalization and prosecutions: - Three discrete ML offenses exist (Arts. 191, 312, 349 Criminal Law); self-laundering not criminalized. - Threshold to ML offense (Art. 312) below which ML is not criminalized ranges between RMB 3,000 and RMB 7,000 (US$440–$1,027) depending on region. - Majority of convictions secured under Art. 312 (receiving stolen property) — difficulty separating ML from receiving affects IO.7 assessment. - From 2013–2017 Art. 312 convictions totaled (per public data) 49,730 persons; revised data for 2013–2017: 88.6 percent of Art. 312 convictions related to ML (44,060 convictions) — assessment team cautioned on interpretation. - Conviction statistics (selected, publicly available judgments): - 2013: Art. 191 — 4; Art. 312 — 5,530; Art. 349 — 15 - 2014: Art. 191 — 2; Art. 312 — 9,346; Art. 349 — 12 - 2015: Art. 191 — 10; Art. 312 — 7,058; Art. 349 — 16 - 2016: Art. 191 — 26; Art. 312 — 5,549; Art. 349 — 23 - 2017: Art. 191 — 45; Art. 312 — 10,193; Art. 349 — 37 - Confiscation framework and outcomes: - Special confiscation provision Art. 280 CPL allows confiscation without conviction in certain circumstances (escape, death); judicial interpretation (Jan 2017) promoted application to specified predicate crimes including ML and TF. - Confiscations (2013–2017): Criminally derived property (POC) confiscated total RMB 84,779.63 million (RMB 84.77963 billion); POC confiscated increased from RMB 2.9 billion in 2013 to RMB 35 billion in 2017. - Confiscations identified from publicly available judgments during 2013–2017: RMB 123.2 billion. - Electronic enquiry platforms: as of March 2018, 39.1 million inquiries resulting in RMB 202 billion of deposits frozen, pending investigation. - Recommended actions (selected): - Review and consolidate ML offenses to create distinct receiving offense and a stand-alone ML offense; remove threshold for criminalization of ML (Art. 312) and reduce knowledge threshold (e.g., “should have known”). - Extend strategies beyond disruption of underground banking to identify third-party launderers and criminal customers. ### Terrorist Financing and Targeted Financial Sanctions (IO.9 / IO.10 / IO.11) - TF investigation and prosecution (IO.9): - Institutional framework exists; counterterrorism law (CTL) implemented 2016 increased focus and led to more prosecutions/convictions. - TF case statistics (Number of Cases and Convicted Persons, 2012–2016): - Cases: 0, 1, 18, 55, 147, 221 - Convicted persons: 0, 0, 6, 51, 153, 210 - China rated substantial for IO.9. - Recommended: detailed analysis of TF investigations/prosecutions; broaden geographic focus beyond Xinjiang; improve statistics and training. - TFS implementation deficiencies (IO.10 and IO.11): - Three fundamental deficiencies affecting TF and PF TFS: - (i) scope/coverage and lack of a prohibition covering all persons and entities; - (ii) practical limits on types of assets/funds that can be frozen and types of transactions prohibited (e.g., inability to freeze assets held outside financial sector or by third parties); - (iii) lack of implementation without delay for non-domestic/UNSCR designations. - Legal instruments: CTL and PBC Notice 2017/187 (PBC measures requiring freezing of UN-designated entities) — PBC Notice focuses mainly on financial sector and not effectively implemented. - UNSCR 1267/1373 implementation issues: - MFA average circulation time to PBC: slightly over seven days (not within “without delay” ideally hours). - FIs rely on commercial compliance software to mitigate delays; commercial databases may update one day after UN designation/amendment. - PF (IO.11): China lacks a comprehensive PF legal framework; PBC Notice 187/2017 addresses DPRK in part; low awareness of Iran‑related sanctions; overall IO.11 rated low. - Recommended actions (selected): - Create comprehensive legal framework for preventive TFS covering all persons/entities, including a general prohibition and all assets/transactions; amend PBC Notice 2017/187 in interim to require immediate freezing by FIs and DNFBPs. - MFA to reduce time to circulate UNSCRs to relevant bodies. - Conduct outreach to NPO sector and identify subset of NPOs at TF risk. ### Preventive Measures, CDD, BO, and DNFBPs (IO.4 / IO.5) - FIs and CDD: - Except for online lending institutions, FIs have satisfactory understanding of obligations but insufficient understanding of ML/TF risks. - CDD weaknesses: ineffective application, notable weaknesses in customer identification and verification, BO, and ongoing due diligence; many FIs accept customer declarations of BO and rely on 25 percent ownership threshold. - Transaction monitoring: indicators often generic; some institutions do not use CDD-collected info in monitoring. - STR reporting: - STRs to CAMLMAC decreased from 29.6 million in 2012 to 5.44 million in 2016. - Key STRs increased from 4,800 in 2012 to 8,504 in 2016. - Banks report >95 percent of STRs; PIs comprise majority of remainder; less than five percent of STRs are reported by PIs while PIs identified as higher risk in NRA. - Reporting by DNFBPs virtually nonexistent: between January 2017 and mid-2018, five DNFBPs submitted six STRs. - PBC measures: Category I/II/III personal bank account system (2016): - Category II daily payment limit: less than RMB 10,000. - Category III maximum account balance: no more than RMB 1,000. - Beneficial ownership and legal persons (IO.5): - Basic/legal information available publicly (NECIPS/SAMR) but not always accurate and easily circumvented (straw persons). - BO information of legal entities (domestic or foreign) is not publicly available. - Authorities plan a BO register at PBC fed by FI‑collected BO data — effectiveness depends on FI compliance and data accuracy. - Trusts: domestic civil trusts exist under Trust Law; foreign trusts operate in China; no comprehensive mitigation measures for trusts. - Recommended actions (selected): - Ensure competent authorities can obtain adequate, accurate and current basic and BO information in a timely manner; improve registration accuracy and retention; consider PBC BO register. - Provide guidance and training to improve BO collection and verification by FIs. - DNFBPs and online lending: - DNFBPs (real estate, dealers in precious metals, lawyers, notaries, accountants, CSPs) largely not designated under AML Law as of onsite; lack entry/background checks in some sectors (RE, DPS, CSPs). - Online lending sector: large sector (P2P), rapid growth; 2016 platforms 3,216 with loan balance RMB 690.9 billion; 2017 platforms 2,805 with loan balance RMB 1,224.7 billion; 2018 platforms 2,057 with loan balance RMB 871.6 billion. Sector subject to high-level AML obligations but not subject to PBC AML/CFT supervision. - Recommended: extend AML Law coverage to online lending institutions and designate DNFBPs with effective supervisory measures; prepare DNFBP guidance. ### Supervision and Sanctions (IO.3 / R.26–R.28 / R.35) - PBC and supervision: - PBC is the central AML/CFT authority, housing AMLB and CAMLMAC and coordinating via 36 provincial branches. - As of end-2017, PBC AML examination staff totaled 5,366 across China. - PBC’s supervisory activities 2015–2017: - Onsite supervisory visits and inspections performed; 2017 supervisory visits ~1,912; onsite inspections of high-risk FIs 605/1,046 (2017). - Coverage imbalances: - Banking sector under-represented in inspections relative to high inherent risk. - PBC does not carry out onsite inspections at foreign branches/subsidiaries. - Remedial actions and penalties: - Number of penalized institutions: 2017 = 255. - Aggregate penalties (RMB million): 2017 = 107.4. - Assessors: PBC AML/CFT financial penalties average about RMB 41 million per year (approx. US$6.02 million per year) and are not effective, dissuasive, nor proportionate. - No remedial actions or financial sanctions applied to online lending institutions or DNFBPs. - Supervisory gaps and recommendations: - PBC’s understanding of DNFBP risk low; supervision heavily banking-oriented. - Increase onsite inspections of high-risk banks; extend AML Law coverage to online lending; designate DNFBPs properly and ensure collaboration with sector supervisors; substantially increase fines/sanctions to be effective and dissuasive. - Fintech and PI sector: - Since 2015, the 22 largest FIs spent in excess of RMB 10 billion on AML/CFT controls (human resources, systems, training) following PBC remedial actions. - PBC identified weaknesses in PI sector (2015–2018(1H)) including internal control in Fintech business, CDD and BO issues, expired IDs, and suspicious transaction reporting — counts shown in Table 26 (see source). ### International Cooperation and MLA/Extradition (IO.2 / R.36–R.40) - Legal framework: - China has legal/procedural framework for MLA and extradition consistent with domestic laws, bilateral treaties and multilateral conventions. - Central authorities for MLA: MOJ, MPS, MFA, SPP/NSC depending on treaty/subject. - Practical issues: - Multi-channel decision-making structure complicates and often prolongs MLA/extradition processing (can take up to five weeks for clearance; expedited procedures available for urgent cases). - China uses alternative mechanisms (Operation Foxhunt, Skynet) to repatriate fugitives and recover assets — between 2014 and 2016, 2,566 fugitives returned along with RMB 8.6 billion. - FIU international engagement: - CAMLMAC not an Egmont member; has MOUs with 52 foreign FIUs. - CAMLMAC outgoing requests since 2012: total sent 63 (2012:7; 2013:6; 2014:9; 2015:4; 2016:8; 2017:29) — 59 ML-related, 4 mixed. - CAMLMAC responses provided to foreign FIUs since 2012: 1,244 requests received and assisted. - CAMLMAC sends comparatively few outgoing requests (approx. 1 request for every 30–40 requests it receives). - MLA/extradition statistics (selected): - MOJ MLA requests received: 2014 = 208; 2015 = 272; 2016 = 301; total MOJ 2012–2016 = 1,228 (53% of total reported to assessors). - Extradition requests sent by China since 2012: 103 requests to 34 countries; ML-related requests: 2. - MOJ MLA requests sent abroad (2012–First half 2018): total 155; ML included 14. - Beneficial ownership and international cooperation: - BO information is not easily and quickly available except where law enforcement obtains it by coercive powers or publicly for listed companies; BO response times in two cases were two to five months. - Lack of BO availability impedes effective international cooperation. - Recommended actions (selected): - Increase exchange of information in ML/TF cases and number of spontaneous requests to foreign counterparts; reduce time to respond to foreign requests; allocate resources and provide systematic training to personnel handling MLA. ### Priority Actions (Selected) - Expand NRA information sources to include broader perspectives (academic, international organizations, foreign jurisdiction feedback). - Review FIU functioning to centralize data, unify databases, and remove dissemination signature requirement at provincial branches. - Reorient policy focus from exclusive pursuit of predicate crime participants to broader “follow the money” investigations. - Create comprehensive legal frameworks for TF- and PF-related TFS including a general prohibition, coverage of all assets, and implementation without delay for UNSC designations; interim PBC Notice updates required. - Address AML/CFT framework shortcomings related to online lending institutions, DNFBPs, domestic PEPs, TFS, and reporting criteria; provide guidance. - Strengthen FI risk assessments, ongoing due diligence (transaction monitoring), and consolidated supervision of financial groups. - PBC to introduce entity-specific risk assessment and supervise DNFBPs (apart from trust companies and DPMs); review collaboration strategy with sector supervisors. - Ensure timely access to adequate, accurate and current basic and BO information; improve registration accuracy or accessible storage. - Increase international information exchange, spontaneous requests, and reduce response times. ### Effectiveness Ratings (exact) - IO.1 Risk, policy and coordination: Substantial - IO.2 International cooperation: Moderate - IO.3 Supervision: Moderate - IO.4 Preventive measures: Low - IO.5 Legal persons and arrangements: Low - IO.6 Financial intelligence: Moderate - IO.7 ML investigation and prosecution: Moderate - IO.8 Confiscation: Substantial - IO.9 TF investigation and prosecution: Substantial - IO.10 TF preventive measures and financial sanctions: Low - IO.11 PF financial sanctions: Low ### Technical Compliance Ratings (exact) - R.1 – Assessing risk and Applying Risk-Based Approach: LC - R.2 – National Cooperation and Coordination: C - R.3 – Money Laundering Offense: PC - R.4 – Confiscation and Provisional Measures: C - R.5 – Terrorist Financing Offense: LC - R.6 – Targeted Financial Sanctions—Terrorism and Terrorist Financing: PC - R.7 – Targeted Financial Sanctions—Proliferation: NC - R.8 – Nonprofit Organizations: PC - R.9 – Financial Institution Secrecy Laws: C - R.10 – Customer Due Diligence: LC - R.11 – Record-Keeping: C - R.12 – Politically Exposed Persons: NC - R.13 – Correspondent Banking: LC - R.14 – Money or Value Transfer Services: LC - R.15 – New Technologies: PC - R.16 – Wire Transfers: PC - R.17 – Reliance on Third Parties: LC - R.18 – Internal Controls and Foreign Branches and Subsidiaries: PC - R.19 – Higher-Risk countries: C - R.20 – Reporting of Suspicious Transactions: LC - R.21 – Tipping-off and Confidentiality: LC - R.22 – DNFBPs: Customer Due Diligence: PC - R.23 – DNFBPs: Other Measures: PC - R.24 – Transparency and BO of Legal Persons: NC - R.25 - Transparency and BO of Legal Arrangements: NC - R.26 – Regulation and Supervision of Financial Institutions: NC - R.27 – Powers of Supervision: PC - R.28 – Regulation and Supervision of DNFBPs: LC - R.29 – Financial Intelligence Units: PC - R.30 – Responsibilities of Law Enforcement and Investigative Authorities: PC - R.31 – Powers of Law Enforcement and Investigative Authorities: C - R.32 – Cash Couriers: LC - R.33 – Statistics: LC - R.34 – Guidance and Feedback: PC - R.35 – Sanctions: PC - R.36 – International Instruments: LC - R.37 – Mutual Legal Assistance: LC - R.38 – Mutual Legal Assistance: Freezing and Confiscation: PC - R.39 – Extradition: LC - R.40 – Other Forms of International Cooperation: LC *Source: EXECUTIVE SUMMARY and DETAILED ASSESSMENT REPORT — People's Republic of China AML/CFT Mutual Evaluation Report (on‑site visit July 9–27, 2018) — 1chnea2019001.* ### EXECUTIVE SUMMARY __________________________________________________________________________ 9 ### EXECUTIVE SUMMARY ### Overview - This report summarizes the anti-money laundering/combating the financing of terrorism (AML/CFT) measures in place in the People’s Republic of China (China) as at the date of the onsite visit (July 9–27, 2018). - It analyzes compliance with the Financial Action Task Force (FATF) 40 Recommendations and the level of effectiveness of China’s AML/CFT system, and provides recommendations to strengthen the system. - 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. ### Key findings - 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 cooperation and coordination is well established. - China’s decentralized financial intelligence unit (FIU) arrangement consisting of China Anti-Money Laundering Monitoring and Analysis Center (CAMLMAC), Anti-Money Laundering Bureau (AMLB), and 36 People’s Bank of China (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 on the development of a holistic view. - Therefore, major improvements are needed. - Law enforcement agencies (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 behaviors and actively investigate these. - Predicate crime investigation outcomes reflect that China has capable LEAs skilled in investigation of complex financial crime and associated predicate crime. Effective, proportionate, and dissuasive sanctions are available and are applied for ML. - China has an institutional framework in place to investigate and prosecute TF activities, in line with its understanding of TF risks and its strategy to prevent TF and disrupt TF channels. Since the implementation of a new counterterrorism law in 2015 and related interpretations, the number of TF prosecutions and convictions has increased. - The implementation of TF and proliferation financing (PF) targeted financial sanctions (TFS) is negatively affected by three fundamental deficiencies: - (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. - The Counter Terrorism Law (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. - While financial institutions (FIs) have a satisfactory understanding of their AML/CFT obligations, they have not developed a sufficient understanding of risks. Measures implemented to mitigate risk are generally not commensurate with different risk situations. - China’s AML/CFT supervisory system is almost exclusively focused on the financial sector; there are no effective preventive or supervisory measures in respect of the designated non-financial businesses and professions (DNFBP) sector. - The PBC has an inadequate understanding of risks overall. Although their understanding of risk impacting the financial sector is adequate, the PBC’s understanding of institution-specific risk seems to be largely based on the FIs’ own risk assessment rather than that of the authorities. - China handles mutual legal assistance (MLA) and extradition requests in accordance with procedures and standards stipulated by domestic laws, bilateral treaties and multilateral conventions, but a complicated decision-making structure for providing MLA or executing extradition requests makes the process often protracted. China can arrange an expedited procedure for urgent requests or cases. There is effective cooperation in some areas with some neighbors; however, there is a lack of data that would establish effective implementation of ML/TF related cooperation. ### Risks and general situation - Main proceeds-generating predicate crimes in China: illegal fundraising, fraud, trafficking in illicit drugs, corruption and bribery, tax crimes, counterfeiting of products, and illegal gambling. - China faces a serious threat from terrorism: - From 2011 to 2016, China registered 75 terrorist incidents that killed 545 people. - The main conflict area and focus for authorities is the northwest province of Xinjiang, from where the Eastern Turkistan Islamic Movement (ETIM) operates, but attacks occur throughout China. - Around 60 people each year from China have participated as foreign terrorist fighters in Syria and Iraq. - Financial sector profile and vulnerabilities: - With total assets of approximately RMB 252 trillion, banks dominate financial sector activity in China. - Based on nature of their products/services and volume of activity, banks are considered to be highly vulnerable to abuse with respect to ML/TF. - China has witnessed a rapid increase in the activity of online lending entities, primarily via mobile phone platforms. - Significant vulnerabilities: - The lack of coverage of DNFBPs by the AML/CFT framework is a significant vulnerability. - The absence of coverage of domestic politically exposed persons (PEPs) is another significant vulnerability, particularly given the prominence of corruption as a predicate offense and the dominant role of state-owned-enterprises in the economy. - Cross-border flows and illicit proceeds: - A large amount of illicit proceeds flows out of China annually. - As noted in the national risk assessment (NRA), between 2014 and 2016, illicit proceeds totaling RMB 8.64 billion were repatriated to China from over 90 countries. - China indicates illicit proceeds also flow out of the country through underground banking operations. - There are several instances in which criminals have fled the country, including suspects in corruption cases. - Abuse of legal persons has been identified as a method of laundering illicit proceeds, facilitated in part by ineffective arrangements for registering and retaining beneficial ownership (BO) information. *Source: EXECUTIVE SUMMARY (on-site visit July 9–27, 2018) — People’s Republic of China AML/CFT Mutual Evaluation Report.* ### 14. China has a good legal framework with respect to the criminalization of ML and TF, ### 14. China has a good legal framework with respect to the criminalization of ML and TF, ### Overall assessment and key findings - China has a good legal framework for the criminalization of ML and TF, national coordination arrangements, law enforcement powers and responsibilities, and arrangements for international cooperation. - Scope for strengthening: several preventive measures, coverage and supervision of DNFBPs, transparency of legal persons and legal arrangements, and the framework and practices related to TFS. - An incomplete understanding of ML/TF risk reduces effectiveness across implementation of preventive measures by FIs, supervision, and ML investigation and prosecution. - Weaknesses in institutional arrangements and practices adversely affect the use of financial intelligence. ### Assessment of risks, coordination and policy setting - The NRA was finalized just prior to the onsite visit; authorities demonstrated a strong understanding of its contents. - NRA limitations: - Focus on predicate offenses and on proceeds directly implicated in crime, limiting broader understanding of ML risks. - Assessment of risks of legal entities focuses on existing control measures. - TF assessment mainly qualitative, collating information from MSS, MPS, and PBC to identify sources and channels of terrorist financing. - National coordination: Anti‑Money Laundering Joint Ministerial Conference (AMLJMC) established in 2002 comprising 23 government departments; responsible for guiding AML/CFT work, formulating policies and strategies, and coordinating departments. ### Financial intelligence, ML and confiscation - Decentralized FIU arrangement within the PBC with three largely independently functioning components: CAMLMAC and AMLB at the central level and AML units within each of the 36 PBC provincial branches. - Limitations of FIU performance: - Analysis and dissemination are fragmented, preventing a holistic view. - STR requirements extend only to FIs and implementation is insufficient. - Other sources (cross‑border currency declarations, BO information) are limited or nonexistent. - FIU operational independence is potentially undermined (signature of the president of the PBC provincial branch conditions dissemination). - LEAs at central, provincial, and local levels use financial intelligence primarily to support investigations and prosecutions of predicate offenses rather than stand‑alone ML or TF investigations. - MPS/PSB responsibility for ML investigations; Economic Crime Investigation Department (ECID) leads complex financial crime investigations and contains skilled investigators. - Criminalization and prosecution: - Three discrete ML offenses exist. - Persons with knowledge to launder prior to predicate crimes often prosecuted as accomplices; self‑laundering is not criminalized. - Accomplices and self‑launderers convicted/sentenced in accordance with predicate crime penalty (serious crimes absorb less serious crimes). - Majority of ML convictions secured under Art. 312 of the Criminal Law, which also criminalizes receiving stolen property—difficulty separating convictions under Art. 312 affects IO.7 effectiveness assessment. - Confiscation: pursuit of criminal proceeds is a policy objective; confiscation often occurs as part of sentencing; confiscation in absence of conviction possible in certain circumstances (e.g., absconding or death). ### Terrorist financing and targeted financial sanctions (TFS) - Legal measures exist for domestic designation of possible terrorists but have not been used since 2012. - PBC measures requiring freezing of UN‑designated entities focus mainly on the financial sector and are not effectively implemented. - Fundamental deficiencies affecting TF and PF TFS implementation: - (i) scope of coverage and lack of a prohibition covering all persons and entities; - (ii) practical limits on asset/fund freezing and transaction prohibitions; - (iii) lack of implementation without delay for non‑domestic designations. - Authorities expressed commitment to establish comprehensive PF‑related TFS legal framework; insufficient information to establish implementation for TFS related to Iran; measures taken in relation to aspects of UNSCRs related to DPRK. ### Preventive measures (FIs and DNFBPs) - FIs generally understand AML/CFT obligations but have an insufficient understanding of ML/TF risks and apply mitigation measures not commensurate with risks. - Online lending institutions: have not developed an understanding of ML/TF risks or AML/CFT obligations; limited to no implementation of preventive measures. - CDD weaknesses: ineffective application, notable weaknesses in customer identification and verification, BO, and ongoing due diligence. - FIs do not effectively apply measures for PEPs, TFS, and higher‑risk countries. - Relative strengths: record‑keeping, correspondent banking relationships, new technologies, and wire transfers. - STR reporting: inconsistent practices raise tipping‑off risk; STRs concentrated in the banking sector; number of STRs modest given financial sector size. - DNFBPs: generally do not apply preventive measures; reporting of suspicious transactions is virtually nonexistent. ### Supervision and fit‑and‑proper - Shortcomings in fit‑and‑proper frameworks across most regulated FI subsectors (TC analysis): criminal record scrutiny period need not go beyond three years; basic entry requirements in online lending sector. - DNFBP sectors (real estate, DPS, CSPs) are not subject to entry or ongoing criminal background checks. - PBC’s understanding of financial sector risk: moderate; highly dependent on FIs’ correct implementation of risk assessment methodology. - PBC’s understanding of DNFBP risk: low. - AML/CFT supervisory system heavily oriented to the financial sector with emphasis on banking; level of inspections in banking not commensurate with risk. - Low or no levels of supervision in DNFBP sectors; sector supervisors/SROs not effective. - AML/CFT financial penalties applied by PBC average about RMB 41 million per year (approx. US$6.02 million per year) based on 2017 statistics; these are not effective, dissuasive, nor proportionate. No remedial actions or sanctions applied to online lending institutions or DNFBPs. - PBC impact: moderate on FIs’ compliance and risk management; sector supervisors supportive but limited; no discernible impact on online lending sector; low to nonexistent impact in DNFBP sectors. ### Transparency of legal persons and arrangements - Basic/legal information for legal entities is collected and publicly available online, but not always accurate and easily circumvented (e.g., straw persons). - BO information of legal entities (domestic or foreign) is not (publicly) available. - Authorities use basic information, CDD information collected by FIs, and law enforcement powers—each source has shortcomings; current combination falls short of an effective system for obtaining accurate, adequate and current BO information in a timely manner. - Authorities have initiated plans (including a BO register at PBC) that may improve effectiveness. - No granular understanding of ML/TF risks by type of legal person; risk classification in the NRA focuses on control measures related to technical compliance. - Trusts: Trust Law provides for domestic civil trusts; no measures taken to mitigate misuse of domestic trusts (current risks low due to lack of regulation that would foster use). Foreign legal arrangements operate in China; authorities have detected foreign trusts that operate in China. ### International cooperation - China has legal and procedural framework for providing and seeking MLA (including extradition) and uses it in practice; procedures are complicated and lengthy but can be expedited in urgent cases. - Feedback from other jurisdictions on China’s international cooperation was mixed. - Judicial and law enforcement authorities seek international cooperation mostly for predicate offenses and very seldom for ML or TF. - China requests detention of terrorists and freezing/confiscation of terrorist financiers’ assets overseas; room exists to enhance MLA and other international cooperation tools. - CAMLMAC exchanges information with foreign FIUs but sends requests abroad much less than it receives, not commensurate with volumes of STRs analyzed. - Supervisory authorities cooperate widely with foreign counterparts on information exchange. ### Priority Actions (prioritized recommended actions) - Expand information sources used for the NRA to include broader perspectives of ML/TF threats, vulnerabilities, and risks (e.g., academic and international organizations’ publications and feedback from foreign jurisdictions). - Review FIU functioning to ensure all information received, analyzed and disseminated by all three FIU components is readily available and accessible at central and provincial levels; create a database to unify and centralize current stand‑alone databases; remove requirement for signature of the president of the PBC provincial branch as a condition for dissemination to competent authorities to ensure FIU operational independence. - Reconsider policy focus on pursuit of those involved in predicate crime to include a broader “follow the money” focus beyond active participants in predicate crime. - Create comprehensive legal frameworks for implementation of TF‑ and PF‑related TFS that include a general prohibition, extend to all assets of designated entities, and are implemented without delay with respect to UNSC designations; in the interim, PBC should update its existing Notice to address delays in freezing. - Address shortcomings in AML/CFT legal framework related to coverage of online lending institutions, DNFBPs, domestic PEPs, TFS, and criteria for reporting suspicious transactions; provide corresponding guidance. - Focus attention on: - robustness and usefulness of FIs’ risk assessments to reflect actual threats and vulnerabilities; - effectiveness of ongoing due diligence, notably transaction monitoring; - consolidated supervision of financial groups. - PBC should introduce an effective system for assessing individual entities' risks and for supervising and monitoring DNFBPs (apart from trust companies and DPMs) for AML/CFT compliance; review strategy and necessity of collaborating with sector supervisors in DNFBP sectors given their low ML/TF knowledge. - Ensure competent authorities can obtain adequate, accurate and current basic and BO information (beyond legal owner information) in a timely manner via measures to ensure accurate registration or accessible storage. - Increase exchange of information in ML/TF cases and the number of spontaneous requests to foreign counterparts based on strategic and operational analysis; reduce time to respond to foreign requests. ### Effectiveness Ratings (exact) - IO.1 Risk, policy and coordination: Substantial - IO.2 International cooperation: Moderate - IO.3 Supervision: Moderate - IO.4 Preventive measures: Low - IO.5 Legal persons and arrangements: Low - IO.6 Financial intelligence: Moderate - IO.7 ML investigation and prosecution: Moderate - IO.8 Confiscation: Substantial - IO.9 TF investigation and prosecution: Substantial - IO.10 TF preventive measures and financial sanctions: Low - IO.11 PF financial sanctions: Low ### Technical Compliance Ratings (exact) - R.1 – Assessing risk and Applying Risk-Based Approach: LC - R.2 – National Cooperation and Coordination: C - R.3 – Money Laundering Offense: PC - R.4 – Confiscation and Provisional Measures: C - R.5 – Terrorist Financing Offense: LC - R.6 – Targeted Financial Sanctions—Terrorism and Terrorist Financing: PC - R.7 – Targeted Financial Sanctions—Proliferation: NC - R.8 – Nonprofit Organizations: PC - R.9 – Financial Institution Secrecy Laws: C - R.10 – Customer Due Diligence: LC - R.11 – Record-Keeping: C - R.12 – Politically Exposed Persons: NC - R.13 – Correspondent Banking: LC - R.14 – Money or Value Transfer Services: LC - R.15 – New Technologies: PC - R.16 – Wire Transfers: PC - R.17 – Reliance on Third Parties: LC - R.18 – Internal Controls and Foreign Branches and Subsidiaries: PC - R.19 – Higher-Risk countries: C - R.20 – Reporting of Suspicious Transactions: LC - R.21 – Tipping-off and Confidentiality: LC - R.22 – DNFBPs: Customer Due Diligence: PC - R.23 – DNFBPs: Other Measures: PC - R.24 – Transparency and BO of Legal Persons: NC - R.25 - Transparency and BO of Legal Arrangements: NC - R.26 – Regulation and Supervision of Financial Institutions: NC - R.27 – Powers of Supervision: PC - R.28 – Regulation and Supervision of DNFBPs: LC - R.29 – Financial Intelligence Units: PC - R.30 – Responsibilities of Law Enforcement and Investigative Authorities: PC - R.31 – Powers of Law Enforcement and Investigative Authorities: C - R.32 – Cash Couriers: LC - R.33 – Statistics: LC - R.34 – Guidance and Feedback: PC - R.35 – Sanctions: PC - R.36 – International Instruments: LC - R.37 – Mutual Legal Assistance: LC - R.38 – Mutual Legal Assistance: Freezing and Confiscation: PC - R.39 – Extradition: LC - R.40 – Other Forms of International Cooperation: LC *Source: DETAILED ASSESSMENT REPORT* ### Preface ### Preface ### Purpose and Methodology - The report summarizes the AML/CFT measures in place as at the date of the onsite visit. - It analyzes China’s level of compliance with the FATF 40 Recommendations and the level of effectiveness of the AML/CFT system and recommends how the system could be strengthened. - The evaluation was based on the 2012 FATF Recommendations and was prepared using the 2013 Methodology. - The evaluation was based on information provided by the country and information obtained by the evaluation team during its onsite visit to the country from July 9 to 27, 2018. - The team visited Beijing, Shanghai, and Shenzhen during the onsite visit. ### Assessment Team and Reviewers - Assessment team: - Ian Carrington, Senior Financial Sector Expert, IMF (team leader) - Richard Berkhout, Senior Counsel, IMF (legal expert) - Arz El Murr, Financial Sector Expert, IMF (financial expert) - Lia Umans, Policy Analyst, FATF Secretariat (FIU expert) - Vladimir Nechaev, Executive Secretary, EAG (international cooperation and law enforcement expert) - Craig Hamilton, Detective Inspector, New Zealand Police/APG (law enforcement expert) - João Melo, Senior Public Prosecutor, Prosecutor General’s Office Portugal (legal expert) - Alastair Bland, Consultant (NPO expert) - Nicolas Choules-Burbidge, Consultant (financial expert) - Report reviewers: - Mr. Richard Walker (Guernsey) - Ms. Paola Arena (Italy) - Ms. Shereen Billings (United Kingdom) - Ms. Anne Wallwork (United States) ### Previous Evaluations - China previously underwent a FATF Mutual Evaluation in 2007, conducted according to the 2004 FATF Methodology. - The 2007 mutual evaluation concluded: - compliant with 8 Recommendations; - largely compliant with 11; - partially compliant with 13; - noncompliant with 8. - With respect to Core and Key Recommendations, China was rated partially compliant or noncompliant with 9 of the 16 Core and Key Recommendations. - China was placed under the enhanced follow-up process immediately after the adoption of its 2007 MER, moved to regular follow-up in October 2008, and was removed from this status in 2012. ### ML/TF Risks and Context — Country Overview - Key geographic and demographic facts: - China was established in 1949. - Area: approximately 9.6 million square kilometers. - Comprises 34 provinces, autonomous regions, and municipalities and special administrative regions (SARs). - Major cities by population size include Beijing, Shanghai, Tianjin, Shenzhen, Chengdu, and Guangzhou. - Land borders stretch for 22,800 kilometers with 14 countries. - Population at the end of 2017: approximately 1.37 billion. - Economic system: socialist market economy; state controls much of the economy while private enterprise plays an increasing role. - Political structure highlights: - National People's Congress (NPC) is the legislative branch and highest agency of state power. - State Council is the leading executive body, led by the premier; has authority to develop administrative legislation and regulations. - Supervisory branch accountable to the People's Congress. - Judicial branch comprised of People's Courts and People's Procuratorates, exercising powers independently and subject to supervision of the People's Congress. - Legal hierarchy: Constitution highest law; other laws in order: laws, administrative regulations, local regulations, and rules. ### Overview of ML/TF Threats (ML/TF Threats) - Highest ML threats stem from: - illegal fundraising - fraud - drug-trafficking - corruption and bribery - tax crimes - counterfeiting of products - illegal gambling - telecommunications and internet fraud - Illicit drugs: sourced both from outside the country and produced domestically; southeast region is transit point for drugs originating outside China and area where most domestic production occurs. - Cross-border flow of illicit proceeds: - Significant amounts flow from mainland China into Macau, China and Hong Kong, China, and are often forwarded to other jurisdictions. - NRA indicates illicit proceeds flow out through underground banking operations. - Between 2014 and 2016, illicit proceeds totaling RMB 8.64 billion were repatriated to China from over 90 countries; authorities estimate these proceeds were flown out over a period of 20 years. - Instances of criminals fleeing the country, including corruption suspects. - Abuse of legal persons identified as a method of laundering illicit proceeds. - Terrorism threat: - China faces a serious threat from terrorism. - From 2011 to 2016, China registered 75 terrorist incidents that killed 545 people. - Main conflict area: northwest province of Xinjiang (ETIM operates); attacks occur throughout China. - Around 60 people each year from China have participated as foreign terrorist fighters in Syria and Iraq. ### ML/TF Vulnerabilities — Financial Sector and DNFBPs - Banking sector dominance and vulnerability: - Total assets of banks: approximately RMB 252 trillion; banks dominate financial sector activity and are highly vulnerable to ML/TF. - 18 main commercial banks (including 5 large commercial banks, 10 joint-stock commercial banks, and 3 policy/development banks) account for 69 percent of the total asset of the banking sector. - Online lending and nonbank payment sector growth: - Rapid increase in online lending entities (primarily via mobile phone platforms). - CBIRC issued regulations requiring online lending entities to adopt AML/CFT preventive measures; sector not subject to ongoing AML/CFT supervision by the PBC. - At end-2016: transaction volumes in online lending sector RMB 2 trillion and loans outstanding RMB 816.2 billion; growth of 110 percent and 101 percent respectively over the previous year. - Nonbank payment sector transaction volumes escalated from RMB 17.6 trillion to approximately RMB 100 trillion from 2013 to 2016. - Mobile payments must be linked to a commercial bank account and, as of end-June 2018, channeled through a central clearing house. - Non-face-to-face delivery channels and bearer pre-paid cards represent notable ML/TF vulnerabilities. - Beneficial ownership and DNFBP coverage gaps: - China does not have effective arrangements in place for registering and retaining BO information. - Lack of coverage of DNFBPs by the AML/CFT framework is a significant vulnerability, given growth in real estate and precious metals sectors and opportunities for legal professionals to facilitate abuse of legal persons. - Absence of coverage of domestic PEPs is a significant vulnerability, particularly given corruption as a major predicate offense and the role of state-owned enterprises. ### Underground Banking - Characteristics: - Large underground financial sector with broad international connections. - Consists of unlicensed operatives providing payments, settlements, remittances and currency exchange, including remittances, overseas cash withdrawals with bank cards, foreign exchange, and point-of-service (POS) machine cash. - Competent authorities believe underground banks may illegally utilize the settlement network of financial institutions. - Authorities consider the trend for using underground banking in TF to be on the rise. - Enforcement activity and outcomes: - 2015: LEAs cracked down at least 170 major cases. - 2016: national public security agencies resolved 380 major cases of underground banking, arrested 800 suspects, and closed 500 locations. - 2017: 468 major underground banks and ML cases resolved, 892 criminal suspects arrested, and 1,100 operating centers destroyed. - Despite initiatives, authorities consider underground banking to be a thriving activity. ### Fintech Products and Risks - Rapid growth and vulnerabilities: - Rapid growth in Fintech, particularly nonbank payment sector. - Approximately 164 billion internet payment transactions in 2016, representing an almost 100 percent increase from the previous year. - Many institutions in the sector increasingly offer products that facilitate cross-border transactions. - Authorities concerned about ease of account opening, non-face-to-face delivery, and the potential for criminals to use multiple accounts for ML/TF purposes. - Regulatory response: - Since 2017, the PBC has started to work with sector regulators and other government agencies to develop measures to address risks associated with rapidly developing internet financial activity. - Current initiatives are expected to lead to the development of a Fintech regulatory framework including guidance to be issued to the industry. ### Country Risk Assessment and Scoping of Higher-Risk Issues - Country's NRA: - China completed its first NRA in 2017. - NRA draws primarily upon analysis of 680,000 published court judgements from 2013 to 2015. - NRA analyses inherent risks and mitigating controls related to financial sector products and activities of some DNFBPs, and analyses proceeds-generating crimes nationally and regionally. - NRA identifies illegal fundraising, corruption, telecommunications and internet deception fraud, and drug trafficking as the four major proceeds-generating crimes accounting for more than 75 percent of the estimated criminal proceeds generated in China. - NRA identifies ETIM as the main TF threat to China with limited threats posed by local “violent terrorist gangs.” - Scoping priorities for assessors: - Investigation/prosecution of proceeds from main predicate offenses and confiscation of proceeds. - Use of financial intelligence in ML and TF cases. - Banks' understanding of ML/TF risk, risk management systems, and supervision challenges posed by state-owned banks. - Activity and supervision of nonbank money or value transfer services, online lending, payment sectors, and fast-growing Fintech sector. - Ability to trace funds and ownership through corporate structures given deficiencies in BO transparency and documented abuse of legal persons. - Measures for international cooperation, border protection, and customs given substantial illicit proceeds outflows and suspects fleeing the country. - Law enforcement's and prosecution's understanding of TF risk and TF investigations/prosecutions, including use of financial intelligence and private sector/supervisors’ understanding of TFS obligations. - Areas of lesser risk and attention: - Group financing companies and asset management companies focused on managing portfolios of nonperforming loans of domestic FIs considered lower ML/TF risk due to limited transaction volume and third-party interaction. ### Materiality and Economic Context - Key economic indicators: - China's GDP grew by 6.8 percent in 2017 with nominal GDP reaching RMB 82.1 trillion. - Average annual GDP growth rate over 2013–2017: 7.1 percent. - Unemployed rate averaged 5.1 percent over the period. - Authorities set a GDP growth target of 6.5 percent for 2018. - Domestic credit to the private sector averaged 15 percent over the 5-year period and fell to 12.8 percent in 2017. - Financial sector scale: - Banks' total assets: RMB 252 trillion at end-2017. - Growth in banking sector assets of 8 percent in 2017 (half the rate of the previous year); banking sector assets fell as a percentage of GDP for the first time since 2011. - Assets of insurance and capital market institutions totaled RMB 16 trillion and RMB 13 trillion respectively. ### Structural Elements, Background, and AML/CFT Strategy - Institutional coordination: - China has a stable political system and well-developed institutional infrastructure. - AMLJMC comprised of 23 different government departments; has been meeting regularly since 2002 to direct and coordinate AML/CFT implementation, with State Council approving outcomes. - Contextual factors: - Strong and mature public sector institutions and national coordination mechanisms exist. - Regulatory objectives transmitted through many secondary legal instruments with some duplication, which can negatively impact effectiveness. - Country’s vast size requires fragmentation of institutional arrangements, presenting coordination challenges observed by assessors. - Corruption is a significant predicate offense and authorities have prioritized anti-corruption initiatives; no strong indication that corruption has negatively impacted overall AML/CFT system effectiveness. - National AML/CFT strategy: - Set out in the Opinion on Strengthening the Supervisory Framework and Mechanism for Anti-Money Laundering, Countering the Financing of Terrorism and Anti-Tax Evasion (State Council GAD Letter No. [2017] 84) issued by the General Office of the State Council. - Strategy emphasizes role of the AMLJMC as the national coordination body and the PBC as the leading AML/CFT authority. - Objectives include strengthening the legal and regulatory framework, capacity of AML/CFT institutions, cooperation among agencies, and strengthening international cooperation. - Policy coordination bodies: - AMLJMC is the highest AML/CFT coordination body in China, led by the Governor of the PBC and including the main AML/CFT government agencies. *Source: Preface, 1chnea2019001 - Preface (IMF).* ### 70. The PBC is the central bank and the principle AML/CFT authority in China with ### The PBC is the central bank and the principle AML/CFT authority in China with ### Institutional roles and FIU arrangement - The PBC is the central bank and the principle AML/CFT authority in China with responsibility for coordinating all national initiatives. It houses the AMLB and the CAMLMAC. The PBC, in collaboration with sector supervisors, is the main AML/CFT supervisor of FIs. (paragraph 70) - The PBC hosts the FIU, which consists of CAMLMAC, the AMLB and the 36 PBC branches, each of which executes aspects of the function of China’s FIU. The report refers to the three components together as China’s FIU arrangement. (paragraph 71) ### CAMLMAC, AMLB, and PBC branches — functions - CAMLMAC: - Central component of China’s FIU. (paragraph 72) - Receives STRs and large-value transaction reports (LVTRs), and all of the information contained in key STRs directly reported to the 36 PBC branches at provincial level. (paragraph 72) - Undertakes analysis, makes disseminations to central LEAs or forwards information to the AMLB or provincial branches for administrative investigations. (paragraph 72) - AMLB: - Responsible for supervision, administrative investigations, policy oversight, and the overall coordination of the PBC’s AML/CFT work. (paragraph 73) - 36 PBC branches: - Primary recipients of key STRs and conduct administrative investigations at their own initiative or after referral from CAMLMAC. (paragraph 74) - Disseminate information to local LEAs. (paragraph 74) ### Law enforcement, judicial, and other national authorities (selected) - Supreme People’s Court (SPC): - Supervises and directs all AML/CFT trials; works closely with the Supreme People’s Procuratorate (SPP); directly accountable to the NPC. Responsible for developing judicial interpretations on issues relating to all laws related to ML/TF convictions. (paragraph 75) - Supreme People’s Procuratorate (SPP): - Supervises and directs arrests and prosecutions for ML and TF; develops judicial interpretations on laws related to ML/TF prosecutions; works closely with the SPC and is accountable to the NPC. (paragraph 76) - National Supervisory Commission (NSC): - Highest anti-corruption agency; investigates irregularities related to state administrative agencies, judicial agencies, procuratorial agencies, civil servants, and other officers appointed by such agencies. It absorbed the former MOS. (paragraph 77) - Ministry of Public Security (MPS): - Principal responsibility for law enforcement in China; directs and coordinates LEAs across the country for investigation of ML and TF. (paragraph 78) - Ministry of State Security (MSS): - Investigates crimes that threaten state security including ML and TF; collects and processes ML/TF intelligence and shares with other investigative bodies. (paragraph 79) - General Administration of Customs (GAC): - Monitors and regulates ports of entry; monitors imports and exports; oversight of cross-border movement of currency and precious metals. (paragraph 80) - State Administration of Taxation (SAT): - Focuses on tax collection; an administrative body that may support prevention of tax offenses through information sharing with the MPS. (paragraph 81) - Ministry of Civil Affairs (MCA): - Responsible for registration and supervision of social organizations (nonprofit organizations (NPOs)). (paragraph 82) - State Administration for Market Regulation (SAMR): - Previously SAIC; has a company registry function and cooperates with PBC, MPS, MSS, GAC, and tax authorities. (paragraph 83) - China Banking and Insurance Regulatory Commission (CBIRC): - New entity combining former CBRC and CIRC; prudential regulator for bank and insurance entities; supports the PBC on AML/CFT supervision. (paragraph 84) - China Securities Regulatory Commission (CSRC): - Prudential regulator for securities institutions; supports the PBC on AML/CFT supervision. (paragraph 85) - State Administration for Foreign Exchange (SAFE): - Administratively part of the PBC; in charge of supervising foreign exchange transactions. (paragraph 86) - Ministry of Justice (MOJ): - Coordinates MLA pursuant to treaties and conventions; responsible for licensing and supervising lawyers and notaries. (paragraph 87) - Ministry of Finance (MOF): - Responsible for licensing and supervising accounting firms and certified public accountants; allocates budget to competent authorities including the PBC and its branches. (paragraph 88) - Ministry of Foreign Affairs (MFA): - Develops policies on international cooperation; facilitates China’s accession to international and regional AML/CFT organizations; leads on implementation of UNSCRs. (paragraph 89) - Ministry of Housing and Urban-Rural Development (MOHURD): - Responsible for supervision of the real estate sector. (paragraph 90) - Shanghai Gold Exchange (SGE): - Nonprofit self-regulatory body established by the PBC; supervises large-scale gold trading by its members; members include major gold producers, processors, and retailers; does not cover downstream network of 11,500 institutional customers. (paragraph 91) ### Financial sector composition and key statistics (as of December 31, 2017) - Banks dominate financial sector activity. (paragraph 92) - Total assets: - Assets of commercial banks (large commercial banks, joint stock commercial banks and urban commercial banks) and the assets of rural banks and other deposit-taking institutions totaled RMB 252 trillion. (paragraph 92) - Foreign presence: - As of the end of 2017, the top five banks had 1,270 overseas branches, accounting for 1.85 percent of the total number of branches (68,800). The branches’ assets account for 12 percent of the total assets (RMB 92.82 trillion) of the top 5 banks. (paragraph 93) - Capital markets and insurance: - Licensed capital market entities with assets totaling RMB 13.5 trillion. (paragraph 94) - Assets held by insurance entities totaled RMB 16.8 trillion. (paragraph 94) - Table 1 highlights (selected figures preserved exactly as presented): - Commercial banks — Large Commercial Bank: Number of Entities 5; Assets Billions RMB 92,815. Sector Supervisor: CBIRC. AML/CFT Supervisor: PBC in collaboration with CBIRC. Undertakes activities defined as Financial Activities in the FATF Glossary: 1, 2, 4, 5, 6, 7(a, b, c), 8, 10, 13. - Total Banks, Rural FIs and Deposit-taking Institutions: Number of Entities 4,034; Assets Billions RMB 252,404. (table content) - Total Nonbank FIs: 515 entities; Assets Billions RMB 11,976. (table content) - Total Insurance Companies: 227 entities; Assets Billions RMB 16,749. (table content) - Total Securities Firms: 393 entities; Assets Billions RMB 13,451. (table content) - Total payment institutions (PIs): 247. (table content) - Online payment institutions: 115 (see volume of transactions in the table below). (table content) - Bank card receipt business: 61. (table content) - Prepaid card issuance and acceptance: 158 (Not available for assets). (table content) - Online lending — P2P: 2,625 platforms. (table content footnote) ### Online lending and internet finance sector - Online lending is one of the seven categories of China’s internet finance sector. It refers to direct lending between individuals through internet platforms ("P2P online lending"). Platforms provide intermediary services including information exchange, matching, and credit rating assessment; some credit loans are processed online while P2P collateral loans require offline review. (paragraph 95) - Loan ceilings and registration/supervision: - Personal loan amounts do not usually exceed RMB 200,000. Corporate loans cannot exceed RMB 1 million. Accumulated loan amounts across all online lending platforms cannot exceed RMB 1 million for natural persons and RMB 5 million for legal persons. These ceilings can revolve. Online lending institutions are to be registered by local governments and supervised for AML measures by the PBC. Online lending platforms may apply for telecommunications business licenses. (paragraph 95) - Platform numbers and loan balances: - 2016: Number of platforms 3,216; loan balance of platforms (billion and RMB) 690.9. (Table 2) - 2017: Number of platforms 2,805; loan balance of platforms (billion and RMB) 1,224.7. (Table 2) - 2018: Number of platforms 2,057; loan balance of platforms (billion and RMB) 871.6. (Table 2) - Regional concentration (2016): - Guangzhou, Beijing, and Shanghai amounted to 51.7 percent of the national total in platform distribution; loan balance from these three regions amounted to 78.9 percent of the national total. (paragraph 96) - Regulatory gap and vulnerability: - Specific AML regulations have yet to target the internet finance sector. Supervision of online lending and related practices has not yet taken off. The NRA considers that the residual vulnerability of the internet finance sector is high. (paragraph 97) ### Designated non-financial businesses and professions (DNFBPs) — presence and statistics - DNFBPs operating in China but not designated under the AML Law include: (paragraph 98) - Real Estate Agents: - Approximately 130,000 real estate agencies at the end of 2017; employing over one million agents. Sector estimated to generate income in excess of RMB 15 billion annually. (paragraph 98) - Dealers in Precious Metals: - Include SGE’s 253 members and its network of institutional customers. No data provided on the number of persons who trade with SGE members or the number of unorganized/unregulated DPMs outside the SGE framework. (paragraph 98) - Lawyers: - Estimated 325,500 lawyers in China at the end of 2016 and 26,200 law firms. (paragraph 98) - Notaries: - At the end of 2016, 13,175 notaries and 3,001 notary institutions. Notaries dealt with 13,990,000 cases during 2016. (paragraph 98) - Accountants: - At the end of 2016, 105,200 certified public accountants and 7,408 accounting firms. (paragraph 98) - Company Service Providers (CSPs): - No data provided on number of such providers. (paragraph 98) - Illegal activities: - It is illegal to operate casinos in China. (paragraph 99) - Relative importance for AML/CFT preventive measures: - Assessment team importance ranking (highest to lower): banks (highest), payments institutions (next), then securities and futures, insurance, internet finance, real estate agents, CSPs, and DPM (medium level of importance), and other DNFBP sectors (less importance). (paragraph 100) ### Preventive measures framework and legal persons/arrangements - Preventive measures framework: - China’s preventive measures regime is set-out in the AML Law and a vast number of secondary legal instruments (regulations, notices, administrative measures, opinions, rules, guidelines). The assessment reviewed more than 30 AML/CFT regulations in addition to many other secondary legal instruments. The fragmented framework results in overlap and duplication, and can make it difficult to understand the source and nature of specific obligations. (paragraph 101) - Legal persons — types and counts: - Three types of legal persons: (i) special public legal persons; (ii) nonprofit; and (iii) for-profit legal persons. (paragraph 102) - Special legal persons examples and counts: - State agency legal persons: 230,000. - Basic self-governing mass organizations: 660,000. - Rural collective economic organizations: 7,700. - Urban and rural cooperative economic organizations: 2,017,000. (paragraph 102.i) - Nonprofit legal persons examples and counts: - Public institutions: 970,000. - Social groups: 352,000. - Foundations: 6,300. - Social service organizations: 397,000. - Overseas NGOs: 393. (paragraph 102.ii) - For-profit legal persons examples and counts: - Limited liability companies (LLC): 23,798,000. - Joint-stock limited companies (JSLC): 142,000. - State-owned enterprises: 357,000. - Listed companies: 3,400. - Foreign investment enterprises: 539,000. (paragraph 102.iii) - Other quasi-legal persons: partnerships 556,000; sole proprietorships 2,586,000. (paragraph 102.iii) - Legal arrangements — trusts: - Foreign trusts are not recognized or regulated in China but can undertake business in China (e.g., owning Chinese companies). (paragraph 104) - The Trust Law recognizes three types of trust: (i) civil trusts; (ii) charitable trusts; and (iii) business trusts. (paragraph 104) - Under the current FATF standard only civil trusts meet the definition of legal arrangement. (paragraph 104) - Civil trusts: - Three types: wealth, educational, testamentary. Civil trusts are not regulated by the CBIRC; only legal provisions are in the Trust Act. No professional trustees are required for civil trusts. Civil trusts are rarely used. (paragraph 104) - Business trusts: - Considered financial investment products offered by trust companies that are FIs (covered under IO.3/IO.4). Assessment team considers they do not meet the FATF definition of legal arrangements. (paragraph 104) - Charitable trusts: - Comparable to foundations/charities and discussed under IO.10 (NPOs). (paragraph 104) *People’s Republic of China — Excerpts from IMF assessment content unit 1chnea2019001* ### 105. The AML Law (Arts. 4 and 36) provides inter alia that the PBC is in charge of AML/CFT ### 1chnea2019001 - 105. The AML Law (Arts. 4 and 36) provides inter alia that the PBC is in charge of AML/CFT ### International Cooperation - Illicit proceeds from China have been traced to several countries globally; China has worked closely with Singapore, Australia, New Zealand, Italy, Spain, the United States, and Canada on ML investigations. - China has conducted regional joint anti-drug actions called “Safe Waterway” with Laos and Myanmar. - Feedback on international cooperation was mixed; some countries indicated the need for China to enhance the speed and efficiency of its processes. - China does not have a single central authority for MLA requests; international cooperation is handled via a multi-channel method involving MOJ, MPS, MFA, and SPP (function later transferred from the SPP to the NSC). ### Key Findings (National AML/CFT Policies and Coordination) - Since 2002, China has developed AML/CFT policies and risk mitigation activities based on repeated threat, vulnerability, and risk studies. - With publication of its first NRA in June 2018, China formalized the process for identifying and assessing ML and TF risks; the NRA was the culmination of a 2-year effort involving input from 23 government departments as well as different FIs and DNFBPs. - The AMLJMC, comprising 23 government departments and meeting regularly since 2002, is the primary coordination mechanism; the PBC leads in formulating and updating AML/CFT strategy, with State Council approval signaling political commitment. - Gaps in China’s understanding of ML/TF risks include: - DNFBPs and legal persons and arrangements. - Overreliance on known threats derived from analysis of predicate offenses, thereby missing laundering methods and trends not prosecuted. - Lack of risk assessments of individual DNFBPs (except trust companies) due to absence of supervisory arrangements. - CSP and DPS sectors are not discussed in the NRA and are unrated. - The NRA analyzed 680,000 published court judgements of predicate offenses between 2013 and 2015 to inform threat assessment. - China’s position that Criminal Law does not allow prosecution of self-laundering separate from predicate offenses contributes to limited ML prosecutions: illegal fundraising is identified as the highest proceeds-generating crime, yet ML prosecutions where illegal fundraising is the predicate offense represent less than one percent of ML convictions. - The NRA includes a TF section identifying ETIM as the main TF threat and notes limited threats from local “violent terrorist gangs”; TF analysis is mainly qualitative and collates input from MSS, MPS, and PBC. - NRA identified a lack of authoritative channels to inquire about beneficial ownership information of legal persons and legal arrangements; it noted that most banks do not carry out checks of ownership in the absence of regulatory requirements. ### Recommended Actions (excerpt) - China should expand NRA information sources to include broader perspectives on ML/TF threats, vulnerabilities, and risks such as academic and international organizations’ publications and feedback from foreign jurisdictions to achieve a more balanced understanding beyond proceeds-linked predicate offenses. ### Immediate Outcome 1 (Risk, Policy and Coordination) - Relevant Recommendations for IO.1 assessment: Rs.1, 2, 33, and 34. - Country’s Understanding of its ML/TF Risks: - China has a long-standing practice (since 2002) of threat/vulnerability/risk studies culminating in its first NRA (June 2018). - The NRA places emphasis on predicate offenses and lacks sufficient attention to how proceeds of crime are laundered beyond those directly implicated. - The NRA found DNFBPs lack detailed CFT obligations, customer identification, due diligence, and transaction reporting requirements; authorities could not demonstrate an understanding of ML/TF risk for most DNFBPs during the onsite visit. - The PBC has not conducted risk assessments of individual DNFBPs (aside from trust companies), limiting insight into client and product risks that supervision would reveal. - The NRA does not address CSPs. - The NRA in some instances assessed vulnerabilities using controls unrelated or only indirectly related to AML/CFT (e.g., in real estate sector vulnerability assessment). - The NRA was characterized by authorities as confirming a pre-existing understanding derived from past industry risk assessments and the Annual National Threat Assessment exercise. - National Policies to Address Identified ML/TF Risks: - China has used studies to produce action plans and to issue opinions, measures, regulations, and laws; implicated departments are held accountable via State Council oversight and the national audit process. - In 2013 China established the National Leading Group for Countering Terrorism (Leading Group) to set policies and draft action plans on countering terrorism including terrorism financing; fixed members include MFA, MPS, MSS, and PBC. - Exemptions, Enhanced, and Simplified Measures: - China identified bank cards as high-risk and issued PBC notices (PBC Document No. [2014] 5; PBC - GAD Document No. [2014] 124) strengthening identification requirements in bank card application and usage. - FIs may implement simplified measures after evaluating ML/TF risks and reaching mutual agreement with regulatory authorities. - In 2016 the PBC issued a personal bank account classification system: - Category I: unrestricted, fully functioning; must be opened in person with onsite identity verification; only one Category I account permitted per customer per FI. - Category II: allow electronic transfer of funds, purchase of financial products, payments of less than RMB 10,000 per day; cannot be used to withdraw cash. - Category III: only allow small value consumption and payments with account balance of no more than RMB 1,000. - Category II and Category III accounts may be opened via e-banking, mobile banking, and other electronic channels without providing identity information repeatedly; authorities indicated no risk incidents from these simplified measures. - Objectives and Activities of Competent Authorities: - MPS has prioritized addressing underground banking; authorities report a reduction in prevalence as a result. - CAMLMAC prioritizes strategic analysis on financial transactions associated with predicate crimes identified as higher risk; these typologies assist LEAs to prioritize investigations. - LEAs use financial intelligence primarily to drive predicate investigations rather than standalone ML investigations; most criminal investigations using CAMLMAC financial intelligence originate from LEA requests rather than spontaneous CAMLMAC dissemination. - National Coordination and Cooperation: - AMLJMC (established 2002) of 23 government departments guides AML/CFT work, formulates policy, and coordinates activities; PBC organizes plenary sessions, reviews action plans, analyzes ML/TF risk, and updates AML/CFT strategy. - CAMLMAC has signed MOUs with LEAs regarding financial intelligence use, information sharing, and consultations, but exchanges predominantly relate to predicate crimes. - LEAs, CAMLMAC, and local PBC branches cooperate to share financial intelligence; a dedicated Electronic Inquiry Platform provides access to FI-provided information. Tax authorities access the same financial intelligence only after meeting the threshold for opening a criminal case and via MPS. - Joint operations (2013–2018) included: “Special Operation of Combating New Types of Criminal Activities by Telecommunication;” “Special Operation Against the Use of Offshore Companies and Underground Banks to Transfer Illicit Money;” “Cross-Border Special Operation to Capture Criminals and Recover Corrupted Funds;” and “Special Operation to Combat the Fictitious Export-Tax Refund and Falsifying VAT Invoices.” These operations focused on combating predicate crimes with limited results addressing ML activity; financial investigations were typically limited to proceeds of specific criminal acts rather than comprehensive asset investigations. - Additional notable numeric/sector details: - The NRA drew on analysis of 680,000 published court judgements from 2013 to 2015. - The NRA was published in June 2018 after a 2-year effort. - The AMLJMC comprises 23 government departments and has operated since 2002. - Amount of assets managed by trust companies as of July 2018 was around RMB 20 trillion. - Category II daily payment limit: less than RMB 10,000. - Category III maximum account balance: no more than RMB 1,000. - ML prosecutions where illegal fundraising is the predicate offense represent less than one percent of ML convictions. *Source: 1chnea2019001 - 105. The AML Law (Arts. 4 and 36) provides inter alia that the PBC is in charge of AML/CFT* ### 127. While China lacks a comprehensive legal framework to deal with TFS related to PF (see ### 1chnea2019001 - 127. While China lacks a comprehensive legal framework to deal with TFS related to PF (see ### Coordination on UNSCR implementation and domestic measures - The MFA is responsible for informing other state entities of the existence of new UNSCRs related to PF. - The PBC communicates the UNSCRs (based on PBC Notice 187/2017) and issues risk warnings to selected vetted FIs. - For domestic coordination, the PBC has: - Provided training to support implementation by banks. - Asked selected banks to screen their entire database against the UNSCRs. - Authorities have coordinated to implement measures against PF, including export control measures and actions against smuggling of banned goods. ### Private sector awareness and distribution of NRA and related products - Many private sector entities were involved in the development of the NRA alongside government entities. - Distribution methods: - Electronic copies of the NRA were sent to government departments and the major FIs. - Smaller FIs and other regulated entities received copies through their local PBC branches. - NRA was distributed to industry association bodies and is available to DNFBPs. - The same distribution method was used for the Annual National Threat Assessments; a summary version is posted on the PBC website. - Additional products and guidance: - China has produced and shared numerous threats, vulnerability, and risk studies over the past several years. - CAMLMAC produces strategic analysis products and ML/TF risk reminders to guide FIs and facilitate STR reporting. - Local PBC branches also issue guidance and risk warnings. ### Overall conclusion on Immediate Outcome 1 - China is rated as having a substantial level of effectiveness for IO.1. ### Legal system and operational issues — Key findings (Immediate Outcomes 6–8) Immediate Outcome 6 - LEAs have access to and actively use a wide range of financial intelligence throughout the lifetime of an investigation to identify and trace proceeds, but focus mainly on supporting investigations of domestic predicate offenses and to a lesser extent on supporting ML and TF investigations and developing ML and TF evidence. - China’s decentralized FIU arrangement consisting of CAMLMAC, AMLB, and 36 PBC provincial branches has high potential to produce financial intelligence that supports operational needs, but current functioning results in: - Incomplete access of all parts of the FIU to all data. - Fragmented analysis and disseminations. - Limits on development of a holistic, integrated, or comprehensive view of financial intelligence. - Other limiting factors: - STR reporting requirements only extend to FIs and their level of implementation is insufficient. - Other sources of information, such as cross-border currency declarations and BO information, are either limited or nonexistent. - The FIU’s operational independence is potentially undermined. - FIU cooperation and coordination with domestic competent authorities, including for supervisory purposes, is generally good. - There is a lack of international cooperation requests to foreign FIUs, which can limit the usefulness and quality of financial intelligence produced. Immediate Outcome 7 - There exist three discreet ML offenses which could be applied to similar or the same factual circumstances, with rationale to prosecute under a preferred provision being unclear and not standardized. - China applies a threshold to the ML offense (Art. 312), below which (ranges between RMB 3,000 and RMB 7,000 (US$440–$1,027), depending on the region), ML is not criminalized. - Stand-alone and third-party ML prosecutions are limited considering the volume and value of predicate crime occurring within China; difficulties proving the requisite level of “knowledge” are likely a factor. - Most ML prosecutions involve immediate family members and close associates of predicate offenders, indicating limited impact of “follow the money.” - There have been three occasions where legal persons have been charged with ML. - Predicate crime investigation outcomes reflect capable LEAs skilled in investigation of complex financial crime and associated predicate crime. - Financial intelligence is not routinely driving ML investigations but is identifying predicate criminal behaviors which are actively investigated. - Effective, proportionate, and dissuasive sanctions are available and applied for ML; alternative measures include administrative sanctions, administrative forfeitures, and CCP disciplinary procedures. Immediate Outcome 8 - China demonstrates commitment to deprive criminals of property through seizure and confiscation of instruments of crime and criminal proceeds; confiscation broadly aligns with China’s policy and risk. - Accuracy of statistics collection and analysis to monitor and improve performance could be improved; extension of the non-conviction framework or broadening unexplained wealth provisions could be considered. - The NRA acknowledges substantial amounts of criminal proceeds flow from China to foreign jurisdictions through underground banks. Authorities have invested considerable effort to target and dismantle underground banking networks and report detecting less such activity as a result of enforcement efforts; however, the activity persists. - Focus on recovery of foreign remitted illicit proceeds that have exited China is a current policy objective and has resulted in recovery of significant amounts of POC. - China borders 14 countries and experiences hundreds of millions of movements of people and goods. - A currency declaration system operates in China; enforcement focuses on people, and to a lesser extent, mail and cargo. - Resources and equipment are deployed to high-risk border crossing entry and exit points with a degree of effectiveness; further investment is occurring at other entry and exit points, mail centers, and ports. - China acknowledges border risk and the need to improve flow of information and intelligence between the border agency, the PBC, and neighboring jurisdictions (NRA, p. 221). ### Recommended Actions Immediate Outcome 6 - LEAs should, in addition to current use of financial intelligence for predicate offense investigations, focus on using this intelligence to initiate and conduct ML and TF investigations and tracing related assets, and to develop ML and TF evidence. - China should review the current functioning of its FIU to ensure that all information received, analyzed, and disseminated is readily available and accessible to all constituent parts of the FIU at both central and regional levels. This review should include the set-up of a database to unify and centralize all components of the current (stand-alone) databases at central and provincial levels. - To ensure operational independence of the FIU, China should remove the requirement for the signature of the president of the PBC provincial branch as a condition for the branch’s dissemination of information to LEAs and other competent authorities. - CAMLMAC and the provincial branches should include financial intelligence from counterpart FIUs in their standard practices for analysis and dissemination of information. Immediate Outcome 7 - A review and consolidation of the ML offense and the receiving offense into two separate and distinct single articles is necessary. - Authorities should remove the threshold for the criminalization of ML (Art. 312) and amend “obviously know” to a lower level of knowledge threshold (e.g., “should have known”; or similar wording as appropriate under Chinese law) and increase understanding and use of the ML offense by the prosecution and judiciary in practice. - Authorities should reconsider the policy focus solely on pursuit of those involved in predicate crime to include a broader focus to “follow the money” beyond those who are active participants in the predicate crime. - Given significant risks with underground banking, strategy should extend beyond disruption to identification of third-party launderers and predicate offenders using underground bankers to launder and remit criminal proceeds to foreign jurisdictions; reorient focus to identify the “criminal customer” as well as the “service provider.” Immediate Outcome 8 - Authorities should create a legal framework for the registration and enforcement of foreign confiscation orders to enhance international cooperation and provide a clear framework for other countries seeking recovery of illicit property from within China. - Measures are required to improve the accuracy of statistics collection and analysis to monitor and improve performance. - Given the volume of proceeds-generating crime, China could consider an extension of the nonconviction framework or broaden unexplained wealth provisions (which apply only to public officials) to include ML/TF and other high-risk predicate crime types identified in the NRA, inclusive of underground banking activities. ### FIU structure, resourcing, and operational details - China’s FIU arrangement mirrors MPS’ decentralized approach and consists of: - CAMLMAC; - The AMLB; and - Anti-Money Laundering Units within each of the 36 PBC provincial branches. - CAMLMAC: - Primarily responsible for receipt and analysis of LVTRs and ordinary STRs. - Receives information contained in all key STRs directly and simultaneously reported to the 36 provincial PBC branches. - Reports analysis results to the MPS or other competent authorities at central level, or passes information to the AMLB or a PBC provincial branch for an administrative investigation. - The head of CAMLMAC takes final decision on dissemination to central LEAs or passing a case on for an administrative investigation. - Conducts joint analysis with the AMLB on complex cases transferred by PBC provincial branches. - As of June 30, 2017, CAMLMAC had 103 employees. - AMLB: - Primarily a policy driven unit with power to conduct administrative investigations of STRs identified by CAMLMAC. - Coordinates and steers administrative investigations with cross-regional aspects conducted by PBC provincial branches (AML Law, Arts. 8, 23–26). - Has independent power to disseminate results of administrative investigations to central or local LEAs and other competent authorities. - AMLB FIU division had seven employees as of June 30, 2017. - PBC provincial branches: - Primary recipients of “key STRs” identified by local regulated institutions and whistle-blower reports. - Responsible for analysis/administrative investigation of these reports and for administrative investigations based on suspicious activity identified through CAMLMAC’s analysis and passed on to provincial branches. - The 36 branches have limited access to information collected, analyzed, and disseminated by other FIU components and no systematic coordination. - Each branch independently decides whether to disseminate results to local competent authorities. - Each branch shares information on its disseminations with CAMLMAC to centralize dissemination data, but keeps process information and information collected during analysis/investigation (including cases not disseminated) in a stand-alone database not accessible outside the individual branch. - Local LEAs frequently send requests for information directly to the relevant branch; such requests are entered into the branch’s stand-alone database and are not accessible to CAMLMAC or other branches. - As of end 2017, all 36 provincial branches together employed 90 specialized AML investigators. - Dissemination signature requirement: - The dissemination of all cases to LEAs and other competent authorities by each of the 36 PBC provincial branches requires the signature of the president of the branch. This requirement could limit FIU independence and delay timely dissemination of analysis results. - Access to information: - CAMLMAC, the AMLB, and the PBC provincial branches have access to a wide range of financial, administrative, and law enforcement information, either directly or upon request. - AMLB and PBC provincial branches have the power to obtain any relevant documents and materials from any reporting entity when conducting an administrative investigation; this broader power does not extend to CAMLMAC. - CAMLMAC can request supplements or corrections from reporting institutions when an STR or LVTR is incomplete or erroneous; otherwise CAMLMAC must transfer the case for administrative investigation to the AMLB or a provincial branch to obtain additional information. - CAMLMAC is the only component with access to all STRs, key STRs, and LVTRs, which makes the limitation on its investigatory powers a concern for developing holistic financial intelligence. - CAMLMAC, the AMLB, and the PBC provincial branches have direct access to police databases for passport and other identification details; other police information is available upon request through cooperation agreements. *Source: 1chnea2019001 - 127.* ### 140. CAMLMAC (but not the AMLB and the 36 provincial branches) recently started receiving ### 140. CAMLMAC (but not the AMLB and the 36 provincial branches) recently started receiving ### Information exchange between Customs and AML authorities - CAMLMAC recently started receiving some information from Customs on incoming and outgoing cross-border transportation of both national and foreign currency. - The information provided by Customs to CAMLMAC is partial and focuses especially on excessive declaration violation cases, rather than broader violation or declaration information. - Collection and storage of Customs information is mainly paper-based, presenting a challenge for timely use. - China's NRA identified clear weaknesses in information exchange between Customs and other AML authorities and concluded that sharing of information associated with illegal cross-border transfers is not yet in place. - CAMLMAC receives limited Customs information; the AMLB and PBC provincial branches do not have direct access to Customs information (but can obtain it upon request from CAMLMAC). ### Beneficial ownership and FIU analysis capacity - Lack of availability of BO information negatively affects the FIU arrangement’s (all three components) ability to properly analyze and share accurate and timely intelligence. ### Use of financial intelligence by law enforcement authorities (LEAs) - LEAs at all levels access and use financial intelligence to identify and trace proceeds, and to support investigations and prosecutions of predicate offenses, but do so to a limited extent for ML and TF. - LEAs focus primarily on pursuing domestic predicate offenses rather than ML and TF investigations. - The ECID within public security agencies has access to specialist financial investigative personnel. - LEAs use a wide range of financial intelligence including: - (i) financial information available at the PBC; - (ii) information obtained through liaison officers at relevant competent authorities; - (iii) administrative sources such as property ownership and social security information; - (iv) whistle-blower reports; - (v) information from public databases. - LEAs can obtain FIU data upon request but do not have liaison officers at CAMLMAC, the AMLB, or any of the 36 provincial branches. - LEAs can request Customs information on cross-border currency movements, but paper-based Customs records limit availability for LEA investigations. - Central-level LEAs make extensive use of express inquiry and feedback channels directly with FIs, such as the dedicated Electronic Inquiry Platform with more than 60 percent of the commercial banks connected. Similar local arrangements have recently been set up. - LEAs have the power to use special investigative techniques in financial investigations. ### STRs, key STRs, LVTRs — reporting trends and issues - Joint efforts since 2012 to reduce defensive reporting and improve STR quality resulted in: - STRs reported to CAMLMAC decreased from 29.6 million in 2012 to 5.44 million in 2016. - Key STRs directly and simultaneously reported to both the relevant provincial branch and CAMLMAC increased from 4,800 in 2012 to 8,504 in 2016. - 95 percent of (key) STR reporting takes place in electronic format and all relevant data are entered directly in CAMLMAC’s and the PBC provincial branches’ databases. - PIs continue to report (key) STRs manually; assessment team had no indication CAMLMAC or PBC branches face challenges entering these data. - CAMLMAC centralizes receipt of STR, key STR, and LVTR information because CAMLMAC directly receives the information contained in key STRs simultaneously reported to PBC provincial branches. - Each of the 36 PBC provincial branches operates stand-alone databases not accessible by CAMLMAC, the AMLB, or any other branch. - Reporting entities face challenges distinguishing whether to file an STR or a key STR: - Some FIs report a key STR only when they can identify an underlying predicate offense through detailed analysis. - In the absence of a predicate offense, some institutions do not file a normal STR to CAMLMAC but instead file a whistle-blower report directly with LEAs. - Reporting entities often cannot confirm that a suspicion is associated with an underlying predicate offense because they lack access to law enforcement information. - Because of the LVTR requirement with a low threshold, CAMLMAC receives a high number of LVTRs; LVTRs reached 4.94 billion in 2016. ### FIU disseminations and operational impact - LEAs reported disseminations by CAMLMAC and PBC branches are helpful and assist in predicate offense investigations; they also said financial intelligence allowed initiation of new predicate offense investigations. - However, statistics show CAMLMAC’s spontaneous disseminations rarely result in criminal investigations compared to disseminations upon request. - 2016 CAMLMAC statistics: - Total disseminations: 3,421 cases (720 spontaneous disseminations and 2,701 disseminations in response to LEA requests). - These 3,421 cases contributed to/resulted in 2,786 criminal investigations by LEAs: 85 from spontaneous disseminations and 2,701 from responses to LEA requests. - 81.44 percent of CAMLMAC’s overall disseminations contributed to/resulted in criminal investigations. - CAMLMAC’s spontaneous disseminations represent 3 percent of the total number of these criminal investigations; 97 percent were based on CAMLMAC responses to LEA requests. - The authorities did not provide statistics showing how many of the 2,786 criminal investigations resulted in prosecutions and convictions; feedback is often not available due to long investigative processes. - PBC provincial branches 2016 statistics (aggregate for 36 branches): - Disseminations: 3,599 to local LEAs (1,980 spontaneous, 1,619 upon request). - These contributed to 1,905 criminal investigations: 286 from spontaneous disseminations and 1,619 from requests. - In 15 percent of the 1,905 criminal investigations LEAs used financial intelligence from spontaneous disseminations; 85 percent resulted from LEA requests. - No statistics provided on subsequent prosecutions and convictions. - Historical dissemination and investigation percentages (selected years from table): - 2012 TOTAL: 1,577 disseminations, 1,213 investigations (76.92% of disseminations resulting in an investigation). - 2013 TOTAL: 1,658 disseminations, 1,843 investigations (78.36%). - 2014 TOTAL: 2,693 disseminations, 2,887 investigations (71.46%). - 2015 TOTAL: 4,214 disseminations, 4,482 investigations (70.26%). - 2016 CAMLMAC: 3,421 disseminations, 2,786 investigations (81.44%). - (See table for year-by-year breakdown by PBC branches and CAMLMAC.) ### Analysis of dissemination practices and limitations - CAMLMAC applies a high threshold for spontaneous disseminations—generally requiring a clear indication of a specific predicate offense—which limits its spontaneous dissemination activity and may constrain the production of meaningful financial intelligence for LEAs. - PBC provincial branches spontaneously disseminate higher numbers of files compared to CAMLMAC, likely because key STRs received by branches often already include an indication of a predicate offense; this does not demonstrate superior analytical depth or quality by branches compared to CAMLMAC. - Provincial branches can open administrative investigations when unable to confirm a predicate offense based on a key STR; during these, they can access additional reporting entity data and administrative and law enforcement information. - PBC provincial branches have limited direct access to CAMLMAC’s database—only to STRs, key STRs, and LVTRs associated to their jurisdiction—and cannot access stand-alone databases at other provincial branches. - Provincial branches do not systematically request data from CAMLMAC (to avoid delaying dissemination), which means CAMLMAC is often unaware of actions a branch takes on key STRs unless the branch disseminates or shares information afterward. - CAMLMAC does not have access to information collected at a specific provincial branch unless made available by the branch; branches are similarly unaware if other branches or CAMLMAC are working on related subjects or hold relevant LVTRs. - These structural and access limitations inhibit systematic interaction and information linkage across CAMLMAC and PBC provincial branches. ### Case examples demonstrating LEA use of financial intelligence - Example (Fuzhou case): - In 2012 the Fuzhou Public Security Agency investigated X for “crime of illegal defrauding of public deposits.” - The Public Security Agency requested assistance from the PBC’s Fuzhou Central Sub-branch in 20 instances. - The provincial branch identified involvement of 8 banking institutions and 18 customers and clarified source and destination of proceeds. - The public security agency identified laundering involvement by another person W and others. - The Fuzhou Intermediate People’s Court convicted X for defrauding public deposits and W for ML; details on sentences not provided. - Example (Tianjin/underground banking): - In 2013 a Tianjin bank filed key STRs on individuals A and B. - PBC Tianjin Branch conducted an administrative investigation, transferred initial results to CAMLMAC. - CAMLMAC conducted data mining and transaction analysis and disseminated cases to MPS. - Local public security agencies investigated illegal business operations, identified a large underground banking case, wound up 10 underground banks, and froze 264 bank accounts totaling nearly RMB 140 billion. - Local People's Court sentenced a number of individuals for evading foreign exchange monitoring and foreign currency purchase defrauding under Art. 190 CL; number of persons and sentences not provided. - These cases show FIU disseminations can support predicate offense investigations, but LEAs often prioritize predicate offenses over ML charges due to evidentiary issues. *PEOPLE’S REPUBLIC OF CHINA INTERNATIONAL MONETARY FUND* ### 162. The simultaneous reporting of STRs to CAMLMAC and the information on a subsequent ### 162. The simultaneous reporting of STRs to CAMLMAC and the information on a subsequent dissemination by the provincial branches indeed present concrete opportunities for CAMLMAC to add value to the financial intelligence chain ### Information sharing and database limitations - CAMLMAC receives all information contained in a key STR and includes it in its database for use in future analysis, but: - CAMLMAC does not proactively check its database for linkages with STRs, key STRs, or LVTRs. - CAMLMAC does not give any specific follow-up to a dissemination report it receives when a local branch disseminates a case based on key STRs. - A dissemination of key STRs by a local branch does not trigger CAMLMAC to disseminate any associated STRs, key STRs, and LVTRs in its database. - When LEAs send requests for assistance to PBC provincial branches: - The receiving PBC branch records details in its own database, but this information is not available to CAMLMAC or other branches for use in their analyses because they are unaware of the law enforcement information. - CAMLMAC receives a copy of disseminations upon request for inclusion in its database, but does not give specific follow-up to these disseminations. - Effect: - Severely limits analytical processes. - Prevents development of a holistic view. - Limits relevance of the FIU arrangement’s outputs for use by LEAs and other competent authorities. ### Inter-provincial investigations and joint analysis - Procedures: - Provincial branches suspecting linkages with other provinces can refer a case for joint analysis by CAMLMAC and AMLB or request AMLB to initiate an administrative cross-provincial investigation. - Activity and transparency: - From 2014 to 2017, the AMLB initiated 1,193 inter-provincial administrative investigations involving various branches (nearly 300 administrative investigations a year). - It is not clear what disseminations, subsequent investigations, prosecutions, and convictions, if any, followed from these investigations, making effectiveness assessment impossible. - In 2017, AMLB and CAMLMAC performed joint analysis in complicated cases that led to 63 spontaneous disseminations; these 63 disseminations all resulted in subsequent investigations by LEAs and other competent authorities, but the number resulting in prosecutions and convictions is unclear. ### LVTRs, use in analysis, and case outcomes - CAMLMAC receives a high number of LVTRs because of the reporting requirement based on a low threshold. - Potential: - Large volume of LVTRs has high potential to be useful for operational and strategic intelligence, following larger money trails and identifying wider networks. - Provided case evidence: - Authorities provided 13 cases in which LVTRs reported to and analyzed by CAMLMAC resulted in/contributed to successful criminal investigations by LEAs and subsequent prosecutions and convictions. - 11 cases show CAMLMAC successfully uses LVTR data to support STR analysis, subsequent disseminations, and responses to LEA requests. - 1 case shows CAMLMAC initiated and completed in-depth analysis of LVTRs based on information received from foreign counterparts. - 2 cases show CAMLMAC conducted datamining of LVTRs and identified involvement in predicate offenses leading to dissemination to LEAs and supervisors respectively. ### Strategic analysis and its limitations - CAMLMAC and PBC provincial branches produce strategic analysis aimed at guiding FIs in ML/TF risk identification and facilitating (key) STR reporting. - Products include guidance on monitoring illegal fundraising and TF activities, ML risk reminders, and national/regional ML analysis and research reports for LEAs and other competent authorities. - C.29.4(b) requirement: - Strategic analysis must use available and obtainable information, including data from other competent authorities, to identify ML- and TF-related trends and patterns. - Limitations affecting strategic analysis: - Stand-alone databases at the 36 PBC provincial branches and limited access by branches to CAMLMAC’s database negatively affect effectiveness of strategic analysis processes. - Strategic analysis products have not resulted in significant changes in ML and TF investigations to date, but have provided useful contributions for predicate offense investigations. ### TF identification, disseminations, and investigations (statistics) - 2016 statistics: - CAMLMAC and the PBC provincial branches identified and spontaneously disseminated 412 instances of TF: - 176 by CAMLMAC - 236 by provincial branches - During the same year, LEAs initiated 147 TF investigations. - Authorities were unable to provide a concrete indication of how many of the 147 investigations resulted from the 412 FIU disseminations but believe that 20–30 percent (or 29 to 44 cases) were initiated based on FIU information. - The origin of the other 70 percent is unknown. - Examples: - Authorities provided several examples of TF investigations and subsequent prosecutions and convictions following spontaneous disseminations and disseminations upon request by both CAMLMAC and provincial branches. - Box 3 (case example) demonstrates a successful CFT case initiated by CAMLMAC based on STR reporting that led to conviction and sentence of more than one decade in prison. ### Cooperation, exchange of information, and international engagement - Domestic cooperation: - China’s domestic AML/CFT cooperation and coordination operates under AMLJMC supervision. - CAMLMAC, MPS’s ECID, and others signed a Memorandum of Cooperation on Electronic Exchange Platforms to facilitate online requests, assistance, and feedback on use of financial intelligence. - CAMLMAC, MPS, Ministry of Industry and Information Technology, and others jointly established a platform for management and possible suspension of suspicious transactions involving new criminal activity types (e.g., telecommunication network-related). - CAMLMAC and the 36 PBC provincial branches provide information to assist PBC’s AML/CFT supervision (e.g., notices on STR and LVTR reporting to PBC supervisory departments). - Assessment team saw no evidence that cooperation between CAMLMAC and PBC had a positive effect on effectiveness of AML/CFT supervision of FIs. - International cooperation and exchange volumes: - CAMLMAC centralizes information exchange with foreign counterparts but makes little use of its cooperation network. - China is not a member of the Egmont network (which covers 159 FIUs); CAMLMAC exchanges information with foreign counterparts based on MOUs with 52 foreign FIUs. - Since 2012, CAMLMAC sent 63 requests (2012: 7, 2013: 6, 2014: 9, 2015: 4, 2016: 8, 2017: 29 — total: 63), of which: - 59 related to ML - 4 were a mixture of predicate offenses and TF - Concern: Extremely low number of outgoing requests given China’s exposure to cross-border transaction risks and TF medium-high risk. - Seeking information from foreign counterparts (through HQ) is not yet routine at central or local levels (e.g., PBC Shanghai branch had not engaged in information exchange with foreign FIUs as of July 2018). - CAMLMAC provided assistance in response to 1,244 requests received from foreign counterparts since 2012. - Example: CAMLMAC initiated in-depth analysis of LVTRs based on a request from a foreign counterpart and completed analysis with information from a third FIU. - Weaknesses noted in scope of assistance CAMLMAC can provide: - CAMLMAC does not have power to request information from any reporting institution. - Fundamental deficiencies in availability of BO information in China impact exchange of financial intelligence with foreign counterparts and overall effectiveness. - Targeted bilateral mechanism: - In November 2016, CAMLMAC set up a special cooperation mechanism with AUSTRAC (Australian FIU). - CAMLMAC and AUSTRAC share financial data on a monthly basis. - CAMLMAC screens all key STRs for links with Australia and makes these data available to AUSTRAC. - CAMLMAC conducts analysis of STRs it receives from Australia for potential dissemination to LEAs. ### Overall assessment and transition - Overall Conclusions on Immediate Outcome 6: - China is rated as having a moderate level of effectiveness for IO.6. *Source: 1chnea2019001 - 162. The simultaneous reporting of STRs to CAMLMAC and the information on a subsequent dissemination by the provincial branches (PDF chapter/section).* ### 183. Authorities have identified that significant proceeds are generated from high-risk predicate ### 1chnea2019001 - 183. Authorities have identified that significant proceeds are generated from high-risk predicate ### Predicate crime convictions and income-generating crime - During 2013–2016, China identifies that 2.6 million persons were convicted of predicate income generating crime. - Illegal fundraising is reported to contribute to approximately 39 percent of all illicit income generated in China. - During 2013–2017, there were 19,850 convictions for tax crime with comparative ML prosecutions predicated from tax crime being 30 Art. 312 convictions. ### Convictions pursuant to the three ML articles (Arts. 191, 312, 349) - Table of convictions (publicly available judgments; statistics are conservative): - 2013: Art. 191 — 4; Art. 312 — 5,530; Art. 349 — 15 - 2014: Art. 191 — 2; Art. 312 — 9,346; Art. 349 — 12 - 2015: Art. 191 — 10; Art. 312 — 7,058; Art. 349 — 16 - 2016: Art. 191 — 26; Art. 312 — 5,549; Art. 349 — 23 - 2017: Art. 191 — 45; Art. 312 — 10,193; Art. 349 — 37 - Notes on data: - Art. 191 figures based on publicly available judgments. Total number of convicted persons totaled 87. - Art. 312 criminalizes receiving dishonestly obtained goods; total number of convicted persons within these verdicts totaled 49,730 persons. The estimated number of ML cases vs receiving offense cases is based on sample testing. - Art. 349 criminalizes concealing narcotics on behalf of a trafficker and “protecting or covering” up behavior of a narcotics trafficker in addition to ML. The data relates exclusively to ML convictions and China advises that there may be additional convictions not identified. ### Allocation of convictions and interpretive issues - China identifies that the majority of ML convictions have been secured pursuant to Art. 312. - Initial data for 2013–2017: 54.2 percent of Art. 312 convictions related to ML (26,953 convictions). - Revised data for 2013–2017: 88.6 percent of Art. 312 convictions related to ML (44,060 convictions). - Chinese position: receiving stolen property in some circumstances is ML behavior consistent with the Palermo Convention; therefore previously categorized “receiving convictions” were relied upon to determine effectiveness. - Assessment team: does not accept China’s position; all Art. 312 convictions are included in the table without isolating ML behavior from receiving stolen property; caution exercised in accepting this data in totality as a measure of effectiveness. ### Gaps in investigation and prosecution of third-party laundering - Statistics for the three ML offenses (Arts. 191 and 349, in particular) confirm authorities do not routinely investigate, identify, or prosecute persons who provide services of concealing and disguising criminal proceeds after the predicate behavior. - Analysis of Art. 191 convictions (2013–2017) identifies convictions are increasing, but volumes remain low compared with predicate crime volumes. - China acknowledges the gradual increase in Art. 191 application is due to a relatively conservative judicial system and accepts the need to increase awareness of Art. 191. ### Underground banking, cross-border cash smuggling, and enforcement challenges - NRA identifies underground banks (together with cross-border cash smuggling) as preferred channels to remit illicit proceeds offshore. - In 2016, public security agencies investigated 380 underground banking networks, arresting over 800 persons involving transactions exceeding RMB 900 billion (approx. US$132 billion). - Investigators struggle to establish that an underground banker has the required knowledge of “obviously knowing” that specific transactions were derived from a specified crime type or event to support ML prosecution. - Consequently, persons conducting underground banking are pursued with a narrow focus on the offense of “undertaking an illegal business operation,” pursuant to Art.225 of the Criminal Law (as a disruptive measure); investigations are routinely supported by financial intelligence and resolution includes confiscation actions. - No examples identified where investigation extended to identify third-party laundering of income generated from underground banking operations. ### Legislative and policy recommendations (evaluation team) - Review and merge the current three ML-receiving offenses to create two discrete offenses: - one of receiving stolen property (or property obtained from a criminal offense), and - the other a stand-alone criminalization of ML. - Isolating these discrete criminal behaviors will assist authorities with: - identification of ML typologies; - identification and mitigation of investigating challenges; and - providing greater accuracy of ML investigation and prosecution performance. - Proposed substantive change: combine the elements of “all crime” from Art. 312 into Art. 191 and reduce the knowledge threshold to include “knowing or believing or being reckless as to whether or not the property is the proceeds of an offenses” to broaden ML offense application and enable targeting of third-party laundering (e.g., underground banks). - Legislative amendments would provide greater opportunity to maximize outcomes from financial intelligence collected from reporting entities. ### Types of ML cases prosecuted and convicted - Legal person ML prosecutions: three cases were provided where a legal person was charged with ML. - Self-laundering is not criminalized in China; authorities report it is an aggravating feature reflected in sentencing outcomes for “accomplices.” - China identified prosecutions of: - ML with a foreign predicate offense (three cases referenced overall; examples below), - third-party ML, and - stand-alone ML — but convictions occur with insufficient frequency given risk and predicate crime volumes. ### Examples of ML prosecutions linked to foreign predicate offenses - 2005: Chinese citizen convicted for laundering funds derived from predicate activities in Malaysia; sentenced to three years’ imprisonment and fined RMB 330,000 (approx. US$48,430). - Two more recent examples resulted in successful convictions pursuant to Art. 312. - Limited Art. 191 prosecutions emerging out of domestic drug, corruption, and fraud-related crime. Subjects are often family members or close associates of the predicate offender. ### Case examples (narcotics, corruption, illegal fundraising) using Article 191 - Narcotics Case 1: - J established companies and laundered RMB 11.2 million (approx. US$1.64 million). - On September 16, 2015, J convicted of ML, sentenced to three years’ imprisonment, and fined RMB 600,000 (approx. US$88,056). - Narcotics Case 2: - Y received RMB 10,950 (approx. US$1,607); H received RMB 8,000 (approx. US$1,174) to receipt drug-dealing income. - On December 27, 2016, Y convicted of ML and sentenced to one-and-a-half years’ imprisonment and fined RMB 2,000 (approx. US$293); H sentenced to one-year imprisonment with 18 months’ probation and fined RMB 1,000 (approx. US$146). - Corruption Case 1: - Z received funds from Uncle L (a mayor and Municipal Party Secretary) and invested in property. - On August 18, 2016, Z convicted of ML, sentenced to three years imprisonment, and fined RMB 1.1 million (approx. US$161,437). Conviction upheld on appeal. - Corruption Case 2: - L received RMB 200,800 (approx. US$29,469) in bribery proceeds from brother-in-law; funds held in L’s bank accounts and used per instructions. - On December 18, 2014, L convicted for corruption and ML, sentenced to six months imprisonment and fined RMB 20,000 (approx. US$2,935). - Illegal Fund Raising Case 1: - L permitted use of personal bank accounts to manage illegally raised funds amounting to RMB 175 million (approx. US$25.7 million). - On July 21, 2016, L convicted of ML, sentenced to two years and three months, and fined RMB 150,000 (approx. US$21,936). - Illegal Fund Raising Case 2: - Principal offender transferred RMB 100 million (approx. US$146 million) to ex-wife Z. - On August 10, 2017, Z sentenced to seven years imprisonment and fined RMB 40 million (approx. US$5.9 million) for ML. ### Case review findings on investigation alignment to risk - Review of 93 ML case examples demonstrated capacity to effectively investigate predicate offenses; statistics confirm investigation efforts are not consistently aligned to risk. ### Effectiveness, proportionality and dissuasiveness of sanctions - Authorities pursue an “accomplice” strategy because it achieves higher sentencing outcomes; stand-alone ML prosecutions often result in lower punishments compared with predicate offenses. - Assessment team view: sanctions available are effective, dissuasive, and proportionate: - ML offenses each have a maximum sentence of up to 10 years’ imprisonment, together with compounding fines and forfeiture-related measures. - Sentencing analysis (case reviews): - Art. 191: 70 percent of those convicted between 2013 and 2017 received a custodial sentence of 1 to 4 years; 8 percent received sentences of more than 5 years’ imprisonment; fines and associated recoveries for these convictions totaled RMB 142 million (approx. US$20.8 million). - Art. 312: 79 percent of verdicts record sentences of less than one year’s imprisonment; 15 percent imposed custodial sentences of between 1 to 3 years’ imprisonment; 5 percent of the sentences were of more than three years. - Interpretation: a large percentage of Art. 312 prosecutions likely relate to low-level criminality rather than the imposition of a non-dissuasive sanction. ### Overall conclusion for Immediate Outcome 7 - China is rated as having a moderate level of effectiveness for IO.7. ### Confiscation policy objective and Operation Foxhunt (start of Immediate Outcome 8) - China demonstrates commitment to pursue and confiscate criminal proceeds through criminal and administrative proceedings. - State Council issued an Opinion on Strengthening the Supervisory Framework and Mechanism for AML/CFT and Anti-Tax Evasion reinforcing recovery of criminal proceeds as a national policy objective. - Criminal Law Arts. 59 and 64 provide legal authority to confiscate criminal proceeds and instrumentalities. - Operation Foxhunt (2015 onward): - Between 2014 and 2016, a total of 2,566 fugitives returned to China along with RMB 8.6 billion (approx. US$1.3 billion). - Case example (Yan): forfeiture in New Zealand resulted in forfeiture of NZ$43 million (approx. US$29 million), which was shared between New Zealand and China pursuant to a sharing agreement. - Note: much property recovered as a result of Operation Foxhunt is the result of persuasion and negotiations outside the scope of the standard. *PEOPLE’S REPUBLIC OF CHINA — INTERNATIONAL MONETARY FUND* ### 205. The criminal procedure law implemented on January 1, 2013 established the special ### 1chnea2019001 - 205. The criminal procedure law implemented on January 1, 2013 established the special ### Confiscation legal framework and non-conviction mechanisms - The criminal procedure law implemented on January 1, 2013 established the special confiscation provisions of Art. 280, allowing confiscation of property without a criminal conviction where the criminal suspect or defendant escapes, hides, or dies. - In January 2017, a judicial interpretation on the special confiscation procedure promoted the application of this confiscation measure to a specified range of predicate crime which include ML and TF. - The special confiscation mechanism was introduced to respond to circumstances where convictions cannot be imposed to trigger criminal confiscation processes. - It was discussed with authorities that this concept could be broadened in line with existing FATF guidance to develop a nonconviction legal framework permitting Chinese courts to impose equivalent value confiscation judgments (not limited to the conditions of Art. 280) in the absence of a conviction, provided such a framework includes sufficient provisions that respect all relevant rights of owners of such property. - A September 2014 judicial interpretation by the Judicial Committee of the Supreme Court provided a framework for enforcement of property confiscation judgments forming part of a criminal judgment; in practice this interpretation, together with general sentencing guidelines, provides for equivalent value confiscation although such orders are not expressly described in law (according to the SPC during the onsite). ### Seizure, preservation, and administrative forfeiture - During criminal investigations, public security agencies can seize or legally preserve property, including real estate, vehicles, and other property of value along with any legal documents and instruments that prove ownership or rights, upon registration of an investigation case or initiation of prosecution. - Authorizations for seizure/preservation are supported by appropriate ministries (e.g., MOHURD) and remain in force until resolution of the criminal proceeding. - Administrative forfeiture applies to behaviors that do not constitute criminal behavior in Chinese law and is applied by various administrative authorities such as the SAT or routinely the GAC. - Administrative agencies, when not permitted by a specific law, can (based on the Administrative Coercion Law) apply to the court for enforcement measures which can include freezing and seizure authorities as sanctions for administrative violations. - Seized property is retained by the Public Security Agency or under authority of the People’s Procuratorate or the People’s Court; under certain circumstances property can remain in the custody of the owner or close family, subject to conditions that protect the value of the property. ### Electronic enquiry platforms, asset-tracking capacity, and operational practice - Electronic enquiry platforms allow public security agencies and the courts to directly enquire with banks to freeze funds and suspend accounts in response to crime types such as telecommunications-related frauds. - As of March 2018, there were 39.1 million inquiries, resulting in RMB 202 billion (approx. US$29.7 billion) of deposits being frozen, pending investigation. - Police officers across public security agencies can initiate seizure and freezing upon approval of PSB leaders. - Approximately 18,000 dedicated specialists in various LEAs are engaged in asset tracking and confiscation functions; authorities consider prosecution and judicial agencies adequately skilled and resourced to undertake confiscation functions. ### Confiscation statistics (2013–2017) — aggregate results - Confiscations identified from publicly available judgments during 2013–2017: RMB 123.2 billion (approx. US$18.1 billion). (Note: additional suppressed judgments likely increase this total.) - Forfeiture processes observed include instruments of crime, direct POC, and forfeiture of property to satisfy fines (equivalent value confiscation). ### Instrument confiscations (2013–2017) - Total instrument confiscations: RMB 288 million (approx. US$42.3 million) from 192,715 cases. - Instrument confiscation associated with ML pursuant to Art. 312 averaged RMB 3,621 (approx. US$531) per case. - Corruption cases: instrument confiscation average RMB 190 (approx. US$27.80) per case. - Table summary (2013–2017) — Convictions / Cases Investigated/Prosecuted / Resulting Instrument Forfeiture Cases / Instrument Forfeiture Value (RMB one thousand): - Trafficking drugs: 233,236 / 107,097 / 113,268 - Illegal gambling: 67,283 / 26,386 / 18,172 - Corruption/Bribery: 71,048 / 11,058 / 2,105 - People smuggling: 1,962 / 162 / 305 - Counterfeiting goods: 43,589 / 17,464 / 25,331 - Tax crime: 14,696 / 1,960 / 3,310 - ML, Art. 191: 77 / 14 / 8 - Receiving stolen goods, and ML, Art.312: 35,712 / 7,016 / 25,407 - ML, Art. 349: 210 / 87 / 207 - Fraud: 102,458 / 13,847 / 62,647 - Sexual exploitation: 18,034 / 3,552 / 6,535 - Illegal fund-raising: 11,943 / 2,333 / 1,061 - Smuggling: 2,566 / 1,739 / 29,741 - Totals: 602,814 / 192,715 / 288,102 ### Criminally derived property (POC) confiscated (2013–2017) - POC confiscated increased from RMB 2.9 billion (approx. US$425 million) in 2013 to RMB 35 billion (approx. US$5.1 billion) in 2017. - Total POC subject to forfeiture during 2013–2017: RMB 84 billion (approx. US$12.3 billion). - Average value of POC per case: RMB 227,183 (approx. US$33,223). - Table summary (2013–2017) — Convictions / Cases Investigated/Prosecuted / Resulting POC Cases / POC Forfeiture Value (RMB one million): - Trafficking drugs: 233,236 / 139,236 / 554.87 - Illegal gambling: 67,283 / 49,067 / 1,043.11 - Corruption/Bribery: 71,048 / 43,568 / 20,185.24 - People smuggling: 1,962 / 944 / 13.14 - Counterfeiting goods: 43,589 / 23,890 / 373.59 - Tax crime: 14,696 / 6,246 / 4,106.74 - ML, Art. 191: 77 / 45 / 22.75 - ML, Art. 312: 35,712 / 18,156 / 2,311.73 - ML, Art. 349: 210 / 100 / 39.66 - Fraud: 102,458 / 70,683 / 17,358.22 - Sexual exploitation: 18,034 / 8,261 / 104.15 - Illegal fund-raising: 11,943 / 10,912 / 37,453.43 - Smuggling: 2,566 / 2,070 / 1,212.98 - Totals: 602,814 / 373,178 / 84,779.63 - Authorities note statistics may be incomplete as sourced from publicly available judgments only. ### Equivalent value forfeitures to satisfy fines (2013–2017) - Equivalent value forfeitures total: RMB 38 billion (approx. US$5.57 billion). - Average confiscation per case: RMB 70,184 (approx. US$10,300). - Table summary (2013–2017) — Convictions / Cases Investigated/Prosecuted / Resulting POC Cases / POC Forfeiture Value (RMB one million): - Trafficking drugs: 233,236 / 223,488 / 2,166.93 - Illegal gambling: 67,283 / 66,583 / 2,222.83 - Corruption/Bribery: 71,048 / 27,591 / 9,048.10 - People smuggling: 1,962 / 1,867 / 44.52 - Counterfeiting goods: 43,589 / 42,496 / 5,169.67 - Tax crime: 14,696 / 14,034 / 2,503.39 - ML, Art. 191: 77 / 77 / 152.32 - ML, Art. 312: 35,712 / 35,258 / 2,332.43 - ML, Art. 349: 210 / 122 / 8.94 - Fraud: 102,458 / 99,930 / 8,051.96 - Sexual exploitation: 18,034 / 17,642 / 343.83 - Illegal fund-raising: 11,943 / 11,620 / 3,118.76 - Smuggling: 2,566 / 2,453 / 2,957.74 - Totals: 602,814 / 543,161 / 38,121.43 ### Combined forfeiture outcomes and case-level application - Combined value (instruments + direct POC + confiscation to satisfy fines) exceeds RMB 123 billion (approx. US$18 billion) for 2013–2017. - Different forfeiture mechanisms can be applied to the same case; example for corruption: - 11,058 instrument forfeitures - 43,568 POC forfeitures - 27,591 equivalent value forfeitures - Total forfeiture processes: 82,217 across 71,048 prosecutions - Confiscation activity has increased year after year across all three categories. ### Article 395 — unexplained wealth of public officials - Article 395 (introduced in 1997) details an offense of “unexplained wealth” by a public functionary. - The offense requires identification that a public official has more than RMB 300,000 (approx. US$44,025) over and above which is identified as legitimate, verified income. - When unexplained income exists, the onus is reversed to the owner (not the Procuratorate) to explain the source of all their wealth; income and property that cannot be explained is assumed illegally acquired and is required by law to be confiscated. - Convictions entered against Article 395: - 2013: Convictions 10 / Confiscation Value (RMB million) 13.48 - 2014: Convictions 20 / Confiscation Value (RMB million) 95.56 - 2015: Convictions 23 / Confiscation Value (RMB million) 80.93 - 2016: Convictions 33 / Confiscation Value (RMB million) 216.78 - 2017: Convictions 29 / Confiscation Value (RMB million) 217.11 - Total: Convictions 115 / Confiscation Value (RMB million) 623.86 - Assessors note persons involved in ML and “operation of underground banking” have not become subject to a similar Art. 395 response despite risk; discuss expanding Art. 395 to underground banking and reducing its prevalence. ### International cooperation and enforcement discretion - Requests from foreign jurisdictions are enforced at the discretion of Chinese authorities. - Prior to the onsite, an agreement of reciprocity was mandatory for China to cooperate with foreign jurisdictions to recover POC. (Footnote: On October 26, 2018, The Law of the People’s Republic of China on International Criminal Justice Assistance came into force which allowed China to conduct judicial assistance and confiscation with foreign jurisdictions without an agreement of reciprocity and provided China with a more complete domestic legal framework for international cooperation in confiscation.) - Box example: In March 2016, France sought assistance to recover proceeds of fraud contained within a Chinese commercial bank; Chinese authorities froze accounts to a value of EUR 5.8 million and negotiations on returning funds to victims are ongoing. ### Disposal of confiscated property - Property confiscated is sold by public auction with proceeds turned over to the central or local treasury in accordance with law (Law of Administrative Penalty, Order of the President No. 76). - Currently 3,290 courts in 32 provinces dispose of confiscated property via online auction. - Total value of confiscated property sold via the Ali Judicial Auction Platform: RMB 580 billion (approx. US$85 billion). ### Cross-border currency movement, detection, and customs enforcement - Movement of cash out of China is considered a main risk; China has currency control measures regulating the amount an individual can remit, though these are currency-control restrictions not set up for AML/CFT purposes. - Bearer negotiable instruments are not able to be transacted in China and are therefore not subject to regulation, though such instruments exist and China Customs records “no quantitative restrictions on traveler’s checks or letters of credit” entering China. - Regulation Hui Fa 2017/29 of January 1, 2018 restricted use of domestically issued debit cards abroad to RMB 100,000 (approx. US$14,675) per individual per year (instead of per account per year) in response to growing use of Chinese debit cards in Hong Kong, China. - Controls such as (x-ray) inspection of all luggage in Shanghai resulted in detection of 170 cases of persons failing to declare currency in contravention of declaration regulations; detection rate considered modest given NRA identifies cross-border carriage of cash as a risk. - China-wide detections during 2013–2016: Customs detected 26,887 cross-border currency cases resulting in confiscation of RMB 510 million (approx. US$74 million); most detections result in administrative confiscation. - Customs resources and technologies are available, but large volumes of persons and freight and lengthy borders create significant challenges. - Detections and declarations are submitted to CAMLMAC six-monthly (not timely) which reduces tactical intelligence development and effective border deployment. - Assessors discussed benefit of intelligence exchange with neighboring jurisdictions on cash detection and declaration information; limited use of cash and drug dogs at borders was noted. During the onsite, an additional 10 dogs were acquired; assessors recommend increasing capacity and capability of detector dogs. ### Customs cross-border currency cases (selected 2013–2016 data) - Foreign Currency Cases Detected at Borders (cases / Confiscation (RMB million)): - Illegal Entry 2013: 1,219 / 23.06 - Illegal Exit 2013: 5,675 / 87.18 - Smuggle Out 2013: 53 / 0.27 - Illegal Entry 2014: 1,515 / 32.67 - Illegal Exit 2014: 4,413 / 61.25 - Smuggle Out 2014: 319 / 0.06 - Illegal Entry 2015: 629 / 14.48 - Illegal Exit 2015: 2,188 / 35.20 - Smuggle Out 2015: 121 / 0.67 - Illegal Entry 2016: 639 / 16.62 - Illegal Exit 2016: 2,672 / 168.69 - Smuggle Out 2016: 182 / 0.28 - RMB Cases Identified at Borders (cases / Confiscation (RMB million)): - Illegal Entry 2013: 1,879 / 13.00 - Illegal Exit 2013: 1,538 / 14.04 - Smuggle In 2013: 2 / 0.008 - Smuggle Out 2013: 3 / 0.25 - Illegal Entry 2014: 590 / 6.29 - Illegal Exit 2014: 632 / 7.38 - Smuggle In 2014: 9 / 0.28 - Smuggle Out 2014: 5 / 0.54 - Illegal Entry 2015: 334 / 4.15 - Illegal Exit 2015: 719 / 7.55 - Smuggle In 2015: 4 / 0.16 - Smuggle Out 2015: 12 / 0.45 - Illegal Entry 2016: 338 / 3.44 - Illegal Exit 2016: 1,177 / 13.32 - Smuggle In 2016: 10 / 0.15 - Smuggle Out 2016: 10 / 0.26 ### Consistency with ML/TF risks and policy priorities — assessment - China’s confiscation efforts are aligned with main predicate crimes and criminals are routinely deprived of property. - Existing legal frameworks have been designed and adapted to confront emerging threats; commendable results include successful recovery of POC from foreign jurisdictions. - China acknowledges border-related risks and is strengthening border capabilities. - Confiscation results are broadly in line with China’s risk understanding; however, the NRA does not identify illegal gambling and counterfeiting of goods as risks while confiscation amounts for these offenses are as high, and sometimes higher, than recognized high-risk crimes such as drugs and corruption. *Source: PEOPLE’S REPUBLIC OF CHINA — INTERNATIONAL MONETARY FUND (excerpt).* ### 227. China is rated as having a substantial level of effectiveness for IO.8. ### 227. China is rated as having a substantial level of effectiveness for IO.8. ### Key Findings - TF Investigation and Prosecution (Immediate Outcome 9) - 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. - China’s TF risk analysis is based on a risk-based approach with inputs of qualitative and quantitative data centralized at the national level with input from all competent authorities. - Mitigation of TF risk is slightly hampered by a lack of a more comprehensive approach to TF risks, due to the size of the country and its extensive borders and multiple and complex risks. - Since the implementation of a new counter-terrorism law in 2016 and related interpretations, China’s focus on TF has increased; the numbers of prosecutions and convictions for TF crimes has grown year after year, and authorities are seizing and confiscating TF-related assets of legal and natural persons in criminal proceedings. - Prioritization of cases seems to be exclusively focused on the Xinjiang province where the recorded number of incidents of terrorist activity is the highest. TF cases detected elsewhere, such as in financial centers such as Shanghai and Shenzhen, are often transferred to the Xinjiang province. - Targeted Financial Sanctions Related to TF and Nonprofit Organizations (Immediate Outcome 10) - The implementation of TFS is negatively affected by three fundamental deficiencies: - (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 (UNSCR 1267 only). - In relation to UNSCR 1267 and successor resolutions, authorities were unable to demonstrate that the measures for FIs and designated DNFBPs are effectively implemented, despite supporting measures undertaken by PBC to address for example the lack of implementation without delay. - Despite identified risks, China has not proposed or cosponsored preventive TFS designations to the UNSC since 2009. - In relation to UNSCR 1373, the CTL would provide a good legal basis for the effective implementation of a domestic TFS regime. However, in addition to the scope issues, the CTL has not yet been used despite identified risks. The previous legal framework (which was absorbed by the CTL) had not been used since 2012. - FIs seem not fully aware of the risks that TF can pose, and that TF and terrorism risks are not identical, especially in relation to the need to identify assets of designated entities. - The size of China’s broader NPO sector is significant with nearly 800,000 social organizations registered at various government levels under the MCA. - With the passage of the Charity Law of the People’s Republic of China in 2016, China started the process of applying additional requirements on a subset of the sector that is involved with raising public funds to carry out charitable activity. - None of the measures taken thus far is based on an understanding of the risk of TF faced by such organizations and no aspect of the oversight mechanism relates to ensuring that such organizations are not abused for the purposes of TF. - Targeted Financial Sanctions Related to PF (Immediate Outcome 11) - Authorities are in the process of contemplating a law on PF but, in the absence of a general legal framework that comprehensively covers all aspects of TFS requirements, the PBC has made a positive attempt to impose some measures to comply with some UNSC designations for the FIs. - The implementation of TFS is negatively affected by the same three fundamental deficiencies listed for IO.10. - There is a lack of awareness of Iran-related sanctions, with an almost exclusive focus by authorities and private sector on DPRK. - AML/CFT shortcomings in CDD (IO.4) and supervision (IO.3) largely apply in relation to PF shortcomings in this immediate outcome. - Authorities have taken measures in relation to other aspects of UNSCRs related to DPRK that seem to be positive and that may have a positive impact on the fight against PF in China. ### Recommended Actions - TF Offense (Immediate Outcome 9) - Enhance mitigation of TF risk through a detailed analysis of the investigations and prosecutions of TF cases already conducted. Such analysis should include a breakdown of the methods of TF, such as the collection, movement, and use of funds or assets, and identify and categorize the various roles played by the individuals and legal entities involved in the financing of terrorism. - Focus resources on TF and terrorism cases, and on a more comprehensive focus on the seizure of criminal assets, including overseas. - Keep up-to-date and detailed statistics relating to TF offenses and share this intelligence with LEAs and reporting entities through ongoing training. - Broaden the TF focus and pursue cases of TF elsewhere in the country, particularly in its financial centers. - Targeted Financial Sanctions Related to TF and Nonprofit Organizations (Immediate Outcome 10) - Create a comprehensive legal framework for the implementation of preventive TFS that covers all persons and entities, includes a general prohibition and can cover all assets and transactions. The existing CTL, if broadened in scope, could be a good basis for the implementation of both sets of UNSCRs. - In the interim, PBC should amend Notice 2017/187 and require FIs and DNFBPs to freeze the assets of UNSC-designated entities as soon as designated by the UNSC. - The MFA should continue to strive towards reducing the amount of time required to circulate UNSCRs (and amendments to lists) to relevant government bodies, such as PBC and CBIRC, to ensure that the entire process from designation by the UNSC would be without delay (i.e., ideally within hours). - Effectively use preventive TFS in line with the country's risk profile for TF, as foreseen by the existing provisions in the CTL. - Once a framework is in place, provide outreach to other (regional) competent authorities and the public to sensitize all relevant stakeholders about TFS. - Determine the nature of threats posed by terrorist entities to NPOs, identify those organizations within the broader sector that, based on their activities and characteristics, are at risk of TF abuse and conduct outreach specific to the risk of TF abuse. - Reconsider the position on placing AML/CFT obligations on all NPOs, identify the subset of NPOs within China that meet the FATF definition of an NPO and focus on raising the awareness of those organizations through outreach in order to protect NPOs from the threat of TF abuse. - Targeted Financial Sanctions Related to PF (Immediate Outcome 11) - Create a comprehensive legal framework for the implementation of preventive TFS that covers all persons and entities, includes a general prohibition and can cover all assets and transactions. The contemplated law on PF could be instrumental in this regard. - In the interim, PBC should amend Notice 2017/187 and require FIs and DNFBPs to freeze the assets of UNSC-designated entities as soon as designated by the UNSC. - The MFA should continue to strive towards reducing the amount of time required to circulate UNSCRs (and amendments to lists) to relevant government bodies, such as PBC and CBIRC, to ensure that the entire process from designation by the UNSC would be without delay (i.e., ideally within hours). - Authorities should broaden their focus on TFS beyond the DPRK. - Once a comprehensive legal framework is in place, conduct outreach to other (regional) competent authorities and the public to sensitize all relevant stakeholders about TFS. - Monitor FIs and DNFBPs compliance with these measures and continue to focus on the possible misuse of front companies that facilitate PF TFS breaches. ### Immediate Outcome 9 (TF Identification, Investigation and Prosecution) — Highlights - Threats and risk sources - NRA identifies ETIM (also known as the TIM) as the major terrorist threat; ETIM operate also (from) abroad and are believed to have carried out terrorist attacks in the Xinjiang province, recruited and trained Chinese citizens outside the country, and smuggled them back into China to perpetrate terrorist acts. - NRA identifies a limited terrorist threat posed by local “violent terrorist gangs” mostly influenced by overseas terrorism or religious extremism. - NRA references that “some Chinese citizens have crossed the border to the Middle East to join international terrorist organizations.” One estimate cited in state media referred to 300 such fighters in 2014; other estimates (around 60 persons per year) are referenced elsewhere in the report. - NRA indicates sources of terrorist funds: support by personal and corporate sponsors; the sale of personal assets; receipt of gifts from relatives and friends; funds generated through business income (such as restaurants); “Zakat”; and illegal activity such as robbery. - Case handling and statistics - China’s statistics on the prosecution and conviction of TF offenses are not broken down by the type of TF activity investigated. - At a local level, LEA activity focuses mostly on preventive investigations and other administrative violations of CFT measures; of 15 terrorism cases taken up by local security authorities in Shenzhen, only 1 related to terrorism. - Major TF offenses are often transferred to the courts of Xinjiang province; cases transferred to Xinjiang became inaccessible for the authorities in other regions. - Notable case examples (as provided) - Box 9 (KU): TF through provision of mobile phones and cash — investigation involved 17 accounts and in excess of 170,000 transactions; evidence on 7 suspects, 13 mobile phones, 25 internet and social media accounts; RMB 3 million in mobile phones exported to KU; RMB 282 000 in cash physically transferred across the border; in June 12, 2017, 26 suspects arrested; RMB 2.2 million is currently restrained; prosecution ongoing. - Box 10 (YA): TF through operation of an underground bank — initial transfer of RMB 14,000 in December 2013; analysis linked YA to 133 investigations; expanded analysis to over 100 accounts and 1,000 transactions; YA and associates used nine bank cards to conduct transactions in excess of RMB 900 million, RMB 5.4 million of which was linked to TF activity related to travel for the purposes of fighting for a terrorist organization; YA was sentenced to 14 years for TF and 3 years for operating an underground bank; RMB 20 million (the balance of the associated accounts representing the total of YA’s assets) was forfeited. - Institutional arrangements and operational tools - National Leading Group for Combating Terrorism includes SPC, SPP, MFA, MPS, MSS, MOJ, GAC, and PBC. - ECID and Anti-Terrorism Department are lead departments responsible for investigating TF in China. - MPS maintains a confidential watch list of international and domestic persons and entities related to terrorism and TF; a shorter list is shared with FIs on a need-to-know basis. - In 2014, PBC, with participation of CAMLMAC, PBC branches, the public security agency, and the security department, developed a monitoring and analysis model and sub-models for TF transactions to assist AML/CFT reporting entities. - Complex terrorism and TF cases use special investigation task forces consisting of LEAs, State Security, the PBC and, in some cases, FIs; investigations may include wiretapping, internet surveillance, and undercover and special operations; China cooperates and coordinates with international law enforcement and intelligence services when dealing with international terrorism cases. *PEOPLE’S REPUBLIC OF CHINA — INTERNATIONAL MONETARY FUND (text covering paragraphs 227–236 and related boxed case material).* ### 237. The following table provided by authorities represents the number of TF cases and the ### 237–263: Countering the Financing of Terrorism — Findings, Implementation, and Statistics (China) ### TF case statistics and conviction data (2012–2016) - Table 10 — Number of Cases and Convicted Persons Involved in TF (2012–2016) - Number of Case(s) Involved in TF: 0, 1, 18, 55, 147, 221 - Number of Convicted Person(s) Guilty of TF: 0, 0, 6, 51, 153, 210 - Source: AML/CFT Statistics China. - Assessment note: Year-after-year increase in the number of TF cases, but given China’s size and identified risks of TF, the number of cases is relatively low. TF offenses are not broken down by type of TF activity investigated, preventing determination of roles played by terrorist financiers. ### PBC guidance, STR monitoring, and internal CFT training - PBC activities: - Provides guidance to entities with reporting obligations and promotes regular internal CFT training on TF. - Summarizes updates and issues guidance on the “indicators for monitoring funds involved in terrorism.” - Develops monitoring models of STRs related to TF (mainly electronic platforms for real-time scanning) tailored to FI characteristics/needs. - Develops “clues” from submitted STRs and disseminates them to LEAs. - Cooperates with investigations by participating in case discussions with LEAs and supporting ongoing investigations with analysis. - Table 11 — Internal CTF Training Provided by the PBC - Face-to-face training: - Regional AML managers: 316 (2016), 2,000+ (2012–2016) - Key AML personnel of provincial branches: 100 (2016) - Training courses: 3 (2016); - (2012–2016) - Remote training: - Branch personnel: 3,000+ (2016), 800,000+ (2012–2016) - Training courses: 3 (2016); - (2012–2016) ### National coordination and operational secrecy - National Leading Group for Combating Terrorism: - Established to coordinate overall planning of CTF strategies. - Office established by the MPS to enhance coordination and promote effective counter-terrorism action via supervision, guidance, monitoring and inspection. - Members include the SPC, SPP, MFA, MPS, MSS, MOJ, GAC, and the PBC. - Operational plans are sensitive/classified; only high-level counter-terrorism strategic goals were shared with the assessment team. ### Sanctions, penalties, and alternative measures - Table 12 — Penalties for Crime of Providing Assistance in Terrorist Activities - 2016: Number of Case Closed 147; Number of Public Surveillance 1; Number of Criminal Detention 1; Imprisonment of Not More than Five Years 45; Imprisonment of More than Five Years 106; Total Number of Individuals with Effective Judgements 153 - 2015: Number of Case Closed 55; Number of Public Surveillance 1; Number of Criminal Detention 0; Imprisonment of Not More than Five Years 2; Imprisonment of More than Five Years 48; Total Number of Individuals with Effective Judgements 51 - Assessment observations: - Some TF-related crimes classified administratively under the CTL and thus outside FATF Standards scope; no separate statistics can be provided for those. - Impossible to determine that China has effectively imposed proportionate and dissuasive sanctions in TF cases due to classification and data limitations; this negatively impacts the assessment. - Authorities provided case examples with sanctions between three years and life, and a conviction of a legal entity. - In eight TF cases in 2017, assets were confiscated as an additional sanction (confiscation generally assessed under IO.8). - Alternative measures where TF conviction is not practical: - Authorities can carry out arrests, prosecutions, and trials in the name of other serious crimes (e.g., accomplices of terrorist offense, harboring criminals, assisting in endangering national security, disrupting order of the financial markets). ### Related prosecutions and arrests for TF-related activities (2012–2016) - Table 13 — Approved Arrests and Prosecutions Initiated against the Financing (Assisting) of Terrorist Activities - Number of Approved Cases: 2, 3, 41, 92, 135 (2012–2016) - Number of Approved Arrests (Persons): 10, 4, 81, 181, 341 (2012–2016) - Number of Public Prosecution (Cases): 2, 2, 27, 71, 129 (2012–2016) - Number of Public Prosecution (Persons): 3, 13, 61, 167, 300 (2012–2016) - Source: AML/CFT Statistics China. ### Overall assessment for IO.9 - Conclusion: China is rated as having a substantial level of effectiveness for IO.9. ### Targeted Financial Sanctions (TFS) framework and implementation issues (IO.10) - Legal framework: - CTL enacted January 2016 combines criminal law elements, national security provisions, and asset freezing/seizure/confiscation requirements; CTL should be read with the Criminal Law (definition of terrorism in CTL; criminalization of TF in the Criminal Law). - PBC issued Notice 187/2017 in August 2017 focusing on UNSCR 1267 and successor resolutions. - Three fundamental deficiencies affecting implementation of UNSCRs 1267 and 1373: - Scope issues and lack of a prohibition: - CTL and Notice 2017/187 impose obligations on FIs and designated DNFBPs to freeze assets of designated entities, but China lacks obligations requiring all natural and legal persons within the country to freeze without delay and without prior notice the funds or other assets of designated persons and entities. - China lacks obligations prohibiting all natural or legal persons from making funds or assets available to designated entities (no general prohibition). - Authorities were unable to demonstrate these scope deficiencies do not leave a gap in effective implementation of UNSCRs 1267 and 1373. - Not all funds, assets, and transactions are covered: - China can only freeze certain assets (e.g., those held by a bank) but is not able to freeze assets held directly by designated terrorists or by third parties, nor transactions outside the financial sector. - Authorities were unable to show other asset types (e.g., real estate, land, and cash) or other transactions are effectively frozen or prohibited using other measures. - No implementation without delay: - Authorities were unable to demonstrate that freezing actions provided for by PBC Notice are implemented without delay (ideally within hours). - Initial delays caused by untimely circulation of new UNSCRs within government and before circulation to supervised entities. ### UNSCR 1267 and successor resolutions — circulation and FI awareness - Responsibilities: - MFA responsible for ensuring UNSCRs are implemented in China by circulating relevant UNSCRs to competent authorities. - PBC responsible (per Notice 187/2017) for following up by circulating information on new UNSCRs to FIs (as notices). - Implementation gaps observed: - Consistent and timely circulation of UNSCR 1267 and successor resolutions and amendments to designation lists could not be demonstrated. - During the onsite period, assessors checked whether regional authorities and FIs were aware of a recent change to the UN list; interviewees were not aware, so assessors could not confirm UNSCRs/amendments are circulated and reach FIs without delay. - FIs rely on commercial compliance software as main information source; PBC requires use of commercial compliance software to mitigate circulation delays. - Commercial databases may update one day after UN designation/amendment (not verified). - Compliance solutions do not distinguish between UN, EU, US, or other sanction programs; some FIs reported implementing all lists regardless of issuing jurisdiction — problematic domestically though may be unavoidable for internationally operating FIs. - Operational practice and statistics: - Limited information from competent authorities and FIs on how UN designations are implemented in practice. - No statistics on number of false positives or number of frozen assets related to UNSCR 1267; authorities provided one false positive case example (2014, Shanghai). - Example of China submitting designations to the UN: ETIM in 2002; China joined others in 2009 to add one leader to the 1267 list. No other submissions since 2009. ### UNSCR 1373, domestic designations, and TFS use - Domestic designations: - On prior legal framework (absorbed by CTL), China domestically designated 4 organizations and 25 persons as terrorists in 3 tranches (2003, 2008, 2012). - Organizations: ETIM, Eastern Turkistan Liberation Organization (ETLO), World Uygur Youth Congress, East Turkistan Information Centre. - 25 designated individuals linked to these organizations. - Four accounts frozen for a total amount of RMB 169.15 (approx. US$24.82); accounts remain frozen while two account holders remain at large. - Since 2012, no domestic designations. - CTL (2016) allows administrative designations by National Counter Terrorism Leading Body; requests may be filed by MPS, MSS, MFA, or regional/provincial bodies; courts may designate in criminal proceedings. As of onsite, no such designations had taken place despite presence of Chinese foreign terrorist fighters and recent terrorist attacks. - Requests to other countries: - Authorities have requested other countries to designate ETIM; successful in Turkey (2003), UAE (2014), United Kingdom (2016), United States (2016). - Requests to Australia, Canada, EU, Germany, Saudi Arabia did not lead to ETIM designation by those states (per authorities). - MFA would receive foreign requests to China for designations under UNSCR 1373; authorities stated no foreign country has ever made such a request to China. ### FI and DNFBP awareness and risk understanding - FIs and DNFBPs: - Generally aware of domestic lists of designated entities, but less aware of the four organizations and 25 ETIM-related persons. - Most FIs refer to the regular domestic law enforcement watch list maintained by the MPS. - FIs did not demonstrate an understanding that financial infrastructure in one part of the country may be used to finance terrorism elsewhere, or that TF and terrorism could be geographically separated. FIs expected TF-related transactions to be closely linked to terrorism. - Authorities noted FIs’ risk understanding aligns with existing typologies. - See IO.4 for more details on compliance of FIs with TFS requirements. ### NPO sector and TF risk identification - Size and oversight: - China’s universe of NPOs: 799,500 social organizations comprised of social groups (368,000), foundations (6,500), and social services institutions (private nonenterprise units) (425,000), plus 1,227 separately regulated overseas nongovernment organizations. - MCA responsible for registration and oversight of social organizations; MPS responsible for registration and oversight of overseas nongovernment organizations. - Risk identification gap: - China has failed to identify the subset of NPOs that, based on characteristics and activities, are at risk of TF abuse as required under R.8. - Relevant reforms: - 2016 Opinions on Reforming the Administrative System and Promoting the Healthy and Orderly Development of Social Organizations: PBC to work with MCA to incorporate social organizations into the AML regulatory system to prevent ML/TF abuse. - Charity Law (2016) and registration process: as of June 2018, China had registered 4,194 organizations, majority foundations (3,265). - Many Charity Law requirements address financial integrity, governance, and transparency; China has not identified any specific TF-related measures imposed on these organizations out of concern for TF abuse. *Source: Extract from IMF country assessment (paragraphs 237–263).* ### 264. The MCA reviews the annual reports required to be submitted by social organizations each ### 1chnea2019001 - 264. The MCA reviews the annual reports required to be submitted by social organizations each ### Review of social organizations and NPO sector (paras 264–266) - The MCA reviews the annual reports required to be submitted by social organizations each year and is required to conduct onsite visits to each organization once every five years. - Chinese authorities were unable to identify any specific areas of review, either during the examination of an organization’s annual reports or during an onsite visit, that relate specifically to the risk of TF abuse. - Chinese authorities were unable to identify any examples of outreach to the sector which addressed the risk of TF abuse faced by social organizations or a particular subset of social organizations. - China addresses social organizations in its NRA under Chapter 7—TF Risk Assessment, but the analysis is limited to: - a description of China’s NPO sector (social organizations); - the laws and regulations in place to address fund management; responsible person management; activities management; governance, and integrity and self-discipline. - The NRA does not analyze: - the types or features of social organizations based on their activities or characteristics that make them vulnerable to TF abuse; - the nature of threats posed by terrorist entities to social organizations or a subset of social organizations; - how terrorist actors abuse social organizations. - The NRA acknowledges issues related to “fund irregularities”; however, no cases of NPOs being involved in TF activities were identified. ### Supervision, scope, and relevance to R.8/IO.10 (para 266) - The MCA has the powers to conduct appropriate supervision of social organizations, authority to share information with other government departments, and is included in China’s AML/CFT regime as a member of the AMLJMC. - During the NRA process, China assessed the risk of its entire NPO sector, without limiting the assessment to FATF-defined NPOs. - China recognizes the inherent risks of TF abuse faced by FATF-defined NPOs, but failed to identify any specific risks of TF abuse faced by NPOs in China. - The NRA identified ML and other financial integrity risks faced by China’s broader NPO sector; China has chosen to incorporate social organizations into its AML regulatory system. - Initiatives addressing ML and financial integrity of China’s broader NPO sector are out of scope in relation to R.8 and IO.10, which are specific to the risk of TF abuse. ### Deprivation of TF assets and consistency with TF risk profile (paras 267–269) - In the absence of demonstration of effective use of the TFS toolkit, and of NPO requirements tailored specifically to at-risk NPOs, assessors cannot confirm that terrorists and their support networks are preventively deprived of their assets and instrumentalities. - The authorities’ focus on criminal measures (convictions and confiscations) provides balancing measures (see IO.9). - China is a regular victim of terrorism; Chinese nationals are also active overseas (e.g., ISIL-controlled territory in Syria and Iraq). ETIM has been designated by the UNSC under 1267 and successor resolutions. - For the past years this TF risk profile is not matched by corresponding measures to effectively implement preventive TFS measures, though criminal measures provide balance. - Overall conclusion: China is rated as having a low level of effectiveness for IO.10 (para 269). ### Immediate Outcome 11 — PF Financial Sanctions: legal and implementation deficiencies (paras 270–275) - China lacks a comprehensive general legal framework to deal with TFS related to PF, despite PBC Notice 187/2017 addressing some shortcomings for FIs. - Three fundamental deficiencies (similar to IO.10) undermine overall implementation of TFS related to TF in China, plus a general absence of focus on UNSCRs related to Iran. - Deficiency 1 — Scope issues and lack of prohibitions (para 271): - Notice 2017/187 contains obligations for FIs to freeze assets of designated entities, but China lacks obligations requiring all natural and legal persons to freeze without delay and without prior notice the funds or other assets of designated persons and entities. - China lacks obligations that would prohibit all natural or legal persons to make any funds or assets available to designated entities (no general prohibition). - Authorities could not demonstrate these deficiencies do not leave gaps in effective implementation of DPRK and Iran-related UNSCRs. - Deficiency 2 — Not all funds, assets and transactions are covered (para 272): - China can freeze certain assets (e.g., those held by a bank) but cannot freeze assets held by designated persons themselves or by third parties, nor prohibit transactions outside the financial sector. - Authorities were unable to demonstrate that other types of assets (e.g., real estate, land, cash) or other transactions are effectively frozen or prohibited using other measures. - This deficiency impacts effective implementation of DPRK- and Iran-related UNSCRs by allowing designated entities to move assets to safety. - Deficiency 3 — No implementation without delay (para 273): - Authorities were unable to demonstrate that freezing actions provided for by the PBC Notice are implemented without delay (i.e., ideally within hours). - Initial delays are caused by untimely circulation of new UNSCRs within the government, even before PBC and others could circulate them to supervised entities. - Authorities acknowledged at a high political level the need for a comprehensive legal system to deal with TFS related to PF (para 274). - In absence of a general legal and operational framework for PF-related UNSCRs, PBC has taken steps to implement DPRK-related requirements for the financial sector through PBC Notice 187/2017 (para 275). ### Implementation procedures, circulation delays, and screening (paras 276–284) - MFA is responsible for informing other state entities of new UNSCRs related to PF; notices include a short cover note from MFA and a copy of the UNSCR (para 276). - PBC is responsible for communicating UNSCRs (based on PBC Notice 187/2017) and issuing risk alerts to selected FIs; risk alerts are reminders and are not legally enforceable obligations to freeze assets (para 276). - Timing and delays (para 277): - It takes the MFA on average slightly over seven days to circulate UNSCRs to the PBC (and other government entities) after issuance by the UNSC. - This timing is not without delay as defined by the FATF Glossary (ideally within hours). - It is unclear how long it takes for Notices subsequently to reach FIs; it was not demonstrated that amendments to the lists of designated entities are communicated to FIs. - PBC requires banks to use commercial compliance software to screen for designated persons and entities to address circulation delays; this is positive but reliance on commercial providers poses challenges (para 278). - FIs’ understanding and experience (paras 278, 282–283): - FIs that met with assessors generally did not show a well-developed understanding of the requirements of the Notice or the UNSCRs beyond high-level awareness; none mentioned that they had identified or frozen assets. - FIs generally could not share practical examples of implementation issues (e.g., updating lists, transliteration issues, incomplete info, similar or identical identifier information). - From private sector discussions, only FIs (except online lending institutions) are aware of UN sanction regimes; no references were made to specific domestic legal obligations to freeze assets related to PF. - In practice that absence of reference to domestic obligations “does not seem to matter,” with FIs generally citing UN-related obligations without distinguishing TF and PF. - Screening exercises and hits (para 279): - PBC provided training and required selected banks to screen their entire database against UNSCRs; screenings in May 2017 and May 2018 identified an undisclosed number of accounts or transactions that may be linked to designated entities related to DPRK UNSCRs (none to Iran). - It is not clear how many of these hits were subsequently confirmed as formal or real hits. - Nonbank FIs and DNFBPs had no awareness or experience with TFS implementation; no information provided regarding Iran-related designations. - Pre-designation freezing actions (para 280): - Authorities provided data on the number of accounts frozen by Chinese banks of six entities prior to their designation by the UNSC. - It is unclear how these assets were identified or the purpose of freezing (criminal, preventive), but such actions evidence a commitment to act against PF. - DPRK Panel of Experts (PoE) interactions (para 281): - DPRK PoE publishes annual updates citing examples of accounts, funds, assets, and (front) companies run by designated entities in China. - DPRK PoE has sent 50 requests to China for information, of which ten related to the financial sector; China actively cooperates with the PoE. - Example: PoE requested assistance in the case of Kim Chol-Sam to investigate three companies. - Competent authorities’ assessment (para 284): - Authorities stated CDD rules (not related to PF) and self-imposed rules by FIs robustly prevent misuse of the financial system for PF, in addition to PBC Notice 187/2017. - PBC provided training and required some banks to screen databases and provided case examples of improvements. - Overall efforts fall short of what would be required to effectively ensure and monitor implementation of proliferation-related TFS in China. - In 2017, a Chinese bank was banned by a foreign regulator from accessing its financial system due to violations of DPRK sanctions — an indicator that the TFS regime may not be implemented effectively. ### Identification of assets, freezing experience, and reporting (paras 279–285) - Banks identified potential links to designated entities in screening exercises (May 2017 and May 2018), including possible false positives and related transactions/customers (e.g., family members), but confirmation rates are unclear (para 279). - Authorities provided examples of accounts frozen for six entities prior to UNSC designation (para 280). - DPRK PoE findings indicate room for improvement in identifying assets and funds held by designated persons/entities in China (para 281). - FIs’ use of compliance software produces benefits and challenges; the same issues noted under IO.10 apply (para 283). - Overall conclusion: China has achieved a low level of effectiveness for IO.11 (para 285). ### Preventive measures — Key Findings (paras following IO.11; header PREVENTIVE MEASURES A. Key Findings) - While FIs have a satisfactory understanding of their AML/CFT obligations, they have not developed a sufficient understanding of risks; measures to mitigate risk are generally not commensurate with different risk situations. - The most significant CDD deficiencies relate to ineffective implementation of requirements related to BO and ongoing due diligence. - Transaction monitoring by some FIs does not focus on assessing whether transactions are in line with the customer’s profile. - A few institutions, including some banks, do not systematically refuse business when CDD is deemed incomplete. - Measures for identifying foreign PEPs and persons entrusted with a prominent function by an international organization, and establishing their source of wealth, are not effective. - Given the significance of corruption in China, the absence of measures applicable to domestic PEPs represents a serious vulnerability. - Considering TF risks facing China, the effectiveness of TFS could not be established, including because some FIs do not screen the counterparties to their customers’ transactions. - The types of transactions that are reported are not in line with China’s ML/TF risk profile. - Effectiveness of reporting of suspicious transactions is hampered by: - insufficient understanding of ML/TF risks; - onerous criteria for determining whether to report an STR or a key STR; - lack of reporting from nonbank FIs. - PIs seek to form more than a reasonable suspicion of a predicate crime prior to reporting, representing a high threshold. - Less than five percent of STRs are reported by PIs, while they are identified as higher-risk of ML/TF in the NRA. - Internal controls of Chinese financial groups are often inappropriate for mitigating risks, notably when host-country regulations prevent access by FIs to information held by foreign branches or majority-owned subsidiaries for CDD and ML/TF risk management. - Considering the importance of foreign branches of Chinese FIs, group-wide AML/CFT programs implemented by financial groups have limited effectiveness. - Except for DPMs, DNFBPs are not covered by the AML/CFT framework; DNFBPs have not developed an understanding of ML/TF risks and do not apply preventive measures effectively. - Online lending institutions are not covered by the AML/CFT framework, have not developed an understanding of ML/TF risks, and do not apply preventive measures effectively. ### Preventive measures — Recommended Actions (B. Recommended Actions) - Shortcomings in the AML/CFT legal framework related to the coverage of online lending institutions and DNFBPs should be addressed. - The robustness of risk assessments of FIs should be enhanced to ensure they reflect actual threats and corresponding vulnerabilities exposing these institutions to risk. - Ongoing due diligence should be strengthened to ensure better detection of actual threats. These objectives can be achieved through guidance, feedback, and improved typologies. - Guidance and training should be provided to FIs and DNFBPs to develop a good understanding of the concept of BO and to ensure a systematic rejection of business when CDD is not completed. - AML/CFT requirements in relation to domestic PEPs and TFS should be established. - The criteria for reporting suspicious transactions under regulatory requirements should be streamlined for all reporting entities, including PIs. - Guidance is required to address inconsistencies of reporting practices by FIs. - FIs and DNFBPs should be provided access to reliable, independent source data for more effective verification of customers’ identity. - Financial groups should: - (i) apply mitigating measures commensurate with the risks of the host country; - (ii) strengthen group oversight, including scrutiny of transactions and the reporting of suspicious transactions; - (iii) inform the PBC of instances of inability to access information held by their branches or subsidiaries. *Source: PEOPLE’S REPUBLIC OF CHINA, INTERNATIONAL MONETARY FUND.* ### 286. Except for online lending institutions, FIs have a satisfactory understanding of their ### 1chnea2019001 - 286. Except for online lending institutions, FIs have a satisfactory understanding of their ### Understanding of AML/CFT obligations and ML/TF risks - Except for online lending institutions, FIs have a satisfactory understanding of their AML/CFT obligations, but an insufficient understanding of ML/TF risks (paragraph 286). - Banks are far more sophisticated than other institutions in identifying and, to a certain extent, assessing ML/TF risks (paragraph 286). - Online lending institutions and DNFBPs have not developed an understanding of ML/TF risks or AML/CFT obligations (paragraph 286). - DNFBPs relate the lack of understanding to the lack of coverage by the AML/CFT framework; accountants generally do not perform activities subjecting them to FATF requirements (paragraph 290). ### Identification of ML/TF threats and vulnerabilities - Most banks identify ML threats such as proceeds of illegal fund raising, underground banking, and telecom fraud; some banks also identify proceeds of embezzlement, corruption, online gambling, and tax evasion, or POC generated outside China (paragraph 287). - Nonbank FIs (including PIs) have poor identification of ML threats; PIs often consider online gambling and pyramid schemes as main ML threats (paragraph 287). - FIs generally did not demonstrate a developed or comprehensive understanding of AML/CFT vulnerabilities (paragraph 287). - Threat of TF is commonly identified by FIs (except online lending institutions), but understanding of domestic TF threats is primarily limited to transactions associated with the Xinjiang province (paragraph 287). - Banks identify geographic vulnerabilities (e.g., Guangdong and Xinjiang provinces; coastal regions in the southeast) and risks related to countries identified by the FATF (paragraph 288). - Most FIs identify non-face-to-face, including online business, as the main vulnerable delivery channels (paragraph 288). - Most FIs identify only PEPs as a high-risk customer category; few banks identify broader high-risk customer categories (e.g., small business owners; cash intensive businesses; legal entities) (paragraph 288). ### Customer due diligence (CDD) and record-keeping - CDD measures applied by FIs are generally not effective; low understanding and deficiencies in identifying and verifying BO represent the most serious deficiency (paragraph 291). - Customer identification, verification, and ongoing due diligence are generally performed with limited effectiveness; record-keeping measures are relatively more effective (paragraph 291). - Banks demonstrate better implementation of CDD and record-keeping than other FIs; DNFBPs do not apply CDD and record-keeping effectively (paragraphs 291, 299). - Many FIs describe successful use of the System of Network Check of Citizen Identity Information (SNCCII) for identity verification, but supervisory findings commonly refer to breaches such as incomplete or outdated customer information and expired identification documents (paragraph 292). - Contributing factors to CDD weaknesses include data limitations of the SNCCII, insufficient access to other reliable independent source data, and inconsistent use of verification sources mainly by nonbank FIs (paragraph 292). - Media and government reports note frequent utilization of stolen or fake identities; from March 2018 the PBC began a pilot requiring FIs to carry out identity verification for invalid IDs (paragraph 292). ### Rejection of false IDs — reported figures - Table 14. Rejection of Relationships by Three Commercial Banks When Identifying Use of False IDs to Open Account (Unit: Persons or Times) (paragraph 292): - Institution A bank: 2017 = 3,126; As to mid-2018 = 1,968; Total = 5,094 - Institution B bank: 2017 = 1,400; As to mid-2018 = 115; Total = 1,515 - Institution C bank: 2017 = —; As to mid-2018 = 596; Total = 596 ### Beneficial ownership (BO) - Identification of BO is a challenge; many FIs, including banks, did not demonstrate a proper understanding of the concept (paragraph 294). - Most institutions accept customer declaration of BO or consider beneficial owner to be natural person(s) owning 25 percent or more of shares; “most banks do not carry out checks of ownership” (paragraph 294). - Verification of BO of Chinese legal persons is likely a challenge due to lack of reliable BO information; additional difficulties exist for non-Chinese legal persons (paragraph 294). - Supervisors guide verification via the National Enterprise Credit Information Publicity System and third-party data providers, but these were not demonstrated to be reliable sources for BO (paragraph 294). - Online lending institutions do not seek to understand BO (paragraph 294). ### Transaction monitoring and ongoing due diligence - Except for online lending institutions, most FIs rely on IT solutions for real-time monitoring of transactions; indicators are mostly drawn from PBC risk warnings or vendor pre-populated rules and are often generic (paragraph 295). - Some institutions rely on manual or basic monitoring solutions that may not be commensurate with volume and risks (paragraph 295). - A number of institutions do not use CDD-collected information in transaction monitoring to ensure consistency with customer profiles (paragraph 295). - Most institutions conduct periodic reviews to update CDD data; efforts are often limited to periodic updating plans with higher frequency for higher risk clients (paragraph 296). - FIs generally refuse business when CDD is incomplete, except online lending institutions; some institutions substitute limitations or postpone identification measures rather than refusing business (paragraph 297). - Some banks retain dormant anonymous accounts established before the law prohibiting anonymous accounts; institutions report not allowing transactions with these accounts (paragraph 297). - Most FIs apply record-keeping requirements effectively, though breaches related to record-keeping and omission of business correspondence records are reported (paragraphs 298–299). ### Enhanced due diligence (EDD), PEPs, correspondent banking, new technologies, and wire transfers - In general, FIs are moderately effective in applying EDD measures; measures applied to PEPs are not effective considering the significance of corruption (paragraph 300). - Measures related to correspondent banking relationships, new technologies, and wire transfers are relatively more effective (paragraph 300). - Implementation of targeted financial sanctions (TFS) is not effective (paragraph 300). - Most FIs (except online lending institutions) consider PEPs high-risk and rely on third-party databases for PEP identification; only a few banks have robust systems to identify family members and close associates of PEPs (paragraph 301). - Most FIs do not establish source of wealth and, to a certain extent, source of funds for foreign PEPs (paragraph 301). - Most correspondent banking relationships include pre-engagement measures (gathering information, AML/CFT controls, senior management approval), but only a few banks demonstrate satisfactory understanding of respondent institutions’ business nature and supervisory quality (paragraph 302). - FIs report not providing payable-through accounts and not establishing business relationships with shell banks (paragraph 302). - FIs, especially payment and online lending institutions, rely extensively on new technologies; banks and PIs often assess ML/TF risks before launching new products, but for other FIs the extent of risk assessment coverage is unclear (paragraph 303). - FIs providing wire transfers ensure originator and beneficiary information is included; institutions will seek to complete missing information and resend transfers or reject transfers if information is lacking (paragraph 304). ### Targeted financial sanctions (TFS) implementation - Except for online lending institutions, FIs maintain databases of UNSCR-designated names and names provided by the PBC and the MPS and check these lists using IT solutions (paragraph 305). - Due to BO information deficiencies, most institutions cannot ensure TFS are applied towards designated persons that are beneficial owners (paragraph 305). - Some institutions match transactions only at end of business day, limiting effective freezing measures; false positives are mostly encountered by banks but clearing with the PBC is not common (paragraph 305). - Absence of statistics means it was not demonstrated that FIs identify or freeze assets pertaining or destined to designated persons or entities; FIs consider the deadline for freezing such assets would be 24 hours but would freeze assets promptly if the hit is positive (paragraph 305). ### Application of EDD to high-risk countries - Except for online lending institutions, most FIs apply enhanced due diligence towards relationships and transactions with natural and legal persons from countries for which this is called for by the FATF (paragraph 306). - Some institutions supplement FATF lists with other countries they deem higher risk; however, a few banks apply a standard set of EDD measures not commensurate with specific country risks (paragraph 306). - Given shortcomings related to EDD, measures applied are not likely proportionate to the risks of such business relationships and transactions (paragraph 306). *PEOPLE’S REPUBLIC OF CHINA — INTERNATIONAL MONETARY FUND (paragraphs 286–306).* ### 307. Despite ML/TF risks of various components of the DNFBP sector, the latter do not apply ### 1chnea2019001 - 307. Despite ML/TF risks of various components of the DNFBP sector, the latter do not apply ### Reporting Obligations and Tipping Off - DNFBP sector does not apply EDD measures due to lack of understanding of risks and lack of legal AML/CFT requirements. - General reporting effectiveness: - FIs are moderately effective in reporting suspicious transactions; inconsistent practices exist and some practices could trigger tipping-off. - Types of proceeds reported in STRs are inconsistent with the risk environment and are concentrated in the banking sector. - Number of STRs reported appears modest given size of financial sector in China. - Reporting of suspicious transactions by DNFBPs is very rare: only six STRs submitted so far (between January 2017 and mid-2018, five DNFBPs submitted six STRs). - Reporting channels and inconsistencies: - FIs report to CAMLMAC funds suspected to be proceeds of criminal activity or related to TF. For obvious ML/TF conduct, or transactions identified by FI internal investigations as related to terrorism/TF or national security, institutions report key STRs mostly in writing to PBC branches and simultaneously to CAMLMAC. - Some FIs experience challenges deciding whether to file an STR or a key STR; practices vary (some report STRs to CAMLMAC, others report directly to MPS without STR to CAMLMAC; some send to both local PBC branch and MPS). - Authorities stated that FIs would report to MPS (with corresponding STRs sent to the “FIU”) when transactions obviously relate to serious crimes. - Timeliness of reporting: - For nonobvious ML/TF conduct, an average of 10–15 days elapse between discovery and reporting of suspicion by FIs (mainly banks), if any. - Once suspicion is formed, most FIs consider the deadline for reporting to be five business days (10 days for PIs); the practice tends to be reporting within five days following confirmed suspicion. - Art. 15 of the “Measures for the Administration of Financial Institutions' Reporting of Large-Value Transactions and Suspicious Transactions” specifies submission of STR promptly, no later than five working days—this articulation of five working days is inconsistent with "promptly" and was addressed by a regulatory update at the end of the onsite visit. - Trends and quality: - CAMLMAC and PBC provincial branches have worked since 2012 to reduce defensive reporting and improve quality; number of STRs decreased significantly, key STRs increased. - Key STRs generally have higher quality than STRs because FIs conduct more in-depth analysis to identify a predicate offense. - Banks report more than 95 percent of STRs and key STRs; PIs comprise majority of the remainder. - Reporting is concentrated in a number of FIs under each category; online lending institutions, which are not subject to AML/CFT supervision, did not report suspicious transactions. - Aggregate STR data (2012–2016) — Number of STRs Submitted by FIs (in thousands): - 2012: Banks 29,613.1; Securities, Futures and Funds 3.7; Insurances 40.7; Others 0.03; PIs and Bank Card Organizations ------; Total 29,657.5 - 2013: Banks 24,497.7; Securities, Futures and Funds 1.8; Insurances 31.4; Others 0.09; PIs and Bank Card Organizations 0.1; Total 24,531.1 - 2014: Banks 17,707.2; Securities, Futures and Funds 1.2; Insurances 16.7; Others 0.11; PIs and Bank Card Organizations 1.4; Total 17,726.6 - 2015: Banks 11,170.9; Securities, Futures and Funds 1.6; Insurances 11.7; Others 0.23; PIs and Bank Card Organizations 5.5; Total 11,189.9 - 2016: Banks 5,380.1; Securities, Futures and Funds 13.6; Insurances 8.7; Others 0.04; PIs and Bank Card Organizations 33.3; Total 5,435.7 - Note: Others include trust companies, financial asset management companies, finance companies, financial leasing companies, auto finance companies, and money brokerage companies. - Key STRs by FIs (2012–2016): - 2012: Total 4,800 - 2013: Banks 4,669; Securities, Futures and Funds 58; Insurances 95; Others 3; PIs and Bank Card Organizations 29; Total 4,854 - 2014: Banks 4,846; Securities, Futures and Funds 15; Insurances 41; Others 3; PIs and Bank Card Organizations 35; Total 4,940 - 2015: Banks 5,784; Securities, Futures and Funds 14; Insurances 59; Others 0; PIs and Bank Card Organizations 36; Total 5,893 - 2016: Banks 8,391; Securities, Futures and Funds 17; Insurances 45; Others 17; PIs and Bank Card Organizations 34; Total 8,504 - Number of institutions by category that reported STRs (2015–2017) and number of institutions in 2016: - 2015: Banks 684; Securities, Futures and Funds 114; Insurances 61; Others 7; PIs and Bank Card Organizations 22; Total 888 - 2016: Banks 903; Securities, Futures and Funds 110; Insurances 62; Others 5; PIs and Bank Card Organizations 48; Total 1,128 - 2017: Banks 1,068; Securities, Futures and Funds 151; Insurances 69; Others 8; PIs and Bank Card Organizations 68; Total 1,364 - Number of Institutions in 2016: Banks 4,330; Securities, Futures and Funds 386; Insurances 227; Others 529; PIs and Bank Card Organizations 266 - Nature of predicate offenses in disseminations (2016 FIU disseminations): - “Disruption of financial management” order: 50 percent - Terrorism: 15 percent - Financial fraud: 8 percent - Drug crimes: 4 percent - Corruption and bribery: 2 percent - Key STRs on TF from 2015 to Mid-2018: - 2015: Banks 233; Securities, Futures and Funds 0; Insurances 0; Others 0; PIs and Bank Card Organizations 1; Total 234 - 2016: Banks 378; Securities, Futures and Funds 0; Insurances 0; Others 0; PIs and Bank Card Organizations 1; Total 379 - 2017: Banks 436; Securities, Futures and Funds 0; Insurances 1; Others 0; PIs and Bank Card Organizations 11; Total 448 - Mid-2018: Banks 197; Securities, Futures and Funds 0; Insurances 0; Others 0; PIs and Bank Card Organizations 0; Total 197 - Tipping-off risks: - Some FIs (e.g., some PIs) reportedly freeze transactions upon reporting without informing customers of the reason, which may alert customers that their activities are under scrutiny. - DNFBP reporting: - STRs by DNFBPs are rare; between January 2017 and mid-2018, five DNFBPs submitted six STRs. - DNFBPs generally face cases of suspicion that go unreported due to lack of regulatory requirement to report suspicion (up to time of onsite visit) and ineffective implementation of CDD measures and ongoing monitoring. - Some DNFBPs believe future reports should be submitted to relevant industry association and MPS but not to the FIU, raising tipping-off concerns. ### Internal Controls (Including at Financial Group Level) and Legal/Regulatory Requirements - Internal controls and programs: - FIs apply internal controls and procedures to ensure AML/CFT compliance; training programs and internal audit have limited effectiveness. - Online lending institutions and DNFBPs generally do not have AML/CFT internal control programs. - Internal control at financial group level is often inappropriate for mitigating risks, especially when host country regulations prevent access to information. - Effectiveness and implementation gaps: - Except for online lending institutions, FIs implement programs and compliance arrangements but effectiveness is often questionable; policies/procedures are not risk-sensitive. - Most institutions do not sanction staff for breaching AML/CFT policies and procedures. - Training programs cover staff with AML/CFT responsibilities, including senior management, but some (e.g., some banks) do not effectively include senior management or sufficiently develop skills of staff with key AML/CFT responsibilities. - Audit findings generally do not cover important supervisory-identified shortcomings such as monitoring and reporting suspicious transactions. - Reporting of AML/CFT issues to senior management often focuses on regular compliance and individual suspicion cases; broader risk management issues are not consistently escalated. - AML/CFT training statistics for 24 institutions directly supervised by the PBC: - 2015: No. of Training Sessions 36,255; No. of Attendees 1,900,965; No. of Senior Management Attendees 24,027 - 2016: No. of Training Sessions 43,692; No. of Attendees 2,496,850; No. of Senior Management Attendees 25,480 - 2017: No. of Training Sessions 54,223; No. of Attendees 3,719,423; No. of Senior Management Attendees 37,949 - First half of 2018: No. of Training Sessions 29,051; No. of Attendees 1,542,955; No. of Senior Management Attendees 18,139 - Total: No. of Training Sessions 163,221; No. of Attendees 9,660,193; No. of Senior Management Attendees 105,595 - Group-wide issues: - Foreign branches and majority-owned subsidiaries of Chinese banks are significantly relevant to the financial system. - Effectiveness of group-wide AML/CFT programs is limited; group compliance and audit exist but monitoring and risk management of branches/subsidiaries not sufficiently effective. - Nearly 50 Chinese financial groups experienced issues accessing information held by their foreign branches and majority-owned subsidiaries in recent years according to PBC statistics. - Some institutions resolve access issues by onsite visits; some take no action. In such cases, additional measures are not applied and home supervisors are not informed. - Sanctions by foreign regulators on branches/subsidiaries (including for failure to identify/report obvious suspicious transactions and in one case for tipping off customers) indicate group-wide programs may not ensure stricter standards where jurisdictional STR reporting differences exist. - DNFBPs do not implement ML/TF programs mainly due to lack of regulatory requirements. ### Overall Conclusions on IO.4 - China is rated as having a low level of effectiveness for IO.4. ### Supervision — Key Findings - China’s AML/CFT supervisory system is almost exclusively focused on the financial sector; no effective supervisory measures for the DNFBP sector. - DNFBP sector was assigned medium weighting in assessment for some sectors despite insufficient risk assessment information proving low inherent risks. - PBC’s understanding of risk in the financial sector is adequate but largely based on FIs’ own risk assessments rather than authority-driven assessments. - PBC’s understanding of risk in the DNFBP sector is low because no DNFBPs provide risk assessments to the PBC and most DNFBPs were not subjected to adequate (or any) risk assessments in the NRA. - Online lending sector is not supervised for AML/CFT compliance. - Financial sector supervisors have a moderate level of understanding of ML/TF risk (insurance regulator demonstrated higher understanding); DNFBP sector regulators have low understanding and undertake virtually no AML/CFT supervision. - Growth in numbers of FIs rated as High Risk by PBC is outpacing inspections of such FIs that result in remedial measures or sanctions; conversely, securities and insurance sectors have high inspection levels relative to number of institutions rated high risk. - Active remedial program exists where issues are found in FIs, but China does not apply effective, proportionate, and dissuasive financial sanctions to FIs; no remedial measures or financial sanctions applied to online lending sector or DNFBPs. - Inadequate guidance directed to online lending sector and DNFBPs because of lack of AML/CFT obligations. ### Supervision — Recommended Actions - Review supervisory resources at the PBC to address need for increasing onsite inspections in the banking sector, adequate supervision of DNFBP sectors, and extension of the AML Law to the online lending sector. - PBC should review balance of resources applied to inspections of high-risk FIs by increasing frequency of inspections of high-risk banks to address growth in this segment. - PBC and other financial sector supervisors should ensure consistent application of supervisory processes to focus on effective risk-based implementation of internal controls supportive of AML/CFT obligations. - China should extend the AML Law to cover the online lending sector and ensure effective AML/CFT supervision by the PBC. - China should demonstrate collaboration with relevant DNFBP sector regulators/SROs in designating the DNFBPs to be subject to the AML Law; consider amending AML Law requirement to give sector regulators a supportive role similar to sector financial regulators. - China should conduct a risk assessment of individual DNFBPs as defined by the FATF (apart from trust companies and DPMs) to ensure: - (i) appropriate market entry and preventive measures are established, and - (ii) the PBC can supervise and monitor appropriate AML/CFT obligations. - In doing so, review strategy and necessity of collaborating with sector supervisors in DNFBP sectors given their low level of ML/TF knowledge. - China should review effectiveness, proportionality, and dissuasiveness of financial sanctions and consider substantially increasing size of penalties for violations of the AML Law, especially penalties levied against the largest FIs by PBC or by sector supervisors for system weaknesses across financial groups. - China should prepare guidance directed at DNFBP sectors to assist them in implementing AML/CFT measures when formally designated as DNFBPs. ### Immediate Outcome 3 (Supervision) — Introduction - The relevant Immediate Outcome considered and assessed in this chapter is IO.3. The recommendations relevant for the assessment of effectiveness under this section are Rs.26–28, Rs.34 and 35. - The AML Law (Arts. 4 and 36) provides inter alia that the PBC is in charge of AML/CFT supervision and administration throughout China. In the financial sector, its work is supported by the sector financial regulators, and in the DNFBP sector, it is required to supervise in collaboration with sector regulators. *Source: 1chnea2019001 - 307. Despite ML/TF risks of various components of the DNFBP sector, the latter do not apply* ### 323. There is a large online lending sector which is subject to high-level AML/CFT obligations. ### 1chnea2019001 - 323. There is a large online lending sector which is subject to high-level AML/CFT obligations. ### Online lending sector and AML/CFT supervision - There is a large online lending sector which is subject to high-level AML/CFT obligations. - The PBC is the designated supervisor for this sector, but the sector is not yet subject to any AML/CFT supervision. - The online lending sector is not subject to the PBC’s prescribed risk assessment guidance and is not included in the PBC’s risk-based supervisory processes. - Controls over market entry and changes in BO, legal owners, and senior management are the responsibility of the sector regulators, except for PIs where entry is regulated by the PBC, and the online lending sector, where entry is regulated by the competent authorities of provincial governments (who are not financial or AML/CFT regulators). - There are no measures applying criminal background checks by the provincial authorities in the online lending sector. ### Supervisory roles, DNFBP designation, and scope gaps - Unless otherwise noted in this chapter, references to “financial institution” or “FI” include the PI sector. Generally, the PBC treats PIs as FIs, but PIs are not supervised by the sector financial regulators; their AML/CFT supervisor is PBC. - Financial sector supervisors have a defined AML/CFT supporting supervisory role focused on FIs’ internal controls; they cannot impose sanctions against FIs for AML/CFT violations under the AML Law and can only impose sanctions on implementation of internal controls required by sector legislation. - AML Law requires the PBC to designate DNFBP sectors subject to the AML Law and AML/CFT supervision collaboratively with each sector’s supervisor. At the time of the onsite visit, designated sector supervisors included: - MOHURD for the real estate sector - MOJ for the lawyers sector - MOF for the accounting sector - SGE (supervised by the PBC) as an SRO for DPMs - China has not yet designated AML/CFT-obligated DNFBPs as required by the AML Law; detailed CFT obligation requirements for DNFBPs have not been issued; detailed DNFBP-specific requirements on customer identification, due diligence, or transaction reports are not issued. - The PBC purported to designate categories of DNFBPs subject to AML/CFT obligations (except trustee services and DPMs), but authorities could not demonstrate effective collaboration with DNFBP sector supervisors as required; the purported designation was not accepted as compliant with the AML Law and thus not in effect. - The purported designation notice named CSPs as a DNFBP sector despite the NRA stating there is no CSP sector in China; assessors found evidence that company formation services, including provision of business addresses, correspondence and administrative addresses for legal persons, are offered by CSPs in China, contrary to the authorities’ characterization. ### Fit and proper (criminal background) checks and market entry statistics - Sector regulators administer market entry controls in DNFBP sectors (MOHURD, MOF, MOJ), the SGE (for DPMs), and the PBC (for trustee services). There are no entry controls in the CSP and DPS sectors; CSPs and DPSs are subject only to standard business registration requirements at the municipal level. - Entry/membership qualification processes requiring applicants to produce clean criminal background check data from MPS are in place in legal, accounting, notarial, trust services (trust company), and DPM sectors, but not in RE, DPS, and CSP sectors. - Authorities disqualify between 20 and 30 qualified lawyers per year for criminal activity. SGE rejected 10 applications for licensing between 2015 and 2018, of which 2 related to criminal issues. - In the PI sector: - New PIs must report to PBC on compliance systems and security no later than 30 days prior to launching a new business. - Licenses are valid for five years and can only be issued to legal persons; processes include a minimum three-year criminal background check (in practice criminal records are accessed without time limit). - Up to July 2018, PBC integrated licensing resources of 11 affiliated companies under the same holding group; licenses of 16 PIs with serious violations were not renewed; licenses of 6 were revoked. - Table 20 and Table 21 (2015–2018) statistics (selected figures preserved exactly as presented): - Applications for licensing (excluding branches) — Number of applications: - Banks: 1,270 (note) - Insurance Companies: 50 - Securities Dealers 1/: 101 - PIs: 0 - Online Lending Institutions with applications for licensing: 2 - Rejections: - Banks: 7 - Insurance Companies: 3 - Securities Dealers 1/: 0 - PIs: 0 - Online Lending Institutions: 0 - Rejection due to criminal background: - Banks: 1 - Insurance Companies: 0 - Securities Dealers 1/: 0 - PIs: 0 - Online Lending Institutions: 0 - Institutions with existing licenses revoked — Licenses revoked: - Banks: - - Insurance Companies: 0 - Securities Dealers 1/: 0 - PIs: 0 - Online Lending Institutions: 29 - Licenses revoked due to criminal background: - Banks: - - Insurance Companies: 0 - Securities Dealers 1/: 0 - PIs: 0 - Online Lending Institutions: 0 - Number of institutions as of mid-2018: - Banks: 4,549 2/ - Insurance Companies: 227 - Securities Dealers 1/: 235 - PIs: 247 - Online Lending Institutions: 0 - Senior management appointment applications — Number of applications: - Banks: 73,168 - Insurance Companies: 2,875 - Securities Dealers 1/: 691 - PIs: 0 - Online Lending Institutions: 258 - Senior management rejections: - Banks: 554 - Insurance Companies: 61 - Securities Dealers 1/: 3 - PIs: 0 - Online Lending Institutions: 0 - Rejection due to criminal background (senior management): - Banks: 3 - Insurance Companies: 0 - Securities Dealers 1/: 0 - PIs: 0 - Online Lending Institutions: 0 - Existing senior management approval revoked: - Banks: 428 - Insurance Companies: 2 - Securities Dealers 1/: 1 - PIs: 2 - Online Lending Institutions: 0 - Approval revoked due to criminal background (existing senior management): - Banks: - - Insurance Companies: 0 - Securities Dealers 1/: 0 - PIs: 0 - Online Lending Institutions: 0 - Table 21 — Number of Applicants in Banking Institutions (2015–first half of 2018), totals: - Urban commercial banks: Total 2 (breakdown 1, 1, 0, 0) - Private-owned banks: Total 12 (breakdown 0, 12, 0, 0) - Foreign-funded incorporated bank: Total 5 (breakdown 0, 2, 1, 2) - Branches of foreign-funded banks: Total 29 (breakdown 15, 8, 5, 1) - Rural commercial banks: Total 661 (breakdown 195, 261, 157, 48) - Rural banks: Total 446 (breakdown 157, 132, 125, 32) - Financial leasing companies: Total 37 (breakdown 15, 12, 10, 0) - Finance companies of enterprise group: Total 55 (breakdown 28, 14, 11, 2) - Auto financial companies: Total 7 (breakdown 7, 0, 0, 0) - Consumer finance companies: Total 16 (breakdown 6, 6, 4, 0) - Total applicants (2015, 2016, 2017, first half of 2018): 424, 448, 313, 85 respectively; Total 1,270 - Table 22 — Types of PIs Licensed as of the End of 2017: - Internet Payment Providers: 115 - Bank Card Receipt Businesses: 61 - Prepaid Card issuers: 158 - Total: 247 - Observations: - Numbers of applications for new FIs rejected because of criminal connections seem low, but authorities screen all applications and scrub all names through criminal databases with no time limit, which probably deters criminal elements from accessing the financial sector via regulated channels. - Systemic BO information collection in China has not been established and negatively impacts the effectiveness of criminal background checks. ### Supervisors’ understanding and identification of ML/TF risks — Financial sector - PBC requires FIs to conduct inherent risk assessments (Measures for the Anti-Money Laundering Supervision and Administration of Financial Institutions (For Trial Implementation)), to update the assessment annually and provide information to the PBC. - PBC issued rules/guidance on the model to measure inherent risks and controls; PBC uses FI submissions as starting point for its own risk analysis and rates residual ML/TF risk levels by assessing identified inherent risks and the strength of control measures. The rating determines supervisory prioritization. - Guidelines for the Assessment of Money Laundering and Terrorist Financing Risks and Categorized Management of Customers of Financial Institutions (2013) direct FIs to use a prescribed risk assessment methodology and indicator system covering customers, business locations, business sectors, financial products, and services. The guidelines: - Require assignment of values and weighting factors to calculate risk rankings of customers. - Address ownership of customers, but weaknesses in BO findings in the MER weaken effectiveness. - Allow FIs discretion to classify customers as low risk if they do not meet prescribed categories based on size thresholds and products; specify circumstances where clients must be classified as high risk. - Do not apply to the online lending sector. - The PBC reviews risk classifications by FIs; the extent of directions applied when institutions mis-assess risks is not clear. - The PBC conducts research on vulnerabilities (new products, new delivery channels). In 2017: - Nine research papers on new delivery channels - Six research papers on new businesses - The PBC issues notices and risk warnings (2016 and 2017) on bank card fraud through self-service machines, card-free deposits and associated TF risk, suspicious indicators concerning cross-border transfers, and a notice about risks of dealing in cryptocurrencies. National Internet Finance Association of China issued risk warnings about Fintech products including ICOs, cryptocurrencies, and small loans. - The PBC receives STR data from CAMLMAC; criminal case convictions from the SPC; criminal investigation data from the MPS; and typological cases from LEAs. Despite these inputs, low level of understanding of risks identified in Chapter 2 remains. - As a result of these efforts, there has been a significant increase in the numbers of FIs designated as high risk (implications for supervisory resources). ### PBC classification statistics (residual risk rankings by PBC, 2015–2017) - Table 23 — Number of Institutions with Ratings Categorized by the PBC (2015–2017) - Banking — Total: - 2015: Total 4,193; Low Risk 1,104; Medium Risk 2,371; High Risk 718 - 2016: Total 4,330; Low Risk 926; Medium Risk 2,591; High Risk 813 - 2017: Total 4,481; Low Risk 630; Medium Risk 2,951; High Risk 900 - Securities/Futures/Funds — Total: - 2015: Total 375; Low Risk 108; Medium Risk 169; High Risk 98 - 2016: Total 386; Low Risk 76; Medium Risk 240; High Risk 70 - 2017: Total 391; Low Risk 65; Medium Risk 260; High Risk 66 - Insurance — Total: - 2015: Total 194; Low Risk 43; Medium Risk 89; High Risk 62 - 2016: Total 203; Low Risk 38; Medium Risk 124; High Risk 41 - 2017: Total 227; Low Risk 47; Medium Risk 148; High Risk 32 - Trust Companies — Total: - 2015: Total 68; Low Risk 11; Medium Risk 49; High Risk 8 - 2016: Total 68; Low Risk 17; Medium Risk 42; High Risk 9 - 2017: Total 68; Low Risk 15; Medium Risk 44; High Risk 9 - PIs — Total: - 2015: Total 269; Low Risk 2; Medium Risk 94; High Risk 173 - 2016: Total 266; Low Risk 36; Medium Risk 152; High Risk 78 - 2017: Total 242; Low Risk 31; Medium Risk 172; High Risk 39 - Total (all sectors combined): - 2015: Total 5,099; Low Risk 1,269; Medium Risk 2,771; High Risk 1,059 - 2016: Total 5,253; Low Risk 1,093; Medium Risk 3,150; High Risk 1,010 - 2017: Total 5,409; Low Risk 789; Medium Risk 3,574; High Risk 1,046 - The PBC’s risk assessment process relies on FI-provided assessments, sector regulator information on internal controls (varying in AML/CFT specificity), and the PBC’s own assessment; the online lending sector is excluded from this process. - Overall conclusion: PBC demonstrates an adequate understanding of risk in the financial sector, but key gaps remain (notably online lending exclusion and limited AML/CFT-specific information from some sector regulators). ### DNFBP sector risk understanding and gaps - PBC has not conducted any risk assessment of individual DNFBPs (aside from trust companies). The NRA contains the only DNFBP sector risk information: - Real estate sector: relatively high inherent risk and medium residual risk - DPM sector: relatively high inherent and residual risk - Legal, notarial, and accounting sectors: low inherent and residual risk - CSP and DPS sectors: not discussed in the NRA and unrated - DNFBP sector supervisors (MOHURD, MOF, MOJ) demonstrated a low level of understanding of ML/TF risk; no specific detailed information was provided to demonstrate active involvement in ML/TF risk assessment. - Overall: lack of DNFBP designation, absence of detailed CFT requirements and guidance for DNFBPs, incomplete coverage of criminal background checks in several DNFBP sectors (RE, DPS, CSP) and unclear scope of checks in legal and DPM sectors. *Source: 1chnea2019001 - 323. There is a large online lending sector which is subject to high-level AML/CFT obligations.* ### 352. The AMLB, from its headquarters in Beijing and through 36 locations across China, directs ### The AMLB, from its headquarters in Beijing and through 36 locations across China, directs ### AMLB/PBC structure and staffing - The AMLB directs the AML/CFT supervision of FIs subject to the AML Law from its headquarters in Beijing and through 36 locations across China. - Supervisory process is carried out at locations roughly corresponding to the geographical location of the FIs and their branches. - As of the end of 2017, the PBC AML examination staff totaled 5,366 across China. - From 2015 to 2017, the PBC head office conducted risk assessments on 24 institutions of national importance; central coordination of supervisory activity for these 24 FIs is led by a 15-person team. - Of the 24 FIs, as of the end of 2017: 18 were banks; 4 of the banks are very large and classified as Global Systemically Important Financial Institutions (G-SIFI) by the Financial Stability Board; the remaining are large insurance companies, securities dealers, and PIs deemed of national importance. - PBC staffing allocation: - Shanghai branch physically has 11 staff dedicated to AML/CFT supervision in Shanghai, with additional resources assigned as needed. - Proportion of staff per province is about 12 percent on average, compared to nearly 13.5 percent in the SE region. ### Supervisory approach and sector coordination - PBC’s AML/CFT supervisory strategy is informed by risk assessment results which produce an AML/CFT supervisory rating. - Division of responsibilities: - Sector supervisors focus on internal control processes at FIs. - In practice, lines between PBC and sector supervisory work sometimes overlap, notably in the insurance sector. - Sector supervisors’ support in assessing internal controls is considered a strength. - Insurance regulator (CIRC) practice: - Since 2011, CIRC began “special inspections” targeting AML systems of insurance companies, covering internal controls, customer identification obligations, and not reporting LVTRs and STRs. - Banking and securities regulators do not have a comparable approach except when requested by the PBC. - Assessors consider similar enhanced programs by banking and securities regulators would further enhance AML/CFT supervisory quality. ### Supervisory activities: visits and onsite inspections (2015–2017 statistics) - PBC onsite process has two components: supervisory visits and onsite inspections. - PBC Supervisory Visits: - Lighter-touch supervision used for lower-risk FIs and to address particular issues. - In 2017, the PBC conducted almost 5,700 supervisory visits to head offices and branches of China’s 4,000+ FIs and issued a total of 1,421 Regulatory Opinions after these visits. - Onsite Inspections: - Planned annually by HO and 36 branches considering supervisory goals, ratings, risk assessments, regulatory filings, and known risk events. - Chief criterion for selection is risk rating. - Inspections verify implementation of customer identification, record-keeping, monitoring, STR filing, and TFS name scrubbing processes. - Table 24 summary (Number of Institutions): - Offsite Supervision: - Inquiries: 2015 = 304; 2016 = 366; 2017 = 500 - Interviews: 2015 = 486; 2016 = 586; 2017 = 782 - Onsite Supervision — Supervisory Visits: - 2015 = 1,193; 2016 = 1,060; 2017 = 1,912 - Comprising Banking: 2015 = 845; 2016 = 779; 2017 = 1,495 - Securities: 2015 = 132; 2016 = 113; 2017 = 158 - Insurance: 2015 = 125; 2016 = 126; 2017 = 163 - PIs: 2015 = 62; 2016 = 26; 2017 = 41 - Other FIs including Trust companies: 2015 = 29; 2016 = 16; 2017 = 55 - Onsite Inspections / FIs rated High Risk by PBC: - 2015 = 515/1,059; 2016 = 612/1,010; 2017 = 605/1,046 - Comprising Banking: 2015 = 365/718; 2016 = 429/813; 2017 = 431/900 - Securities: 2015 = 65/98; 2016 = 80/70; 2017 = 72/66 - Insurance: 2015 = 67/62; 2016 = 74/41; 2017 = 82/32 - PIs: 2015 = 16/173; 2016 = 23/78; 2017 = 12/39 - Other FIs including Trust companies: 2015 = 2/8; 2016 = 6/9; 2017 = 8/9 ### Coverage, sector imbalances, and Fintech - Inspection coverage observations: - Banking sector appears substantially under-represented in inspections given high inherent ML risk and cross-border transfer threats. - Ratio of inspections to numbers of high-risk banks declined from approximately 50 percent in 2015 to 47 percent in 2017. - PI sector ratio improved from 9 percent in 2015 to 31 percent in 2017. - Securities and insurance sectors: numbers of inspections exceeded numbers of high-risk FIs, suggesting inclusion of medium- and low-risk entities in inspections; overall sector imbalances should be addressed. - Foreign branches/subsidiaries: - PBC does not carry out onsite inspections at foreign branches or subsidiary locations of Chinese FIs. - Authorities’ rationale: (i) these foreign locations account for less than 2 percent of all FI locations and about 12 percent of total assets; (ii) FIs must report to the PBC on AML programs at these locations in annual reporting; (iii) FIs must report “major events” at foreign locations timely. PBC considers this approach adequate. - Fintech products: - During onsite inspections PBC assesses whether new Fintech products had been subject to risk assessments prior to launch and the effectiveness of these processes. - Assessors note benefit if PBC also made these risk assessments following offsite supervisory visits to improve sector-wide understanding and prioritization. ### DNFBP supervision - From May 2017 to June 2018: - PBC accompanied by MOHURD, MOF, and MOJ carried out 53 supervisory visits (not inspections) to DNFBPs in real estate, accounting, legal, notarial, and DPS sectors. - A further 105 supervisory visits were made to various other firms, mostly tax firms and pawnbrokers. - Objectives: acquaint industry with potential AML/CFT obligations and proposals for future supervision; visited DNFBPs were requested to “commence AML work.” - Assessors’ observations: - It is not clear how PBC or sector regulators could enforce AML/CFT obligations before the purported July 2018 Notice. - Some DNFBPs have “preliminarily” established AML internal control frameworks and reporting procedures for STRs and LVTRs, but no statistics were provided on these frameworks or which DNFBPs had them. - Conclusion: there has been no AML/CFT inspection of DNFBP sectors (aside from trust companies and the DPM). - No AML/CFT remedial actions or sanctions have been applied to DNFBPs. ### Remedial actions and financial sanctions - Remedial measures by PBC: - PBC issues Supervisory Opinions after supervisory visits requiring implementation within specified time limits. - Following inspections, FIs must develop and implement remediation plans; PBC reviews remediation status, hears senior executive reports, and guides follow-up. - If FI fails to comply by deadline, more intensive measures and/or financial sanctions are available. - Remedial measures applied by PBC are always accompanied by a financial penalty. - Financial sanctions: - Financial penalties available to PBC for violations of the AML Law are as set out in the TCA; penalties are calculated on a “per violation” basis. - Penalty amount based on number and degree of severity of violations. - Policy exists to assess additional penalties against board members or senior management considered responsible. - Table 25 summary — Numbers penalized and aggregate penalties (RMB million yuan): - Number of penalized institutions: 2012 = 58; 2013 = 102; 2014 = 122; 2015 = 117; 2016 = 154; 2017 = 255 - Number of penalized individuals: 2012 = 32; 2013 = 168; 2014 = 147; 2015 = 173; 2016 = 483; 2017 = 695 - Aggregate Amount of penalties applied (RMB million yuan): 2012 = 13.09; 2013 = 21.54; 2014 = 27.42; 2015 = 26.87; 2016 = 49.61; 2017 = 107.4 - Sectoral detail and assessments: - In 2017, banks penalized by the PBC under the AML Law represented about six percent of all banks in China. - Of the 255 FIs financially penalized in 2017, 157 were mostly residually high-risk small- and medium-sized urban commercial banks, rural commercial banks, rural credit cooperatives, and rural banks. - In 2017 penalized number of such banking institutions amounted to 61 percent of the banking sector and the aggregate penalties amounted to 57 percent of all penalties in the sector. - For 2016 and 2017, China applied an aggregate of RMB 48.7 million in financial penalties to 19 out of the 24 FIs directly supervised by PBC HO, an average of about RMB 2.6 million each. - The largest penalty (RMB 7.9 million) was applied to the largest bank in China for infractions at 26 locations; as of end-June 2017 this bank’s total assets were RMB 8.5 trillion, total deposit balances were RMB 7.8 trillion and total loans portfolio amounted to RMB 3.3 trillion. - Assessors consider this size of penalty on such a large bank for extensive violations at 26 offices seems minor and not dissuasive. - Former CBRC (since 2015) imposed 48 penalties aggregating RMB 22.3 million for failure to implement internal control requirements across 23 institutions; 6 were ordered to sanction 25 responsible personnel (8 removed from posts; 3 prohibited from banking industry for life). - Average penalty per FI was slightly less than RMB 1 million (approx. US$160,000); considered minor and not dissuasive in a sector with very large banks. - CIRC applied financial penalties to two insurance companies in 2017 (amounts and violations not available). - CSRC in 2016 imposed administrative penalties on four institutions aggregating RMB 240 million. - Assessors’ conclusions on sanctions: - Overall volume of financial penalties applied by PBC is growing; authorities attribute growth to new regulatory obligations, better targeting of inspections to higher-risk entities, and improved inspection methodology. - Low levels of penalties available (see TC Analysis) mean supervisors must expand scope of work to find violations that generate sufficiently large penalties. - Assessors believe AML/CFT financial penalties applied by PBC and averaging about RMB 41 million per year (approx. US$6 million) are not effective, dissuasive, nor proportionate given sector size and lack of responses to remedial measures. - Sector supervisors’ penalties are not necessarily AML/CFT-related and may not be directly linked to AML/CFT compliance. - No AML/CFT remedial actions or sanctions have been applied to online lending institutions. ### Impact of supervisory actions on compliance - Overall assessment of impact: - PBC’s risk-based approach is mostly based on ratings generated by FIs’ self-assessments of inherent risks and PBC’s assessments of internal control quality. - Overall impact of supervision on financial sector compliance seems moderate and declining. - Factors supporting this conclusion: - Rapid growth in the number of high-risk FIs outpacing increases in inspections. - Increasing remedial measures required of, and financial penalties handed out to, FIs and individuals between 2012 and 2017. - Lack of dissuasiveness of financial penalties. - Low to moderate level of ML/TF risk understanding demonstrated by the financial sector during onsite visits. - Lack of AML/CFT sanctions in the DNFBP sector. - Illustrative statistics: - Between 2012 and 2017, number of FIs sanctioned by PBC for violations of the AML Law grew from 83 in 2012 to 429 in 2017 (over a 400 percent increase). - Over same period, number of onsite inspections declined from 1,173 to 1,046 (a reduction of about 11 percent). - Number of individuals fined grew from 32 in 2012 to 695 in 2017. - Aggregated amounts of annual fines grew from RMB 13 million in 2012 to RMB 107 million in 2017. - Sector supervisors’ impact: - Except for the insurance supervisor, sector supervisors have a low to moderate impact on AML/CFT compliance due to supporting role limited to verifying general internal controls and inability to apply financial sanctions for AML/CFT violations. - Insurance supervisor carries out its own assessment of internal controls relevant to ML/TF and has a stronger impact. - Compliance trends: - Despite increasing use of financial penalties, overall compliance behavior has not changed significantly and in some respects has worsened. - Example: sanctions for issues relating to BO grew from 57 in 2015 to 119 in 2017; authorities attribute much of this increase to noncompliance with beneficial owner identification introduced under Regulation 235 in 2017. *Source: 1chnea2019001 - 352. The AMLB, from its headquarters in Beijing and through 36 locations across China, directs* ### 384. Since 2015, the 22 largest FIs in China (including the 2 largest PIs) had spent in excess of ### 1chnea2019001 - 384. Since 2015, the 22 largest FIs in China (including the 2 largest PIs) had spent in excess of ### Fintech-related AML/CFT supervisory findings (PBC inspections 2015–2018) - Since 2015, the 22 largest FIs in China (including the 2 largest PIs) had spent in excess of RMB 10 billion on human resources, systems, training, and other services to improve their AML/CFT controls as a direct result of remedial actions taken by PBC. - Table 26 — Weaknesses Identified by PBC in PI Sector (counts by issue and year) - Internal control in relation to Fintech business: 2015 — 39; 2016 — 50; 2017 — 37; 2018(1H) — 11 - Anonymous accounts or accounts in obviously fictitious names: 2015 — 0; 2016 — 1; 2017 — 1; 2018(1H) — 2 - Transactions with customers whose identities are yet to be clarified: 2015 — 4; 2016 — 7; 2017 — 4; 2018(1H) — 3 - First identification of customer: 2015 — 93; 2016 — 118; 2017 — 115; 2018(1H) — 37 - Beneficial owner: 2015 — 28; 2016 — 25; 2017 — 22; 2018(1H) — 10 - Expiration of ID: 2015 — 64; 2016 — 94; 2017 — 96; 2018(1H) — 40 - Re-identification of customer: 2015 — 29; 2016 — 44; 2017 — 36; 2018(1H) — 12 - Intensified measures for customer identification issues: 2015 — 7; 2016 — 11; 2017 — 7; 2018(1H) — 4 - Large transaction reporting: 2015 — 38; 2016 — 49; 2017 — 45; 2018(1H) — 21 - Suspicious transaction reporting: 2015 — 58; 2016 — 79; 2017 — 57; 2018(1H) — 26 - Customer information and transaction record-keeping: 2015 — 56; 2016 — 55; 2017 — 48; 2018(1H) — 22 - Observed trend: steady decline in the number of issues from 2016/2017 levels to 2018(1H), suggesting positive impact from PBC measures on Fintech product AML/CFT controls. ### Online lending sector supervisory status - PBC and financial sector regulators have no impact on the online lending sector because these entities are only subject to local municipal registration and not to AML/CFT supervision by PBC. - The online lending sector purportedly became part of PBC’s AML/CFT supervisory program in 2015, notwithstanding that the AML Law does not apply to online lenders. - No inspections in the online lending sector have been conducted by PBC (see Table on Statistics of Various Supervision Measures Conducted at FIs by the PBC). ### DNFBPs (Designated Non-Financial Businesses and Professions) - PBC and sector regulators/SROs had little to no impact on compliance by DNFBPs. - Authorities stated PBC collaborated with sector regulators to conduct AML/CFT supervision on DNFBPs in real estate, DPM, and accountant sectors through notices that highlighted high-level expectations but did not apply the AML Law to these sectors. - By June 2018 PBC had: - carried out supervisory visits at 53 DNFBPs (these visits do not result in remedial measures being required), - conducted risk assessments of 11 institutions, - provided various enquiries and training sessions. - Assessors conclude these actions did not constitute supervisory activity as defined by the FATF under R.28. - The AML Law’s requirement for “collaboration” of DNFBP sector regulators in AML/CFT supervision by the PBC is unclear; available evidence suggests PBC has done very limited work in the DNFBP sector (some visits and a few risk assessments). ### Promoting understanding of AML/CFT obligations and ML/TF risks (PBC outreach and guidance) - Guidance publishing strategy: PBC issues guidance to bring ML/TF risks and potential control weaknesses to FIs’ attention; authorities believe guidance improved FIs’ ability to identify risk and raised AML/CFT awareness among senior executives and staff. - Assessors noted a low to moderate level of understanding of ML/TF risk in the financial sector. - RA Guideline was issued in 2013 and had not been updated by the time of the onsite visit. - Existing guidance on CDD measures mostly addresses customer identification and linking suspicious activity to predicate offenses, and may not be aimed at more complex internal control and CDD improvements, especially in larger FIs. - PBC guidance issuance process: - Important guidance issued by PBC Head Office (HO), including on customer identification and STRs. - Supervisory Opinions are considered guidance and are published as such. - Branches execute guidance strategy after reporting proposed guidance to PBC HO for review and approval; authorities confirmed this prevents conflicting guidance. - Sector supervisors issue internal-controls guidance and consult with PBC to avoid conflicts with regulations. - Official replies: PBC issues interpretation bulletins on request; more than 80 official replies had been issued at time of onsite assessment. - Risk warnings: PBC held briefings, issued analysis reports and typologies, and as of end-2017 had issued a total of 33 risk warnings. - Training: In 2017 PBC held over 2,700 sessions across China, attended by over 200,000 people. - Other dissemination tools: feedback during supervisory process, circulars on targeted self-assessments, feedback from CAMLMAC on filings, etc. ### Assessment of impact and overall IO.3 conclusion - China has a complex array of laws, regulations, and notices applicable mostly to the financial sector, along with guidelines (which do not amount to “enforceable means” as defined by the FATF). - General level of knowledge of ML/TF risks is moderate to low in the banking sector; institutions have generally good knowledge of obligations but not of risks. - In the DNFBP sector, high-level guidance and sector rulemaking exist, but because most DNFBPs (except trust companies and DPMs) were not subject to AML/CFT obligations, assessors view activity as generally ineffectual. - Assessors conclude overall impact of supervisors’ activities on sectors’ understanding of risk and obligations is moderate in the financial sector and low in the DNFBP sector. - Overall conclusion on IO.3: China is rated as having a moderate level of effectiveness for IO.3. ### Legal persons and arrangements — Key findings - Basic (legal) ownership information is collected and publicly available on the internet for all types of legal entities, although the information is not always accurate and registration rules can be circumvented (e.g., through straw persons). - Beneficial ownership (BO) information of legal entities (domestic or foreign) is not (publicly) available in China. - Authorities use available basic information, CDD information collected by FIs, and law enforcement powers to obtain BO information — each source has shortcomings and significant challenges. - The combination of current measures falls fundamentally short of an effective system for obtaining accurate, adequate and current BO information in a timely manner. - Basic legal ownership or shareholder information may in some cases equal BO information, but authorities should not rely on basic legal information as an alternative to BO information. - Authorities have initiated plans and measures that may improve effectiveness in the future. - No granular understanding of ML/TF risks for each type of legal person; NRA risk classification focuses on control measures related to technical compliance and contains inconsistencies (e.g., classifying state-owned companies as low risk despite known corruption cases). - Trust Law provides for domestic civil trusts; no measures taken to mitigate misuse of domestic trusts and lack of regulatory framework impedes their use. Foreign trusts operate in China and authorities have been able to identify foreign trusts that operate in China. ### Recommended actions on legal persons and arrangements - Continue measures to ensure adequate, accurate and current BO information is obtained in a timely manner, including: - continuing to require FIs to collect and verify BO information and improve compliance; - consider the PBC’s proposed BO register for information collected by FIs. - Authorities should no longer treat basic legal or shareholder information as an alternative to BO information. - Improve accuracy of basic information in public registers (e.g., SAMR) through stricter verification and enforcement of registration requirements; widen focus to take legal actions against legal persons when breaches are detected (not only against natural persons). - Improve understanding of risks of legal persons via a more granular risk assessment for each type of legal person, relying less on existing control measures and accounting for a broader range of risks. - Take additional measures to prevent misuse of legal persons, with increased focus on complex schemes to abuse legal persons and hide BO during financial investigations. - Take further measures to abolish, dematerialize, or register bearer shares. - Consider reviewing the current legal basis for creation of domestic trusts in view of the uncertainty it creates. ### Immediate Outcome 5 — Overview and findings (Legal Persons and Arrangements) - Company law and civil law: for-profit legal persons include limited liability companies, joint stock limited companies, and "other enterprise legal persons"; naming and regulatory variations exist (LLCs and JSLCs commonly referred to as companies). - Trust Law recognizes three types of trust: civil trusts, charitable trusts, and business trusts. Only civil trusts meet the definition of legal arrangements. Three types of civil trusts: wealth, educational, and testamentary. - Civil trusts can be set up under law but are not regulated by CBIRC; lack of regulatory framework likely impedes use and authorities state civil trusts do not exist in practice due to lack of additional regulations and registration requirements (this could not be confirmed). - Civil trusts do not require a TCSP to be set up (although TCSPs could be involved). - Foreign trusts operate in China, sometimes as legal or beneficial owners of Chinese legal persons; authorities provided case examples where foreign trusts were used and detected by banks and law enforcement. - Public availability and setup process for legal persons: - Steps: name approval, application to registration authority, receive business license and formal registration; additional steps for for-profit entities include registration with social security and tax departments. - SAMR has modernized/decentralized registration with online facilities; other authorities involved include MPS, PBC, tax authority, social security administration. - Authorities stated no regional differences regarding requirements for legal persons; laws and procedures are posted online by State Council, SAMR, and MCA. - Identification and understanding of ML/TF risks: - NRA and annex focus on rules and control measures, with little information on threats and vulnerabilities; risk classification (e.g., state-owned companies as low risk) is difficult to understand and inconsistent with known corruption priorities. - Consistent view among competent authorities and private sector: main vulnerability is misuse of legal entities through setting up front companies (shell companies) to commit fraud and other crimes. - Authorities identified unavailability of BO information and lack of complete basic information as important vulnerabilities; BO is a recent concept in China and only FIs are required to collect it. - NRA notes most banks do not carry out ownership checks in absence of regulatory requirements. - Case examples: - Authorities provided many cases of misuse of legal persons; majority involve front companies or registered contact persons who appear to be straw persons. - Detection typically occurs during law enforcement investigations; regional law enforcement can locate beneficiaries by following money trails. - Law enforcement did not appreciate need for access to BO information for chains with offshore links; registered basic information is not necessarily accurate or complete, and BO information is only available through FIs (if at all). - Criminals in China may not need complex structures to hide and channel illicit assets given these information gaps. *Source: IMF assessment chapter excerpts.* ### 410. Few mitigating measures to prevent the misuse of legal persons have been taken; the most ### 1chnea2019001 - 410. Few mitigating measures to prevent the misuse of legal persons have been taken; the most ### Mitigating measures and current weaknesses on legal persons - The most important existing measure is the introduction of BO requirements for banks and other reporting entities; this is identified as an area of weakness for the FIs as described in the NRA. - Recent CDD BO measures were taken following the completion of the NRA; authorities stated this is a priority and assessors are hopeful that PBC’s current efforts will increase effectiveness of mitigation in the future. - Authorities also pointed to strengthening of some regulatory registration requirements (including rules for foreign companies and for legal persons operating in some free trade zones) that may assist competent authorities to prevent abuse of legal persons. - None of these supporting measures directly address the main risks and vulnerabilities highlighted in the NRA, and none improve availability and accuracy of basic information and/or BO information. - Measures for bearer shares, nominee shareholders, and directors are incomplete, which could lead to misuse of legal persons (and arrangements). - Authorities note that bearer shares are not in use currently in China; IMF (Financial Sector Assessment Report 2017) and the Global Forum (Peer Reviews) have provided recommendations which the assessment team agrees with. - For the longer term, authorities are building a BO database at the PBC that will be fed with information from banks and other reporting entities. - The development of the BO database is welcomed, but its usefulness depends on ensuring BO information collected by private parties and fed into the register is accurate and up-to-date. - As described in the NRA, banks currently struggle to collect and record accurate BO information. - Authorities believe banks’ compliance with BO requirements has improved due to the issuing of two notices; at the time of the onsite these improvements could not yet be demonstrated. - Case examples indicate front companies abused for criminal activities generally did not have difficulties getting access to financial services, although other case examples show financial services were not provided due to lack of BO information. ### Legal arrangements (civil trusts) - No specific mitigating measures have been taken in relation to civil trusts; the lack of specific regulations may itself discourage the use of civil trusts. - For foreign legal arrangements operating in China, there are no specific mitigation measures beyond CDD rules in IO.4 that require identification of a trust. ### Timely access to adequate, accurate and current basic and BO information on legal persons - China intends to use a combination of mechanisms to gain access to basic and BO information; each mechanism has important shortcomings. - Mechanism 1: Basic registered information (NECIPS and commercial parties) - Useful only where the legal owner/shareholder and the BO are the same; registered information does not indicate whether the registered legal owner/shareholder is indeed the BO. - Information is publicly available through the National Enterprise Credit Information Publicly System (NECIPS) and commercial parties. - Registered basic information is limited to what SAMR requires to collect; accuracy depends on verification at registration and updating when information changes. - A review of publicly accessible registers indicated information can be limited to the name of the company and the name and address of the contact person for the legal person. - High number of breaches and relative ease to set up front companies indicate effective implementation of this system requires improvements. - Mechanism 2: BO information available elsewhere, including through CDD measures - Implementation of these CDD measures is too recent to be considered effective at this stage (as noted in the NRA). - Mechanism 3: Law enforcement powers - Authorities can use law enforcement powers to gain access to information held by the legal person or their representative, but legal persons and representatives are not required to hold BO information. - Use of law enforcement powers poses unique challenges: law enforcement may not know beforehand whether BO information exists or where it is available, negatively impacting timeliness of access. ### Timely access to adequate, accurate and current basic and BO information on legal arrangements - No adequate, accurate, and current basic and BO information has been shown to exist for domestic civil trusts (mitigated by potentially limited existence of such domestic civil trusts). - For foreign legal arrangements operating in China, there are no specific sources of information beyond BO information collected by FIs, which poses the same issues as BO information collected by FIs for legal persons. ### Effectiveness, proportionality and dissuasiveness of sanctions — Legal persons - Assessors are not convinced implementation of sanctions is effective, proportionate, and dissuasive. - Authorities have a range of sanctions, but the range and impact could improve in line with the risks China faces. - Authorities provided limited data on breaches and sanctions imposed on legal entities by SAMR. - Sanctions include measures such as limiting access to government contracts for all types of violations, including basic registration violations; these do not cover BO requirements and do not include monetary sanctions. - Figures for 2017: - More than 9 million companies are listed for breach of requirements. - Only 28 legal persons had been terminated because of false registrations. - About seven million were listed for not submitting annual reports. - More than one million were listed because the legal person could not be contacted through the listed contact person, not even by the authorities. - Lack of filing of annual reports and lack of contact person would be expected to be major red flags for authorities to pursue, especially given front companies as a major vulnerability; authorities have not demonstrated they follow up on such cases. - A listing for breach of requirements does not necessarily lead to a sanction of the legal person. - Since 2015, 40 competent authorities coordinate at the policy level to address misuse of legal entities, each focusing on compliance in their respective area. - Legal persons that have breached too many requirements by too many competent authorities can be listed as dishonest legal entities. - To date, 5,938 legal persons have been listed as dishonest legal entities, but not for breaching BO information. - Overall, the rate of detection of misuse of legal persons appears low. - Authorities prioritize pursuing criminal charges against natural persons in charge of legal entities. - Criminal Law provisions include sanctions for management and staff of legal entities for wrongdoing of the legal entities. - Sanctions for natural persons are higher than comparatively low monetary sanctions available to sanction legal persons. ### Effectiveness, proportionality and dissuasiveness of sanctions — Legal arrangements - No information is available on sanctions regarding domestic civil trusts (mitigated by potentially limited existence of such domestic civil trusts). - Likewise, no information for foreign legal arrangements operating in China. ### Overall conclusion on IO.5 - China is rated as having a low level of effectiveness for IO.5. ### International cooperation — Key findings - China has a largely compliant legal framework for international cooperation but uses it to a limited extent. - Complicated decision-making structure can lead to long response times to MLA and extradition requests, taking up to five weeks to obtain a clearance to execute the request; China arranges an expedited procedure for urgent requests or cases. - LEAs actively seek informal and formal international cooperation and legal assistance in a wide range of cases, mostly related to predicate offenses; China rarely uses these channels in relation to ML/TF investigations. - China is not seeking a sufficient number of MLA/extraditions related to transnational ML/TF cases relative to its risk profile. - CAMLMAC exchanges information with foreign counterparts, even though it is not an Egmont Group member; it actively responds to requests for information from foreign counterparts but rarely seeks information from abroad. - Supervisory authorities cooperate internationally, but not specifically in relation to ML/TF. - General inability to exchange BO information (because it is not easily obtainable) is an impediment to effective information exchange. ### International cooperation — Recommended actions - Increase the exchange of information in ML/TF cases and the number of spontaneous disseminations and requests sent to foreign counterparts. - Ensure faster and more efficient cooperation. Develop procedures aimed at decreasing time required to execute incoming and outgoing requests for MLA/extradition/cooperation and explore possibilities to act on the request while decisions are being taken. - Consider allocating more resources to assist timely execution of incoming MLA requests and provide systematic training for personnel of all ministries and departments dealing with MLA and international cooperation. - Align MLA requests with geographic ML/TF risks. - Ensure the ability to provide adequate and timely BO information. ### Immediate Outcome 2 — Observations on provision of MLA and extradition - Authorities recognize illicit proceeds are often transferred overseas (e.g., bank cards, underground banks, cross-border transportation of cash, splitting of foreign exchange purchases); international cooperation is important as a risk mitigation measure. - China has legal and procedural framework for international cooperation but with complicated procedures. MOJ is the leading central authority for accepting, reviewing, and transferring MLA requests, but MPS and GPP are also central authorities under certain treaties and UN conventions. - China categorizes MLA into two groups based on whether a treaty on criminal legal assistance exists. - Multi-channel method for international cooperation: - MOJ: authority for MLA requests under the Palermo Convention and where mentioned in agreements and treaties. - MPS: authority under the Palermo Convention and in a number of bilateral treaties and agreements. - MFA: channel for the Vienna Convention, extradition requests, and MLA in absence of an agreement. - SPP: central authority in the Merida Convention and in some agreements. - In practice, incoming requests are reviewed to confirm they meet conditions for legal assistance and then transferred to the relevant competent authority for execution; this filtering process can take up to five weeks, though urgent cases can be processed within days. - China can refuse to execute requests on certain grounds that are not unreasonable; if requests have insufficient information, China communicates with the requesting country to amend them. - Different ministries keep their own statistics, creating potential double counting. For 2012–2016, the MPS counted receiving 60 MLA requests involving ML (this includes those received through MOJ and recorded by MOJ). ### MLA statistics presented by authorities - MOJ table for MLA Requests Received (Number of MLA; Number Involving Terrorism; Number Involving TF): - 2014: 208; 1; 1 - 2015: 272; 0; 0 - 2016: 301; 1; 0 - MLA Requests Received by Authorities of China (2012–2016 totals and percentages): - MOJ: 183; 264; 208; 272; 301; Total 1,228; 53% - MFA: 63; 61; 85; 93; 90; Total 392; 17% - SPP: 58; 67; 75; 72; 92; Total 364; 16% - MPS: -; -; -; -; -; Total 339; 14% - Types of Information Requested by Countries through the MFA (2012–2016 totals): - Investigation and Gathering Evidence: 306 - Delivery of Judicial Documents: 39 - Recognition and Enforcement of a Foreign Legal Judgment: 1 - Seizure, Appropriation, Freezing: 44 - Other Cases: 2 - Total Cases: 392 - Foreign Extradition Requests Received (2012–2017 totals): - Number of extradition requests for all types of crimes by year: 2012: 6; 2013: 9; 2014: 6; 2015: 5; 2016: 2; 2017: 6; Total: 34 - Number of extradition requests involving ML: 0; 1; 0; 0; 0; 0; Total: 1 - Number of extradition requests involving TF: 0; 0; 0; 0; 0; 0; Total: 0 - Of the 34 extradition requests received, 1 related directly to ML, while 17 related to predicate offenses (drug trafficking, gambling, corruption, illegal fundraising, and fraud). - China acceded to only four extradition requests (about 12 percent of incoming requests); explanations for refusal or inability to execute other requests appear reasonable. - The MOJ presented separate figures for ML- and TF-related MLA requests. ### MLA execution and asset recovery - China provides assistance for documents, witness statements, and asset recovery, including identification, tracing, and freezing of proceeds from foreign predicate offenses. - Legal provision requires China to initiate pro forma domestic investigations or procedures and obtain a Chinese court decision to enable the full range of freezing and confiscation powers available domestically. - Some countries in the global network noted challenges in relation to confiscation of assets. _Italic: International Monetary Fund — assessment content as provided in the source document._ ### 436. When a request for extraction does not meet the conditions under the Extradition Law or ### 1chnea2019001 - 436. When a request for extraction does not meet the conditions under the Extradition Law or ### Extradition practice and procedure - When a request for extradition does not meet the conditions under the Extradition Law or the Extradition Treaties, China: - considers the reasons for refusal to extradite and the provisions of laws and treaties on the requested person or act, and then decides whether or not to initiate criminal proceedings in China against the person involved. - has not provided information on the number of cases when these proceedings were initiated in practice. - Extradition procedures are lengthy and can take several years, though on several occasions the extradition process was completed within one year. - Case example: Extradition of a Suspect Y to Japan - June 2014: Japan requested China to extradite and detain Y (Brazilian criminal suspect); formal request submitted in July 2014. - MFA requested supplementary materials; after Japan provided materials, SPC reviewed and decided conditions for extradition were met (charges: forgery and use of printed personal documents for defrauding). - May 2016: State Council decided to grant extradition; MFA notified Japan on June 2, 2016. - June 2016: Japan submitted new evidence requesting additional crimes (robbery and homicide); Supreme Court reported decision to State Council; China agreed and notified Japan on January 9, 2017. - January 25, 2017: China extradited Y to Japan. - Note: this case did not involve ML/TF. - Summary of extradition outcomes (2012 to First Half 2018): - China sent a total of 103 extradition requests to 34 countries since 2012. - The crimes requested principally refer to predicate offenses; only 2 percent of the requests are related to ML. - Table of offenses for which China requested extradition (2012 to the First Half of 2018) — Number of Cases: - Contract fraud 25 - Illegal absorbing deposits from the public 15 - Crime of fraud 11 - Loan fraud 5 - Crime of defrauding loans 5 - Credit card fraud 4 - Occupational embezzlement 4 - Corruption 3 - Falsification of VAT invoices 3 - Crime of intentional injury 3 - ML 2 - Fundraising fraud 2 - Crime of embezzling funds 2 - Intentional homicide 2 - Organization of illegal border-crossing 2 - Illegal transfer or resale of land usage rights 1 - Bill acceptance fraud 1 - Robbery 1 - Cover-up or concealment of crime-related income 1 - Organize or lead multi-level marketing 1 - Illegal business operations 1 - Sale of counterfeit goods 1 - Blackmail 1 - Insurance fraud 1 - Tax evasion 1 - Falsely report registered capital 1 - Smuggling counterfeit currency 1 - Smuggling 1 - Bribery of noncivil servant 1 - Bribery 1 - Total 103 - China actively pursues fugitives beyond formal extradition requests by organizing visits, using INTERPOL channels, joint operations, and other means. ### Mutual legal assistance (MLA) seeking and use - China does not frequently use official MLA mechanisms apart from extradition; it uses other possibilities to achieve results (e.g., persuading persons to return and repay damages). - MOJ-provided statistics on MLA requests sent abroad (Table 31: MLA Requests Sent by the MOJ of China Abroad): - Yearly Number of cases: 2012 18; 2013 17; 2014 27; 2015 23; 2016 38; 2017 24; First Half 2018 8; Total 155 - Including ML: 2012 2; 2013 3; 2014 0; 2015 1; 2016 1; 2017 7; First Half 2018 0; Total 14 - Predicate offenses to ML: 2012 10; 2013 10; 2014 18; 2015 13; 2016 24; 2017 16; First Half 2018 4; Total 95 - Related to FT: all years 0; Total 0 - MFA MLA requests sent through diplomatic channels when no treaties/agreements exist: - Table 32: MLA Requests Sent by the MFA of China Abroad — Number of cases: 2012 5; 2013 1; 2014 5; 2015 2; 2016 4; 2017 1; First Half 2018 5; Total 23 - Including ML: all years 0; Total 0 - Predicate offenses to ML: 2012 4; 2013 1; 2014 5; 2015 1; 2016 4; 2017 1; First Half 2018 5; Total 21 - Related to FT: all years 0; Total 0 - From 2012 to 2016, China sent about 20 MLA requests through diplomatic channels. - Overall: the number of MLA requests is low compared with crime statistics; China mainly pursues predicate offenses and considers ML as a continuation of predicate offenses. ### Special operations and alternative mechanisms (non-MLA) - China has launched special operations to combat corruption and economic crimes: - Central Commission for Discipline Inspection: Special Operation “Skynet” - SPP: special operations related to international fugitive repatriation and asset recovery on corruption-related crimes - MPS: Special Operation “Fox Hunting” - Results in 2014–2016: - 2,566 individuals who had previously fled China were recaptured from 90 countries - total asset of RMB 8.6 billion (approx. US$1.3 billion) were recovered - 2015: Interpol China NCB released a 100 fugitives list (Red Notice) of persons involved in corruption cases; by the end of 2016, 43 out of 100 individuals were caught. - Reported reasons for inability to execute some requests: - Three requests were rejected because of legal provisions. - 25 requests could not be executed for practical reasons, including: - failure of the requesting country to provide additional information in 11 cases - death of the person or the person was no longer in China in 2 cases - withdrawal of the request by the requesting party in 4 cases - etc. ### Financial Intelligence Unit (CAMLMAC) international cooperation - CAMLMAC responsibilities: - receiving, analyzing, and transferring financial intelligence - signing bilateral MOUs on AML/CFT intelligence exchanges and cooperation or similar documents - CAMLMAC is not an Egmont Group member but has signed 52 MOUs with foreign FIUs. - Exchange of information is mostly based on requests from abroad; China sends comparatively few requests to other FIUs. - Requests sent abroad by CAMLMAC (Table 34): - Number of requests for information by year: 2012 7; 2013 6; 2014 9; 2015 4; 2016 8; Total 34 - Number of AML requests: same as above (all 34) - Number of TF requests: all years 0; Total 0 - Jurisdictional breakdown of CAMLMAC requests to foreign FIUs (Table 35: Number of Requests by CAMLMAC to Foreign FIUs): - Hong Kong, China: 2012 5; 2013 6; 2014 6; 2015 3; 2016 3; Total 23 - Singapore: total 3 - United States: total 3 - Macau, China: total 1 - Tajikistan: total 1 - Uzbekistan: total 1 - Nepal: total 1 - Canada: total 1 - Total requests: 34 - CAMLMAC sends approximately 1 request for every 30 or 40 requests it receives, indicating low outbound use of MOUs. - Requests received by CAMLMAC (Table 38: Number of Financial Intelligence Requests Received by CAMLMAC): - Requests for All Types of Financial Intelligence Information by year: 2012 187; 2013 202; 2014 175; 2015 313; 2016 367; Total 1,244 - Requests for AML Information: 2012 186; 2013 200; 2014 173; 2015 309; 2016 361; Total 1,229 - Requests for CFT Information: 2012 1; 2013 2; 2014 2; 2015 4; 2016 6; Total 15 - Financial intelligence provided by CAMLMAC to other jurisdictions (Top 10 Countries) (Table 39) — annual and total counts: - Macau, China: 2012 95; 2013 61; 2014 49; 2015 47; 2016 126; Total 378 - Singapore: Total 85 - Belgium: Total 77 - Japan: Total 72 - France: Total 70 - Hong Kong, China: Total 63 - Russia: Total 44 - Republic of Korea: Total 44 - United States: Total 23 - Turkmenistan: Total 8 - Others: Total 77 - Total responses provided (2012–2016): 941 - Response timeliness: - 2016: average response time for urgent requests was six to eight working days. - Nonurgent requests averaged two months for a response. - Observations and concerns: - Number of responses provided is significantly lower than requests received, raising concerns about effectiveness of international exchange. - Two-thirds of CAMLMAC outgoing requests are to SARs of China (Hong Kong, China, and Macau, China), which is not consistent with the geography of cases investigated by LEAs. - Some foreign FIUs reported cooperation was formalistic or responses lacked substance; some reported satisfaction from SARs and some Asia-Pacific FIUs. - Case example involving FIU and LEA cooperation (Box 13): - Q, former director of a branch of a city office, suspected of embezzlement/misappropriation, fled abroad in 2011; Red Notice November 2011. - May 2015: Singapore FIU shared intelligence with CAMLMAC revealing Q’s multiple accounts and beneficial ownership links in British Virgin Islands. - CAMLMAC analyzed over 700 accounts and over 270,000 large-value and suspicious transaction records, identified money flows and links to suspected underground banks. - CAMLMAC disseminated analysis to LEAs; LEAs discovered Q had obtained a house mortgage with a bank abroad. - May 2018: LEAs filed an international investigation with foreign FIU through CAMLMAC and obtained property information. - U.S. LEAs filed formal charges against Q and his ex-wife Z for ML and immigration fraud, and prosecutors confirmed properties to be seized were purchased with embezzled money. Z will face imprisonment up to five years. ### Law enforcement cooperation and police channels - Requests sent by China via police cooperation (Table 36): - Number of cases by year: 2012 156; 2013 180; 2014 424; 2015 330; 2016 257; 2017 159; Total 1,506 - Including ML: 2012 14; 2013 13; 2014 30; 2015 16; 2016 23; 2017 31; Total 127 - Related to TF: Total 1 (2013 1) - Requests received by China via police cooperation (Table 40): - Number of cases by year: 2012 2,887; 2013 2,817; 2014 2,814; 2015 1,523; 2016 2,790; 2017 1,115; Total 13,946 - Including ML: 2012 378; 2013 244; 2014 506; 2015 276; 2016 126; 2017 297; Total 1,827 - Related to FT: 2012 2; 2013 2; 2014 4; 2015 3; 2016 3; 2017 4; Total 18 - Observations: - Exchange of information through Interpol is many times more intensive than MLA. - On average (2012–2017), nine percent of police cooperation requests involved ML. - Number of requests sent by China is around 15 percent of those received from foreign countries through Interpol. - MPS established cooperation with 113 countries; 129 bilateral and multilateral cooperation mechanisms; 96 liaison hotlines; sent 72 police liaison officers to 35 countries; signed nearly 400 cooperation documents with police departments of more than 70 countries. - Police collect information directly through these channels and liaison officers; mechanisms appear efficient and quick. - However, most Chinese police requests relate to predicate offenses; MPS does not focus on ML or TF in international cooperation. MSS handles terrorism issues but authorities were unable to provide information on TF effectiveness citing confidentiality. ### Customs, Tax, and Supervisory authorities cooperation - Customs: - 2017: China Customs carried out more than 1,000 intelligence exchanges with foreign countries, handled 329 requests of investigation assistance, and carried out international (regional) law enforcement cooperation in 99 cases on behalf of the Anti-Smuggling Bureau of the GAC. - Anti-Smuggling Bureau of the GAC (2017): processed 225 requests including administrative mutual assistance, case investigation, and criminal legal assistance for overseas law enforcement authorities; completed 40 criminal compulsory measures reports. - CSRC and financial supervisors: - From 2012 to 2016, the CSRC sent out 51 requests for foreign regulatory information (Table 37: Number sent abroad by year: 2012 1; 2013 6; 2014 11; 2015 18; 2016 15; Total 51). - Table 42 (CSRC Providing Regulatory Information received): 2012 53; 2013 76; 2014 92; 2015 111; 2016 102; Total 434 - Tax: - Table 41 (Requests Received on Tax-Related Information sent abroad): 2013 219; 2014 188; 2015 179; 2016 190; Total 776 - Observations: - From 2012 to 2016 there were 434 occasions in which regulatory information was provided to foreign countries. - Follow-up measures of requests: only one request was rejected in 2016; acceptance rate 99.8 percent. - None of this cooperation concerned AML/CFT according to the data provided. - These authorities did not engage with ML or TF-related cases or exchange information with foreign counterparts for those purposes. *Source: Extracted content from the provided IMF assessment chapter.* ### 459. BO information is not easily and quickly available, except in cases when law enforcement ### 459. BO information is not easily and quickly available, except in cases when law enforcement ### Findings on beneficial ownership (BO) information availability - BO information is not easily and quickly available, except in cases when law enforcement happens to be able to detect the beneficial owner using coercive powers, or shareholder information of publicly traded companies. - The two cases presented by China show the time for a response for a BO information was from two to five months. - The deficiency identified in IO.5 affect the ability of China to respond to requests on BO. - Regarding civil trusts, it is unclear how many of such trusts exist (potentially a low number), and what kind of information authorities would have access to and could share. ### Overall conclusion on IO.2 - China is rated as having a moderate level of effectiveness for IO.2. *PEOPLE’S REPUBLIC OF CHINA 144 INTERNATIONAL MONETARY FUND* ### ANNEX I. Technical Compliance Annex ### ANNEX I. Technical Compliance Annex ### Recommendation 1 — Assessing Risks and Applying a Risk-Based Approach - China completed and published its first NRA entitled China National Money Laundering and Terrorist Financing Risk Assessment Report (2017) in June 2018. - NRA development inputs: data and information from 18 major members of the AMLJMC; assessment questionnaire offered to 10 self-regulatory bodies (SRBs); access to 700,000 judgement documents (2013–2015) with a random sampling of approximately 50,000 selected for ML/TF threat analysis. - NRA includes a chapter on TF based mainly on qualitative analysis; collates information from MSS, MPS, and the PBC. - Prior assessments: since 2002 China conducted threat, vulnerability, and risk assessments for various portions of the financial sectors (see IO.1). - Notable gaps: - DNFBPs very recently designated; lack of oversight and no assessment of risk by DNFBPs of their products or clients. - No effective oversight/monitoring to ensure DNFBPs implement R.1 obligations. - Institutional arrangements: - AMLJMC consists of 24 members; PBC led the NRA working group (formed in 2016) including SRBs and regulated institutions. - PBC designated as State Council’s AML competent authority; AMLB is a unit within the PBC. - Distribution and publications: - Electronic copies of the NRA sent to government departments and major financial institutions; smaller FIs through local PBC branches; summary versions and Annual National Threat Assessments posted on the PBC website. - Risk mitigation measures: - NRA contains an action plan prioritizing AML/CFT initiatives (target geographic areas, guidance development, enhancement of laws/systems/information sharing). - China does not exempt FIs nor DNFBPs from activities outlined in the 40 Recommendations. - PBC requires FIs to incorporate specific information into risk assessments and allocate AML resources based on assessment results. - FIs obligations and scope: - Guidelines require FIs to perform ML/TF risk assessments, adopt risk control mechanisms, and allow simplified AML for low-risk customers (subject to exceptions). - Since 2015 PBC requires FIs to conduct ML/TF risk assessments and classify customers by risk; PBC conducts inspections. - Trust companies and PIs treated as FIs for these obligations. - Remaining deficiencies and conclusion: - DNFBPs not designated under AML Law historically and therefore not subject to supervisory risk assessments. - FIs may adopt simplified CDD with PBC approval for low-risk customers. - Recommendation 1 is rated largely compliant. *Key statistics and facts:* - AMLJMC membership inputs: 18 major members; 10 SRBs consulted. - Judgement document corpus: 700,000 documents (2013–2015); random sampling ≈ 50,000. - NRA published: China National Money Laundering and Terrorist Financing Risk Assessment Report (2017), published June 2018. - Rating: Recommendation 1 — largely compliant. ### Recommendation 2 — National Cooperation and Coordination - AMLJMC established in 2002; responsible for NRA, AML/CFT strategies, priorities, task delegation, monitoring. - PBC designated as AML competent authority; AMLB organizes and coordinates national AML work. - AMLJMC membership: currently 23 members (including the PBC); Mechanism of Anti-Money Laundering Joint-Ministerial Conference (2007 Amendment) regulates its work. - Working groups: policymaking, regulation, law enforcement, international, data groups. - Non-proliferation coordination: “Non-proliferation Export Control Emergency Coordination Mechanism” (2004) coordinated by MoFA with 19 members. - Weighting and conclusion: - Recommendation 2 is rated compliant. *Key facts:* - AMLJMC membership reported as 23 or 24 in different sections. - Non-proliferation mechanism members: 19. - Rating: Recommendation 2 — compliant. ### Recommendation 3 — Money Laundering Offense - Legislative basis: Criminal Law Arts. 191, 312, 349; SPC Interpretation Notice 2009:15 and other SPC guidance. - Coverage and gaps: - Required elements from Palermo and Vienna Conventions partly covered; Art. 191 CL does not cover “conversion” or “transfer” (addressed by Notice 2009:15, Art. 1(2)); Arts. 191 and 312 CL do not cover “possession.” - All-crimes approach under Art. 312 CL applies, but provinces may set threshold values (laundering under RMB 3 000 (approx. US$489) not criminalized; could extend to RMB 10,000 (approx. US$1,467) by provinces). - Art. 191 CL covers seven predicate offenses; Art. 349 covers only drug-related offenses; some predicate offenses are too narrow. - Self-laundering: - Self-laundering not criminalized; ML is treated as a nonpunishable subsequent action absorbed by predicate sentence—proposals to criminalize self-laundering considered. - Mens rea and penalties: - Knowledge required for Arts. 191 and 312 CL; SPC interpretation allows inference of intent from objective facts. - Penalties: Art. 191 up to five years’ imprisonment, serious cases 5–10 years; Art. 312 up to three years, serious cases 3–7 years; Art. 349 up to three years, serious cases 3–10 years. Fines for Art. 191 range 5 percent to 20 percent of amounts laundered; fines for Arts. 312 and 349 determined by circumstances (Art. 52 CL). - Liability of legal persons: - Arts. 191 and 312 allow fines for entities; Art. 349 does not provide criminal liability for legal persons. Levels of fines not specified, making assessment of proportionality unclear. - Ancillary offenses: - Ancillary offenses and inchoate liability covered (Arts. 22–29 and others). - Weighting and conclusion: - Thresholds and lack of self-laundering are significant deficiencies. - Recommendation 3 is rated partially compliant. *Key figures and thresholds preserved:* - Provincial non-criminalization thresholds: RMB 3 000 (approx. US$489); could extend to RMB 10,000 (approx. US$1,467). - Penalties ranges and fine percentages explicitly as above. - Rating: Recommendation 3 — partially compliant. ### Recommendation 4 — Confiscation and Provisional Measures - Legal framework: Arts. 64 and 191 CL permit confiscation of proceeds and converted forms; Arts. 120 and 120 A CL for terror-related crimes. - Equivalent-value confiscation: mandatory confiscation to reflect value of illicit gain (Art. 2, Regulations on Application of Property Penalty). - Confiscation in absence of conviction: possible under Art. 280 CL when proven property derived from specified crimes, suspect has died or absconded. - Powers to identify/trace/seize property: People’s Court, Procuratorate, public security, national security, Customs (Art. 142 CPL); evidence production orders (Arts. 122–123 CPL); expert valuation (Art. 144 CPL). - Seizure procedures: seizure by public security agencies with approval processes; authorization remains two years with 12-month renewals. - Third-party rights: third parties notified and may participate; only personally owned property subject to forfeiture; offenders and dependents entitled to reasonable living expenses from frozen/seized/confiscated property (Art. 59 CL); creditors’ legitimate debts may be met from confiscated property (Art. 60 CL). - Management of seized property: management independent from case officers; funds held in dedicated accounts; centralized register; victims prioritized in distribution (Regulation on the Disposition of Property Related to Criminal Proceedings [2015] 7). - Weighting and conclusion: - Recommendation 4 is rated compliant. ### Recommendation 5 — Terrorist Financing Offense - TF criminalization: Art. 120A CL supplemented by Supreme Court Notice 2009/15; text general and lacks full detail of TF Convention. - Coverage gaps: - Not all required conduct in Annexed Conventions criminalized in three Conventions. - Art. 120A covers financing of terrorist organizations and, per Notice 2009/15, individuals linked to Counter Terrorism Law; Art. 120A appears to cover direct assistance, not willful collection of funds. - Scope and elements: - Financing covers collection/provision of funds or assets of any type, direct and indirect financing (Notice 2009/15, Art. 5). - Source of TF (licit or illicit) not specified in law but authorities state “financing” covers any origin. - No requirement that funds be actually used to carry out a terrorist act. - Intent/knowledge inference recognized in jurisprudence (SPC 2014/34, Art. 2) and Opinions of SPC, SPP, MPS, MOJ [2018]. - Penalties and legal persons: - Penalty: fixed-term imprisonment not more than five years, or other custodial/surveillance measures, or life/imprisonment/capital punishment for more serious circumstances; fines determined by circumstances without prescribed maximum (Art. 120A CL). - Legal persons criminally liable; fines minimum no less than RMB 1,000 (approx. US$146) (Art. 52 CL). - Ancillary offenses: covered in general CL provisions (Arts. 22–29, etc.). TF offenses are predicate offenses for ML (Arts. 120A, 191, 312; Arts. 3–4 CTL). - Territorial scope: TF offenses pursued regardless of location of person or act. - Weighting and conclusion: - Wording of TF offense general; not all required conduct criminalized; Article 120A seems to exclude willful collection of funds. - Recommendation 5 is rated largely compliant. *Key figures preserved:* - Minimum fine for legal persons: RMB 1,000 (approx. US$146). - Penalty descriptions as stated. - Rating: Recommendation 5 — largely compliant. ### Recommendation 6 — Targeted Financial Sanctions Related to Terrorism and Terrorist Financing - Historical: Third Round SR.III noncompliant; R.6 updated in line with UNSCRs. - Designation procedures and deficiencies (UNSCRs 1267/1989, 1988 and 1373): - c.6.1a Met — MFA is competent authority for proposing designations to UNSC Sanctions Committees. - Multiple criteria not met: no legal basis for domestic designation to be used as basis for UNSC proposal; no evidentiary standard provisions; no requirement to use standard UN listing forms; no legal requirement to provide comprehensive information with designation proposals. - c.6.2: MFA handles foreign requests; domestic designation criteria mis- aligned with INR6; no practical evidence of prompt consideration of foreign requests; no legal provisions on evidentiary standard or minimum identifying information when submitting requests. - Freezing and prohibitions: - No requirement for all natural/legal persons to freeze without delay and without prior notice (no general prohibition). PBC Notice 2017/187 requires immediate (same day) freezing of assets of designated terrorists after instruction by PBC for FIs and designated DNFBPs, but not shown to be systematically applied across all UNSCR actions. - No legal requirement to freeze all assets of a designated person; Administrative Measures define assets for FIs and DNFBPs. - Persons may acquire property rights in good faith per Property Law (Arts. 4 and 106); unclear if transfers require UN authorization. - Reporting, communication, and appeals: - CTL (Art. 14) and PBC Notice 2017/187 require reporting of freezing actions by reporting entities to PBC, but DNFBP scope issue persists. - Appeals: Art. 15 CTL provides appeals against domestic designation (compliant with UNSCR 1373 but not with UNSCRs 1267/1989 and 1988); MFA notices on de-listing procedures not provided. - Public procedures for false positives and de-listing/unfreezing communications limited to sectors designated under AML Law. - Access to frozen funds/exemptions: - Administrative Measures and PBC Notice provide basis/procedure to request access to frozen funds (sufficient for UNSCR 1373) but insufficiently specific for UNSCRs 1267/1989 and 1988; no info on notifying UNSC of intended exemptions. - Weighting and conclusion: - Framework lacks prohibition, universal freeze without delay, and comprehensive coverage; limited to FIs and designated DNFBPs; Recommendation 6 is rated partially compliant. *Key references preserved:* - PBC Notice: 2017/187. - Legal articles cited: CTL Art. 14; CTL Art. 15; Administrative Measures for the Freezing of Assets Relating to Terrorist Activities (Order No. [2014] 1). - Rating: Recommendation 6 — partially compliant. ### Recommendation 7 — Targeted Financial Sanctions Related to Proliferation - This is a new Recommendation. - General findings: - No general legal basis for designations of UN-listed persons/entities; no legal basis for freezing/prohibition allowing implementation without delay. - MFA identified as competent authority for relevant UNSCRs. - PBC Notice 2017/187 requires immediate same-day freezing for FIs and designated DNFBPs upon PBC instruction, but not systematically applied after UNSCRs. - Lack of prohibition; persons acquiring assets in good faith obtain property rights per Property Law (Arts. 4 and 106); unclear if UN authorization required for transfers. - Monitoring and sanctions: PBC and financial regulators monitor compliance; authorities can issue warnings and fines RMB 50,000 to RMB 2 million (approx. US$7,338 to $293,521) (PBC Law, Art. 46). - Deficiencies in public procedures for humanitarian exemptions, false positives, de-listing/unfreezing communications, and compliance with UNSCR-specific requirements; Notices claimed by MFA not provided. - Weighting and conclusion: - Recommendation 7 is rated non-compliant. *Key figures preserved:* - Sanctions range: RMB 50,000 to RMB 2 million (approx. US$7,338 to $293,521). - Rating: Recommendation 7 — non-compliant. ### Recommendation 8 — Nonprofit Organizations (NPOs) - NPO universe: - 799,500 social organizations: social groups 368,000; foundations 6,500; social services institutions (private nonenterprise units) 425,000. - 1,227 separately regulated overseas nongovernment organizations. - Employed total: 7.637 million people. - Total contributions and donations for the year: RMB 78.7 billion (approx. US$11.5 billion). - Charity Law effective 2016; as of June 2018, 4,194 organizations registered as charities (3,265 foundations); 992 permitted to raise funds directly from the public. - Risk identification and outreach: - NRA used information from supervisors, tax, intelligence, law enforcement, civil affairs to identify types of social organizations likely at risk, but did not identify subset meeting FATF NPO definition nor specify features making them vulnerable. - China identified foundations and overseas NPOs as higher risk but did not provide nature of threats or specific vulnerabilities. - PBC and MCA issued Measures for the Administration of Anti-Money Laundering and Combating the Financing of Terrorism of Social Organizations requiring periodic risk assessment. - Supervisory and outreach gaps: - Lack of targeted mitigation measures and lack of demonstrated outreach to donor community on TF vulnerabilities. - No information provided on development/refinement of best practices for TF risks. - All NPOs subject to annual inspections by civil affairs departments, but inspections do not include TF abuse monitoring components; no risk-based supervision focused on TF. - Sanctions and investigative powers: - PBC and civil affairs departments have a range of sanctions; PBC fines range from RMB 50,000 (approx. US$7,339) for directors to fines of five times illicit proceeds for the NPO; Charity Law sanctions up to RMB 200,000 (approx. US$29,352); public security agencies have administrative sanctions including detention. - Bipartite punishment system: sanctions available against both NPO and responsible persons. - PBC can investigate NPOs and suspicious transactions; access to registration, management, financial, project, funds transaction information available for investigations. - International cooperation: Art. 20 Measures allow relevant information to be used for international cooperation; MLA handled via MOJ or SPP, police cooperation via MPS, financial intelligence by CAMLMAC, other cooperation via MFA. - Weighting and conclusion: - China ensures transparency and accountability in the broader NPO sector but has not identified FATF-defined NPO subset at TF risk or established a risk-based monitoring mechanism or targeted outreach. - Recommendation 8 is rated partially compliant. *Key figures preserved:* - NPO counts and financial totals exactly as above. - Ratings and sanction amounts preserved. - Rating: Recommendation 8 — partially compliant. ### Recommendations 9–20 — Preventive Measures and Sectoral Requirements (summarized) - Recommendation 9 — Financial Institution Secrecy Laws - Supervisors and LEAs have powers to override confidentiality provisions; legal provisions for information sharing among supervisors and with foreign governments exist (various laws cited). - Recommendation 9 is rated compliant. - Recommendation 10 — Customer Due Diligence (CDD) - CDD coverage: FIs and PIs prohibited from anonymous accounts (Art. 16 AML Law). - Occasional transaction threshold: RMB 10,000 or foreign currency equivalent of US$1,000 for certain measures; PIs not required to aggregate occasional transactions across several operations for the USD/EUR 15,000 equivalent threshold. - Beneficial ownership: obligations exist (control >25 percent used as basis), but lack of explicit requirement to identify natural person who ultimately owns a legal person/arrangement; certain categories excluded (Art. 1.7 PBC Notice No. [2017] 235). - Life insurance beneficiary identification: thresholds and exceptions create deficiencies; verification at payout required above thresholds. - Simplified measures allowed for low-risk customers; some ambiguity due to non-mandatory status of PBC Document No. [2013] 2. - Major deficiencies: (i) lack of explicit BO identification by ownership, exclusions of some customer categories; (ii) CDD shortcomings for beneficiaries of life insurance; (iii) lack of requirement for online PIs to adopt risk management procedures when applying simplified measures for payments below equivalent of US$1,000. - Recommendation 10 is rated largely compliant. - Recommendation 11 — Record-keeping - Client identity and transaction records to be kept for at least five years after end of business relationship or transaction (Art. 19 AML Law and related measures). - Records include contracts, vouchers, business letters; transaction analysis records preserved for at least five years. - Recommendation 11 is rated compliant. - Recommendation 12 — Politically Exposed Persons (PEPs) - Foreign PEP requirements exist but lack mandatory risk management system to determine PEP status, mandatory source of wealth measures, and mandatory ongoing monitoring. - No specific due diligence requirements for domestic PEPs. - Insurance institutions not required to determine whether beneficiaries/beneficial owners are PEPs. - Recommendation 12 is rated partially compliant. - Recommendation 13 — Correspondent Banking - Banks must obtain information on respondent’s business, reputation, internal controls and specify duties in writing (Art. 6 Administrative Measures). - No payable-through accounts permitted; shell bank prohibitions exist. - Deficiencies: lack of explicit requirement to check whether respondent has been subject to ML/TF investigations/regulatory action; not explicitly required to ensure respondent accounts not used by shell banks. - Recommendation 13 is rated largely compliant. - Recommendation 14 — Money or Value Transfer Services (MVTS) - Commercial banks and licensed nonbanking FIs may provide MVTS; PIs must obtain Payment Business Permit. - Criminal sanctions for unlicensed fund payment and settlement activities (Art. 225 Criminal Law). - PIs prohibited from outsourcing payment business to agents; banks may use licensed agents but law does not expressly require banks to include agents in AML/CFT programs and monitor them. - Recommendation 14 is rated largely compliant. - Recommendation 15 — New Technologies - FIs required to analyze ML/TF risks of new products/services before launch; PIs not explicitly required to identify/assess ML/TF risks from new products and practices. - Recommendation 15 is rated partially compliant. - Recommendation 16 — Wire Transfers - Originator and beneficiary information requirements exist; verification thresholds: - Cross-border transfers: verification required for transfers of RMB 10,000 or foreign currency transfer equivalent to US$1,000 (Art. 1(1) PBC 2012 (199)). RMB 10,000 ≈ US$1,467 (exchange cited). - Deficiencies: - No obligation to verify beneficiary information in many cases; verification thresholds result in lack of verification for RMB-denominated transfers below RMB 10,000 (≈ US$1,467). - Domestic remittance “remittance certificate” must contain originator/beneficiary info but not required to be verified; applicable to banks only. - PIs not permitted to make cross-border wire transfers. - Other requirements on retention, monitoring, intermediary and beneficiary institution procedures exist (five-year record retention, risk-based policies). - Recommendation 16 is rated partially compliant. - Recommendation 17 — Reliance on Third Parties - FIs may rely on third parties for CDD (Art. 17 AML Law) subject to conditions (third party regulated and supervised; obtain necessary identification information immediately; obtain copies upon request). - Shortcoming: lack of specific requirement defining the necessary information to be obtained immediately from the third party. - Recommendation 17 is rated largely compliant. - Recommendation 18 — Internal Controls and Foreign Branches/Subsidiaries - FIs required to establish AML/CFT internal control systems, designate responsibilities, AML units, senior management responsible for compliance; requirements do not explicitly require regard to ML/TF risks and business size. - PIs required to establish internal control systems but not explicitly required to have ongoing training, independent audit, appoint management-level compliance officer, or screening procedures for hiring. - Group-level requirements: unified ML/TF risk management policies and some requirements for overseas branches/subsidiaries; not explicitly required to implement group-wide programs where host country prevents measures; no explicit obligation to apply additional measures if host country restricts implementation. - Recommendation 18 is rated partially compliant. - Recommendation 19 — Higher-Risk Countries - FIs required to apply enhanced measures for customers from jurisdictions identified as high-risk by FATF (PBC Notice 2018 No. 130). - China can apply countermeasures proportionate to risks and in response to FATF calls or independently; PBC issued notices and Money Laundering Risk Warning (July 2018). - PBC posts FATF public statements and related documents and directs FIs to obtain relevant publications. - Recommendation 19 is rated compliant. - Recommendation 20 — Reporting of Suspicious Transactions - Three types of suspicious transactions: ordinary suspicious transactions, key suspicious transactions, transactions related to terrorist lists. - Ordinary STR obligation: file when suspect or reasonable grounds to suspect ML, TF, or other criminal activity (AML Law Art. 20; Measures Art. 11). - Conflicting PI provision: Art. 36 of PIs Measures requires filing “within ten business days” and “reasonable cause to determine” which is a higher threshold and less prompt. - Key suspicious transaction reporting: immediate/local PBC branch reporting and CAMLMAC reporting (Measures Art. 17). - Real-time monitoring and reporting for matches to government/UN/PBC lists required (Measures Art. 18). - Recommendation 20 is rated mostly met for criteria but specific PI conflicts and scope issues noted; overall R.20 findings summarized above. *Selected numeric thresholds and timeframes preserved exactly as in source:* - Occasional transaction threshold: RMB 10,000 or foreign currency equivalent of US$1,000 (Art. 7 Administrative Measures). - FATF occasional transaction designated threshold referenced: USD/EUR 15,000. - PI STR conflict period: within ten business days (Art. 36 Measures for Payment Institutions). - Record retention: five years (Art. 19 AML Law). - RMB/USD exchange reference: RMB/USD 6.8138 as at July 27, 2018 (used to approximate RMB 10,000 ≈ US$1,467 in text). - Ratings summary for Recommendations 9–20: - R.9 — compliant - R.10 — largely compliant - R.11 — compliant - R.12 — partially compliant - R.13 — largely compliant - R.14 — largely compliant - R.15 — partially compliant - R.16 — partially compliant - R.17 — largely compliant - R.18 — partially compliant - R.19 — compliant - R.20 — mostly met (with noted deficiencies) *Overall weighting and key cross-cutting deficiencies identified across Recommendations 1–20:* - DNFBPs: lack of designation under AML Law historically, limited oversight and supervisory practice; no effective oversight to ensure DNFBPs implement R.1 obligations. - Beneficial ownership: lack of explicit BO identification by ownership in all cases; exclusion categories (Art. 1.7 PBC Notice No. [2017] 235) not justified. - PIs: gaps in several areas (CDD aggregation, group-wide programs, independent audit, management-level compliance officer, new technologies risk assessment obligations). - Targeted Financial Sanctions (R.6/R.7): lack of universal prohibition to freeze and comprehensive legal mechanisms to act without delay; scope limitations to FIs and designated DNFBPs; deficiencies in designation, evidentiary standards, use of UN listing forms, and communications for listings/de-listings/exemptions. - Wire transfers: thresholds (RMB 10,000 / equivalent of US$1,000) result in verification gaps, particularly for RMB-denominated transfers below RMB 10,000 (≈ US$1,467). - Terrorist financing criminalization: Art. 120A CL is general and may not capture willful collection of funds; not all conduct in Annexed Conventions criminalized. *Final consolidated ratings (as given across this Annex for Recommendations 1–20):* - R.1 — largely compliant - R.2 — compliant - R.3 — partially compliant - R.4 — compliant - R.5 — largely compliant - R.6 — partially compliant - R.7 — non-compliant - R.8 — partially compliant - R.9 — compliant - R.10 — largely compliant - R.11 — compliant - R.12 — partially compliant - R.13 — largely compliant - R.14 — largely compliant - R.15 — partially compliant - R.16 — partially compliant - R.17 — largely compliant - R.18 — partially compliant - R.19 — compliant - R.20 — mostly met *Italicized source attribution:* *Source: ANNEX I. Technical Compliance Annex, 1chnea2019001 - ANNEX I. Technical Compliance Annex (PDF).* ### section IV clarifies that STRs based on Art. 18 should be reported immediately and no later than ### 1chnea2019001 - section IV clarifies that STRs based on Art. 18 should be reported immediately and no later than ### Reporting obligations and Recommendation 20 (STRs) - Section IV clarifies that STRs based on Art. 18 should be reported immediately and no later than 24 hours after the occurrence of the business. This guidance does not extend to PIs. - Criterion 20.2—(Met): FIs, including PIs, are required to submit suspicious transactions, including attempted transactions, regardless of the amount of the transaction (Measures for the Administration of Financial Institutions' Reporting of Large-Value Transactions and Suspicious Transactions, Art. 11). - Weighting and Conclusion: - There are conflicting reporting requirements in place for PIs. - A minor deficiency regarding the scope of predicate offenses for ML (identified in R.3) has a spill over on the reporting obligation. - Recommendation 20 is rated largely compliant. ### Tipping-off and confidentiality (Recommendation 21) - Historical assessment: In the Third Round MER, China was rated compliant. - Criterion 21.1—(Met): FIs, including PIs, and their employees "are protected by law" when fulfilling their obligation to report suspicious transactions (AML Law, Art. 6; Measures for the Administration of Financial Institutions' Reporting of Large-Value Transactions and Suspicious Transactions, Art. 11). Extent of protection not defined in AML Law, but other laws contain similar protection; jurisprudence interprets protection broadly to include both criminal and civil liability. - Criterion 21.2—(Mostly met): Tipping off is prohibited under Art. 15 of the Provisions on Anti-Money Laundering Through Financial Institutions and Art. 23 of the Measures for the Administration of Financial Institutions' Reporting of Large-Value Transactions and Suspicious Transactions. These prevent FIs, including PIs, and their staff from disclosing information relating to suspicious transactions and any resulting PBC investigation. These provisions do not appear to inhibit information sharing under R.18 by FIs with the exception of PIs (Notice of the People's Bank of China on Strengthening Customer Identification Mechanism in Anti-Money Laundering, Section 3(5), which does not apply to PIs). - Weighting and Conclusion: - It is unclear whether tipping-off provisions for PIs are intended to inhibit information sharing under R.18, because the Notice does not apply to PIs. - Recommendation 21 is rated largely compliant. ### DNFBPs — Customer Due Diligence and other measures (Recommendations 22 and 23) - Background: In the Third Round MER, China was rated noncompliant on former R.12 (CDD for DNFBPs) and former R.16 (other measures for DNFBPs). - Designation and scope: - Authorized trust investment companies are the only entities permitted to administer trusts as a business; they are treated as FIs and supervised by the CBRC, with PBC assuming AML regulatory responsibilities. - Company service providers: any individual or entity authorized by SAMR can be a company service provider; no particular qualifications required. - Art. 35 of the AML Law requires the PBC to formulate the scope of DNFBPs and their specific AML obligations in collaboration with State Council departments. A PBC Notice of July 26, 2018 (No. 120) purported to designate DNFBPs, but because it was not issued in collaboration with relevant State Council departments, the designation is deemed not to be made yet, except for precious metals trading venues. - As a result, in the absence of formal designation, DNFBPs are not subject to AML/CFT obligations, except precious metals trading venues and trust companies (treated as FIs). - Recommendation 22 — CDD for DNFBPs: - Criterion 22.1—(Not met): DPMs should establish client identity identification systems (Art. 3 AML Law) and verify beneficial owners, but there is no explicit requirement to identify the beneficial owner and take reasonable measures to verify identity. No explicit requirement to keep CDD documents up-to-date and relevant. No obligations specifying when CDD is required; no requirement to verify persons acting on behalf of customers; no requirement to apply specific CDD measures for legal persons and arrangements. DPMs are not permitted to refrain from CDD and file an STR where performing CDD would tip-off a customer. - Criterion 22.2—(Not met): DPMs should save identification material and transaction records for at least five years, but the five-year requirement does not specify when it starts to apply. The requirement to keep transaction records does not extend to business correspondence and results of analysis. - Criteria 22.3–22.5—(Not met): Multiple deficiencies relating to TSPs (treated same as FIs) and reliance on third parties; provisions do not specify necessary information to be obtained immediately from third parties; other DNFBPs not designated and thus not subject to requirements. - Weighting and Conclusion: Serious deficiencies regarding DPMs; other DNFBPs not designated; Recommendation 22 is rated noncompliant. - Recommendation 23 — Other DNFBP measures: - Criterion 23.1—(Not met): DPM reporting obligations are limited: reporting does not cover suspicions that funds are proceeds of a criminal activity, or attempted transactions; obligation to report suspicion is not set in a law; reports should be submitted to CAMLMAC and PBC/local branches, but gaps remain. - Criteria 23.2–23.4—(Not met): Requirements for TSPs align with FIs but other DNFBPs are not designated; legal protection for DPM reporters is incomplete (no clear protection for directors, officers, employees from criminal and civil liability; no prohibition on disclosing that an STR is filed). - Weighting and Conclusion: Trust companies are DNFBPs (TSPs) with FI obligations; major deficiencies for DPMs; other DNFBPs not designated. Recommendation 23 is rated noncompliant. ### Transparency and Beneficial Ownership of Legal Persons and Arrangements (Recommendations 24 and 25) - Recommendation 24 — Legal persons: - Historical rating: Third Round MER — noncompliant. - Criterion 24.1—(Partly met): Civil Law open-ended; some company creation information publicly available on SAMR website; registration process described (pre-approval for name, SAMR licensing, business license, tax registration, formal company registration; Regulations on the Administration of Company Registration, Arts. 3, 9, 17, 20–22, and 25). - Criterion 24.2—(Partly met): 2017 NRA insufficiently detailed on ML/TF risks for all legal person types. - Criteria 24.3–24.5—(Mostly met)/(Partly met): LLCs and JSLCs must register basic and legal ownership information with SAMR; changes to registered information must be submitted within 30 days; administrative sanctions (fines) for inaccurate registrations include RMB 10,000–100,000 (approx. US$1,467–$14,677) for changes and RMB 50,000–500,000 (approx. US$7,338–$73,380) for registrations; other enforcement measures apply. - Criteria 24.6–24.8—(Not met): Beneficial ownership information is not required or registered at company formation or by companies themselves; no BO information available for entities not a customer of an FI; no specific requirements to ensure company cooperation with authorities to determine BO. - Criteria 24.9–24.15—(Partly/Mostly met/Not met): Basic ownership information retention and public availability partly met; BO information only retained if collected under CDD and then kept for five years after end of business relationship; bearer shares permitted with practical reliance on CSDC but legal gaps exist; nominee shareholders and directors allowed with no disclosure requirement; sanctions exist for basic information failures but not BO-specific; FIU (CAMLMAC) responds to most requests but Overseas Intelligence Information Document Processing Procedures contain no mandatory feedback requirements. - Weighting and Conclusion: Almost all required basic information is collected and publicly available; no requirements to collect/maintain BO information except via CDD; deficiencies on bearer shares and nominee arrangements; Recommendation 24 is rated noncompliant. - Recommendation 25 — Legal arrangements (civil trusts): - Historical rating: Third MER — partially compliant. - Coverage: civil trusts (wealth, educational, testamentary) and foreign trusts doing business in China; excludes business trusts (products of trust companies) and charitable trusts. - Criteria 25.1–25.8 — Mostly Not met, with Criterion 25.4—(Met): - No requirements to identify settlor at establishment or register settlor and beneficiary names. - No requirements for accurate record-keeping for domestic civil trusts or foreign legal arrangements operating in China. - No requirement for trustees to disclose status to an FI or DNFBP. - No specific powers obliging availability of required information to law enforcement and supervisors for civil trusts and foreign legal arrangements. - No rules on legal liability or sanctions for trustees failing obligations. - Weighting and Conclusion: Trust Law creates civil trusts but lacks further requirements; Recommendation 25 is rated noncompliant. ### Regulation and supervision of financial institutions and DNFBPs (Recommendations 26–28) - Recommendation 26 — Regulation and Supervision of FIs: - Historical context: Third Round MER — partially compliant. - Criterion 26.1—(Met): PBC designated as competent authority for AML/CFT supervision of all FIs; sectoral prudential regulators (CBIRC and CSRC) support PBC; PBC responsible for nonbank financial sector, Currency Exchange and MVTS; PIs not considered FIs but have designated AML supervisor PBC. - Criterion 26.2—(Met): Permission requirements for various FI types detailed (banks, securities, insurance, fund companies, futures, trust companies, finance companies, pilot currency brokerage companies, financial asset management companies, financial leasing, auto finance, PIs, currency exchange institutions, online lending). - Shell banks: no explicit prohibition, but practical controls via state approval and physical presence requirements. - Criterion 26.3—(Mostly met): Fit and proper measures across sectors exist but minimum crime-free periods for directors/managers often limited to three to five years. - Criteria 26.4–26.6—(Mostly met/Partly met): PBC conducts AML/CFT supervision, inspections, institutional/group risk assessments, categorized ratings, and applies higher scrutiny to higher-risk FIs; online lending sector is not effectively covered by PBC AML/CFT supervision. - Weighting and Conclusion: Online lending sector omission significant; market entry shortcoming on limited mandatory periods for criminal record checks. Recommendation 26 is rated partially compliant. - Recommendation 27 — Powers of supervisors: - Criterion 27.1–27.3—(Met): PBC authorized national AML/CFT/TFS supervision; can conduct inspections and compel production/copying of documents. - Criterion 27.4—(Partly met): PBC and sectoral supervisors can impose a range of sanctions (warnings, corrections, fines, confiscation, suspension/revocation of license, disqualification from posts); however, sanctions not fully aligned with R.35 standards; no measures covering online lending institutions. - Weighting and Conclusion: Sanctions not in line with R.35 (see TC Annex R.35). Recommendation 27 is rated largely compliant. - Recommendation 28 — Regulation and supervision of DNFBPs: - Historical rating: Third Round MER — noncompliant. - Art. 35 requires PBC to formulate supervision measures for DNFBPs in collaboration with State Council departments. The July 26, 2018 purported designation listed several DNFBP categories (real estate developers/agents; dealers in precious metals and stones; accounting firms, law firms, notaries for certain activities; company service providers for certain activities), but the assessors considered the designation incomplete under AML Law. - Criterion 28.1—(Not applicable): Casinos prohibited in China. - Criteria 28.2–28.5—(Partly met/Not met): PBC has not implemented measures for supervision and administration of DNFBPs except trust companies and DPMs; no systems in place for monitoring DNFBPs (apart from trust companies and DPMs); insufficient measures to prevent criminals or associates from professional accreditation/ownership in DNFBP sectors; unclear sanctions; as of onsite visit no supervision in DNFBP sector besides trust companies. - Weighting and Conclusion: Only DPMs and trust companies subject to measures; significant weighting given to many DNFBP sectors not covered; Recommendation 28 is rated noncompliant. ### Financial Intelligence Unit — Structure, functions, and international engagement (Recommendation 29) - Historical rating: Third Round MER — largely compliant; under new standards several gaps identified. - Structure: Decentralized FIU within PBC composed of: - CAMLMAC (central level) — primary receipt and analysis of ordinary STRs and LVTRs; receives key STRs reported directly/simultaneously to 36 provincial PBC branches. - AMLB — policy-driven unit with power to conduct administrative investigations and disseminate to LEAs; coordinates cross-regional administrative investigations by PBC provincial branches. - AML Units within each of the 36 provincial PBC branches — primary recipient of key STRs identified by local FIs and whistle-blower reports; conduct administrative investigations and disseminate results to local LEAs. - Key operational issues: - Each PBC provincial branch maintains a stand-alone database not accessible outside the branch; CAMLMAC centrally registers details of all reports but provincial branches have limited access to CAMLMAC’s database (only to transactions executed in their province); branches can request other information from CAMLMAC. - Criterion 29.2—(Met): CAMLMAC receives all STRs and information in all key STRs; receives LVTRs and whistle-blower report copies. - Criterion 29.3—(Mostly met): CAMLMAC can request supplement/corrections within five working days for incomplete/erroneous SVTRs/STRs but cannot request additional information; AMLB and provincial branches have powers to obtain relevant information during administrative investigations. - Criterion 29.4—(Partly met): CAMLMAC conducts operational analysis and strategic analysis, but lack of access across FIU components (stand-alone provincial databases and limited CAMLMAC access) limits ability to follow trails and determine links across jurisdictions/targets. - Criterion 29.5—(Met): All three FIU components independently disseminate analysis results to LEAs, both spontaneously and on request, using secure channels. - Criterion 29.6—(Met): Rules governing security/confidentiality, staff clearances, and limited access exist; breaches can lead to disciplinary and criminal sanctions. - Criterion 29.7—(Partly met): Dissemination by provincial branches requires the signature of the president of the branch (c.29.7a—Not met concern about potential limitation of FIU autonomy). Other subcriteria regarding cooperation and funding met. - Criterion 29.8—(Not met): China is not yet a member of the Egmont Group; applied in 2005 but did not file an unconditional application. - Weighting and Conclusion: Decentralized FIU arrangement limits full functioning as a national center due to stand-alone provincial databases and signature requirement for provincial disseminations; China did not file unconditional Egmont application. Recommendation 29 is rated partially compliant. ### Law enforcement powers and investigations (Recommendations 30–31) - Recommendation 30 — Responsibilities of LEAs: - Criterion 30.1—(Met): MPS is main law enforcement authority with departments responsible for ML, predicate offenses, and TF (Economic Crime Investigation Department including AMLD; Criminal Investigation Department; Public Security Department; Narcotics Control Department; Anti-Terrorism Department; Cyber Security Department; other departments). Corresponding provincial/municipal/county departments exist. - SPP responsible for corruption/bribery by government officers; MSS for cross-border terrorist and TF activities; Anti-Smuggling Bureau of GAC for smuggling offenses; SAT for tax-related offenses. - Criterion 30.2–30.4—(Met / Not applicable where noted): LEAs can pursue parallel financial investigations and have powers to identify, trace, freeze, seize suspected POC; Recommendation 30 is rated compliant. - Recommendation 31 — Powers of LEAs and investigative authorities: - Criterion 31.1—(Met): LEAs authorized to obtain records from FIs/DNFBPs/others (CPL, Art. 135); search premises; take witness statements; seize and compulsorily acquire materials. - Criterion 31.2—(Met): Special investigation techniques available (undercover operations, electronic monitoring, accessing computer systems, controlled deliveries/payments) subject to approval formalities. - Criterion 31.3—(Met): LEAs have mechanisms and (online) systems to determine whether natural or legal persons hold or control accounts; can identify assets without prior notification. - Criterion 31.4—(Mostly met): FIU components can cooperate with LEAs and provide assistance; Recommendation 31 is rated compliant. ### Cash couriers and cross-border declarations (Recommendation 32) - Historical rating: Third Round — partially compliant. - Criterion 32.1—(Mostly met): Declaration system implemented for incoming and outgoing cross-border transportation of national and foreign currency at all ports of entry/exit. Travelers must declare national currency in cash above RMB 20,000 (US$2,935). Foreign currency cash above US$5,000 subject to Permit for Carrying Foreign Exchanges and declaration. Declaration does not extend to traveler’s checks or foreign BNI; no legal prohibition on traveler’s checks; authorities state no BNI operation in country and no identified BNI in last three years. - Criterion 32.2—(Mostly met): Written declaration system exists (national currency above RMB 20,000; foreign cash above US$5,000); obligation does not extend to traveler’s checks and other BNI in foreign currency. - Criterion 32.4–32.5—(Mostly met): Customs can obtain further information on origin/intended use upon false or missing declaration; sanctions apply including freeze, seizure, confiscation; false declaration subject to warnings, administrative fines, criminal penalties; fines up to RMB 50,000 (approx. US$7,338) for individuals directly responsible; smuggling constitutes criminal offense with confiscation and fines; other failures to declare without intent to smuggle subject to warning and fine up to 20 percent of amount. - Criterion 32.6—(Partly met): 2017 work to set up system for Customs to notify CAMLMAC of cross-border transportation violation cases in early stages; FIU receives periodic information on excessive undeclared cash but not focused on ML/TF suspicion. - Criterion 32.7–32.11—(Mostly met / Partly met): Coordination mechanisms exist; Customs has inspection and seizure powers; information sharing to FIU limited in scope and early implementation; safeguards in place for proper use of information; sanctions apply when cross-border transportation related to ML/TF. - Weighting and Conclusion: Declaration requirement does not extend to BNI but less weight due to domestic prohibitions; FIU receives only declaration violation cases, not specifically false declarations or ML/TF suspicions. Recommendation 32 is rated largely compliant. ### Statistics, guidance, feedback, and sanctions (Recommendations 33–35) - Recommendation 33 — Statistics: - Criterion 33.1—(Mostly met): CAMLMAC centrally collects/maintains statistics on LVTRs and STRs and disseminations; PBC acts as central repository for ML/TF investigation/prosecution/conviction statistics; MPS/MSS/SPP/SPC report annual statistics to PBC; limitations exist in comprehensiveness and ability to break down statistics into meaningful sub-components. - Recommendation 33 is rated largely compliant. - Recommendation 34 — Guidance and feedback: - Criterion 34.1—(Partly met): PBC, CBRC, CSRC, CIRC have guidelines and notices; industry associations issued AML guidelines; PBC published 33 ML risk warnings to end-2017; PBC holds annual "Briefing on AML Situation"; CAMLMAC provides reporting formats and automated completeness checks and annual feedback on report quality. No guidance applies to online lending institutions; little/no guidance to DNFBPs aside from trust companies and DPMs. - Recommendation 34 is rated partially compliant. - Recommendation 35 — Sanctions: - Criterion 35.1—(Partly met): Sanctions framework described with numerous RMB amounts and ranges: - For failing to freeze funds for designated terrorists, fines on institutions: not less than RMB 200,000, but not more than RMB 500,000; fines on directly responsible persons: not more than RMB 100,000. If serious: institutional fines not less than RMB 500,000 and individual fines not less than RMB 100,000 but not more than RMB 500,000; may revoke business license; can detain natural persons for not less than 5 days, but not more than 15 days (Counter Terrorism Law, Arts. 83 and 93). - For failure to comply with AML Law (serious): fines of RMB 20,000–50,000 for institutions and RMB 10,000–50,000 for natural persons; where breach leads to ML: institutional fine RMB 500,000 up to RMB 5 million and natural person fine RMB 50,000 up to RMB 500,000; particularly serious circumstances may lead to suspension or revocation of license. - PBC penalties for social organizations: RMB 500,000 to RMB 2 million; directors/senior management RMB 50,000 to RMB 500,000 (Law of the People's Bank of China, Art. 46). - Cap concerns: maximum caps (e.g., RMB 500,000; RMB 5 million) considered low relative to size of financial sector; aggregate penalties historically low. - Criterion 35.2—(Partly met): Sanctions applicable to directors and senior management exist but effectiveness/deterrence questionable. - Weighting and Conclusion: Assessors doubt sanctions are effective, dissuasive, and proportionate given low caps and limited application to DNFBPs. Recommendation 35 is rated partially compliant. ### International instruments, MLA, confiscation, extradition, and international cooperation (Recommendations 36–40) - Recommendation 36 — International instruments: - Criterion 36.1—(Met): China is party to Vienna, Palermo, Merida, and TF Conventions (ratification dates and details referenced in source). - Criterion 36.2—(Mostly met): China has substantially implemented conventions though some offenses in conventions not fully criminalized domestically (aviation, maritime, protected persons, nuclear materials); equivalent value confiscation achieved via mandatory confiscation court ruling; self-laundering not criminalized (see R.3 and R.4 references). - Recommendation 36 is rated largely compliant. - Recommendation 37 — Mutual Legal Assistance: - Overall: China has a legal basis for MLA (CPL, AML Law, CTL). Channels include MOJ as central authority, with exceptions where MPS or SPP designated for particular conventions; MFA used outside conventions. No mandatory prioritization of requests; use of dual criminality as a condition for MLA with limited exceptions; confidentiality and fiscal grounds not generally used for refusal except per laws. Recommendation 37 is rated largely compliant. - Recommendation 38 — MLA: Freezing and confiscation: - Criterion 38.1—(Partly met): Requests must be treaty-based or reciprocity; all types of property and instrumentalities are covered; no additional legal provisions to expedite foreign freezing/seizure/confiscation requests; no legal provision for executing equivalent value seizures and confiscation requests. - Criterion 38.2—(Partly met): No specific authority/procedures for MLA based on foreign nonconviction-based confiscation, except limited circumstances (escape, missing for a year, death) with domestic application. - Criteria 38.3–38.4—(Met): Coordination arrangements exist; legal obligations for preservation of properties and sharing/return of recovered assets exist (examples provided). - Recommendation 38 is rated partially compliant. - Recommendation 39 — Extradition: - Criterion 39.1—(Met): Extradition Law provides basis; crimes with punishment over one year extraditable; clear procedures. - Criterion 39.2—(Met): China’s nationals cannot be extradited but should be prosecuted domestically per requests; 45 extradition treaties signed (37 in force) with many partners. - Criterion 39.3—(Met): Dual criminality requirement satisfied even if offenses categorized differently. - Criterion 39.4—(Not met): No simplified extradition procedure in Extradition Law; only 2 out of 37 treaties in force include simplified extradition provisions. - Recommendation 39 is rated largely compliant. - Recommendation 40 — Other forms of international cooperation: - Criterion 40.1—(Mostly met): Competent authorities can provide international cooperation in AML/CFT; CAMLMAC can rapidly provide urgent assistance; response times for non-urgent requests average between one to four months with quicker responses in Asia-Pacific. - Criterion 40.2—(Mostly met): Legal basis for cooperation exists; MOUs and agreements in place; secure channels (CSW System) and MOUs (CAMLMAC MOUs with FIUs of 50 countries as of April 2018; PBC MOUs with several jurisdictions); no established procedures for timely prioritization of requests. - Criterion 40.3—(Met): China can cooperate under treaties or reciprocity; CAMLMAC exchanges information with counterpart FIUs on the basis of formal cooperation agreements. - Recommendation 40 is rated largely compliant. *Source: 1chnea2019001 - section IV clarifies that STRs based on Art. 18 should be reported immediately and no later than (PDF chapter/section).* ### conclusion of agreements is done in a timely manner. ### 1chnea2019001 - conclusion of agreements is done in a timely manner. ### Exchange of Information and General Cooperation (Criteria 40.4–40.8) - Criterion 40.4 — Mostly met: - After requesting information and obtaining responses from foreign counterparts, some Chinese competent authorities will provide feedback on the use and usefulness of the information to foreign counterparts. - The SAT expresses gratitude to foreign counterparts for information that "has brought significant amount of tax for China indicating the amount of taxes." - Criterion 40.5 — Partly met: - Chinese competent authorities exchange information or provide assistance in accordance with the laws or with treaties, agreements, or according to the principles of equality and reciprocity (AML Law, Arts. 27, 28). - Laws do not place unreasonable or unduly restrictive conditions, but they do not specifically allow international cooperation in the cases covered by c.40.5 in the Methodology. - Global Network feedback indicates a number of international requests for information that have not been honored without supporting feedback from Chinese authorities. - Authorities stated that an information request of a foreign authority will not be rejected because of involvement of fiscal matters, confidentiality, active inquiries/investigations (with reasonable exclusion of cases of possible impeding of investigations or prosecutions), or the status of the requiring authority. - Specific provisions cited only for the SAT: SAT "shall not reject providing intelligence to foreign counterparts" for reasons including: request unrelated to tax benefits of China; taxpayer information confidentiality; bank depositor confidentiality; tax information controlled by an agent/intermediary/third parties (Rules for the International Exchange of Tax Information, Art. 10). - Criterion 40.6 — Met: - The PBC, CAMLMAC, and tax authorities have controls and safeguards to ensure exchanged information is used only for its intended purpose. - MPS includes such provision in its MOUs with LEAs. - CAMLMAC explicitly states purpose when requesting intelligence and requests consent of foreign counterpart before disclosing FIU-provided intelligence to domestic LEAs (Standard Procedures for Processing of Foreign Intelligence Information Documents of the CAMLMAC, Arts. 13, 14; Law on the Administration of Tax Collection, Art. 54; Rules for the International Exchange of Tax Information, Chapter 3). - Criterion 40.7 — Met: - Competent authorities maintain and protect confidentiality of information exchanged, consistent with relevant legal provisions and terms of MOUs and agreements (Standard Procedures for Processing of Foreign Intelligence Information Documents of the CAMLMAC, Arts. 13, 14; Law on the Administration of Tax Collection, Art. 54; Rules for the International Exchange of Tax Information, Chapter 3). - CAMLMAC applies confidentiality requirements and may refuse to provide information if foreign counterparts cannot protect the information effectively; corresponding confidential measures are required of foreign counterparts and relevant provisions are included in MOUs. - Criterion 40.8 — Mostly met: - Some competent authorities can conduct domestic inquiries and give feedback upon foreign requests, but this capability does not extend to all (e.g., CSRC and CBIRC lack this). ### Exchange of Information between FIUs (Criteria 40.9–40.11) - Criterion 40.9 — Met: - AML Law stipulates PBC (with FIU functions) represents China in AML cooperation with foreign governments and international organizations, and exchanges information and materials related to AML with foreign counterparts (AML Law, Art. 28). - AML includes TF as part of terrorist activities (AML Law, Art. 36). - Criterion 40.10 — Met: - Feedback is to be provided to foreign counterparts after intelligence is utilized per Chapter II of the CAMLMAC Standard Procedures. - Information provided by foreign FIUs "for reference" has no mandatory feedback requirement (Art. 4 of the Standard Procedures). - Criterion 40.11 — Met: - CAMLMAC can share directly obtained information (large-value transactions, STRs, commercial and public databases on legal persons and their representatives). - FIU can obtain law enforcement and additional financial information from financial institutions and make it available to foreign FIUs on a case-by-case basis. ### Exchange of Information between Financial Supervisors (Criteria 40.12–40.16) - Criterion 40.12 — Met: - AML Law Art. 27 applies to supervisory cooperation; CTL Art. 68 stipulates relevant State Council departments represent China in combating terrorism policy dialogues, intelligence exchange, law enforcement cooperation, and international financial supervision cooperation. - PBC is responsible for AML/CFT cooperation with respect to the financial sector (AML Law, Arts. 27, 28; CTL, Arts. 68, 69). - Criterion 40.13 — Met: - PBC can exchange AML supervision information with foreign counterparts; China has signed MOUs for AML supervision with four jurisdictions enabling exchange of AML supervisory information. - Criterion 40.14 — Partly met: - PBC can exchange domestically available information specified in sub-criteria 40.14 (a) to (c), including supervisory information on AML and financial regulation, regardless of whether counterparts supervise the same group of institutions (AML Law, Art. 27; CTL, Art. 68). - Deficiencies exist in collecting and maintaining BO information (see R.24), and financial institutions are only required to take reasonable measures to identify BOs (see R.10), so PBC may not always be able to share BO information with other supervisors. - Criterion 40.15 — Partly met: - PBC can carry out international AML/CFT cooperation, but the law generally describes its powers and is silent on the power to investigate AML/CFT information and provide feedback at the request of foreign counterparts (AML Law, Arts. 27–28; CT Law, Art. 68). - Based on bilateral agreements or reciprocity, Chinese regulators may authorize or facilitate foreign counterparts to conduct inquiries themselves in China. - Criterion 40.16 — Met: - PBC should explicitly state purpose when requesting supervisory information from foreign supervisors; prior authorization is required if information needs disclosure or other use per cooperation agreements. ### Exchange of Information between Law Enforcement Authorities (Criteria 40.17–40.19) - Criterion 40.17 — Met: - Chinese LEAs carry out international cooperation according to international treaties or under equality and reciprocity, exchanging information on ML, relevant predicate offenses, and TF, including tracking/searching criminal proceeds, though absence of provisions for confiscating property of corresponding value may limit cooperation (CTL, Art. 68; Provisions on the Procedures for Handling Criminal Cases by Public Security Agencies, Art. 364). - Police cooperation permitted includes exchange of criminal intelligence, investigation and evidence collection, service of criminal proceedings documents, transfer of evidence, audio-visual materials/electronic data, extradition, arrest and deportation, and other treaty/ agreement-stipulated cooperation (Provisions..., Arts. 365). - Prosecution cooperation: - As of September 2017, the SPP has signed 146 cooperation agreements, MOUs, and other documents with 96 countries and regions covering cooperation in combating crimes, information exchange, and personnel training. - Criterion 40.18 — Met: - In police cooperation, public security agencies can use the same investigative powers, techniques, and coercive measures as for domestic cases, and can inquire and obtain information on behalf of foreign counterparts (Provisions..., Art. 368). - Multilateral/bilateral agreements (e.g., Interpol arrangements) and MOUs govern restrictions on use of exchanged information; when requesting information, Chinese LEAs indicate purpose and seek prior authorization for disclosure/use to other agencies. - Criterion 40.19 — Met: - China can cooperate with other countries to carry out law enforcement joint action under multilateral/bilateral agreements. Example: since 2011, under a joint statement of China, Laos, Burma, and Thailand, LEAs carry out Mekong joint patrol enforcement to prevent, combat, and investigate crimes in the Mekong River basin. ### Exchange of Information between Non-Counterparts (Criterion 40.20) - Criterion 40.20 — Met: - China allows domestic and foreign non-counterparts to exchange information indirectly under existing international cooperation mechanisms, limited to agreements or MOUs concluded by China (Provisions..., Arts. 364, 367). - Examples: - Foreign police requesting financial supervision information can request MPS, which transfers to the appropriate financial supervisor and returns information via MPS. - Foreign FIU can send a request to CAMLMAC upon request of their domestic police, and CAMLMAC can transfer information to police. - AML Law requires coordination among ministries/agencies in AML work. - Concluded international agreements and MOUs (e.g., MOU between PBC and AUSTRAC) set out exchanges and clarify purpose and on whose behalf requests are made. ### Weighting and Conclusion - Competent authorities are generally able to provide a wide range of direct and indirect international assistance, with only minor deficiencies (no prioritization process; feedback not used by the FIU). - Recommendation 40 is rated largely compliant. ### Annex II — Selected Technical Compliance Deficiencies (extract) - The document includes an Annex II summary listing a range of FATF Recommendation ratings and underlying factors. Selected items included: - R.1 — LC: Notable gaps related to very recent designation of DNFBPs, lack of oversight, no assessment by DNFBPs, PIs not subject to certain internal policy requirements. - R.3 — PC: Arts. 191 and 312 of the PC do not cover "possession"; provinces may set value ranges; some predicate offenses too narrow; self-laundering not criminalized; legal entities not criminally liable. - R.5 — C: Recommendation fully met. - R.6 — PC: Multiple deficiencies including no legal prohibition for legal persons making funds available to designated entities; freezing requirements incomplete in scope; communications and procedures lacking for UNSCR designations and de-listing; freezing without delay not enabled. - R.7 — NC: Similar deficiencies as R.6 for proliferation-related measures. - R.8 — PC: China has not identified subset of NPOs at risk of TF abuse; lacks risk-based monitoring and outreach and clarity on investigative capabilities regarding NPOs. - R.9 — C: Recommendation fully met. - R.10 — LC: Multiple CDD and beneficial ownership deficiencies, including thresholds and verification gaps, PIs occasional transaction thresholds (USD/EUR 15,000), limits on verifying persons acting on behalf of customers, and unclear mandatory nature of enhanced measures. *Source: 1chnea2019001 - conclusion of agreements is done in a timely manner.* ### 11. Record-keeping C ### 11. Record-keeping C ### Recommendations 11–40: Ratings and factors underlying the ratings - 11. Record-keeping — C - The Recommendation is fully met. - 12. Politically exposed persons — PC - There are no requirements for the use of risk management systems to determine whether a beneficial owner is a PEP. - It is not mandatory for FIs to take reasonable measures to establish the source of wealth of PEPs or conduct ongoing monitoring of business relationships with foreign PEPs. - FIs are not required to implement specific due diligence requirements for domestic PEPs, family members or close associates of domestic PEPs. - Insurance institutions are not required to take reasonable measures to determine whether the beneficiaries and/or, where required, the beneficial owner of the beneficiary, are PEPs. - 13. Correspondent banking — LC - FIs are not explicitly required to verify whether the respondent institution has been subject to a ML/TF investigation or regulatory action. - FIs are not clearly required to satisfy themselves that respondent financial institutions do not permit their accounts to be used by shell banks. - 14. Money or value transfer services — LC - Banks are not explicitly required to include agents in their AML/CFT programs and monitor them for compliance with such programs. - 15. New technologies — PC - There are no requirements on new technologies for PIs. - 16. Wire transfers — PC - There is no obligation to verify originator information obtained on cross-border transfers denominated in yuan unless the amount of the transfer exceeds the yuan equivalent of US$1,467. - There is no obligation to verify beneficiary information related to cross-border transfers denominated in yuan that are below the yuan equivalent of US$1,467. - There is no requirement to verify the identity of the beneficiary where there is suspicion of ML or other illegal activity. - There is no requirement for an FI to verify their customer’s information for transfers less or equivalent of US$1,000. - As there is no requirement to verify originator information for cross-border transfers less than the yuan equivalent of US$1,467, ordering institutions are not prohibited from executing transfers that do not meet the requirements of R.16.1–16.7 in this regard. - In the case of a MVTS provider that controls both the ordering and the beneficiary side of a wire transfer, the MVTS provider is not required to file an STR in a country affected by the suspicious wire transfer and make relevant transaction information available to the FIU. - Deficiencies in R.6 prevent FIs to take freezing action and comply with prohibitions from conducting transactions with designated persons and entities, as per obligations set out in the relevant UNSCRs relating to the prevention and suppression of terrorism and TF. - 17. Reliance on third parties — LC - While there is a requirement for FIs relying on third-party financial institutions to obtain immediately the necessary information of customer identification from the third-party institution, the relevant provisions do not contain any details as to what necessary information should be obtained. - 18. Internal controls and foreign branches and subsidiaries — PC - The obligations for FIs on establishing internal controls do not explicitly require having regard to the ML/TF risks and the size of the business. - PIs are not explicitly required to have an ongoing training program and an independent audit function. - PIs are not required to appoint a compliance officer at the management level and apply screening procedures to ensure high standards when hiring employees. - FIs are not explicitly required to implement group-wide programs against ML/TF, including group-wide screening procedures when hiring employees and an ongoing employee training program. - PIs are not required to implement group-wide programs against ML/TF. - If the host country does not permit the proper implementation of AML/CFT measures consistent with China’s requirements, financial groups are not explicitly required to apply appropriate additional measures to manage the ML/TF risks. - 19. Higher-risk countries — C - The Recommendation is fully met. - 20. Reporting of suspicious transaction — LC - The minor deficiency regarding the scope of predicate offenses for ML, as identified in the analysis of R.3, has a spill over on the reporting obligation. - There are conflicting requirements regarding STRs for PIs; namely, the requirement to “have reasonable cause to determine” is a higher threshold than suspicion and the period of ten days to file a report does not qualify as promptly. - 21. Tipping-off and confidentiality — LC - It is unclear whether the tipping-off provisions for PIs are not intended to inhibit information sharing under R.18. - 22. DNFBPs: Customer due diligence — NC - With the exception of trust companies, which have the same requirements as FIs, and DPMs, DNFBPs are not yet designated and are not subject to CDD requirements. - The deficiencies identified with regard to R.10, 11, 12, 15 and 17 equally apply to trust companies. - In addition, there are serious deficiencies regarding most of the CDD requirements for DPMs. - 23. DNFBPs: Other measures — NC - With the exception of trust companies, which have the same requirements as FIs, and DPMs, DNFBPs are not yet designated and are not subject to CDD requirements. - The deficiencies identified in Rs. 18, 20, and 21 equally apply to trust companies. - In addition, there are serious deficiencies regarding most of the relevant requirements for DPMs. - 24. Transparency and BO of legal persons — NC - China’s Company Law is open ended and does not list all possible types of legal entities. - Some company creation information, but not all, is publicly available on the website of the SAMR. - The 2017 NRA contains insufficiently detailed information regarding ML/TF risks associated with all types of legal persons created or registered in China to be able to conclude that a comprehensive risk assessment had taken place. - For LLCs and JSLCs, proof of incorporation is not required. - It is unclear whether LLCs and JSLCs are required to maintain the information set out in c.24.3. - The verification of the registered information on LLCs and JSLCs is undertaken through a random check, but there are no other mechanisms to ensure accuracy and timely updating of the information referred to in 24.3 and 24.4. - Beneficial ownership information is not required nor registered at company formation stage, or by the companies themselves. - Authorities refer to the existing information obtained by FIs, but their BO requirements are deficient in terms of timeliness. - There is no BO information on a legal entity that is not a customer of a FI in China. - There are no specific additional requirements to ensure that companies cooperate with competent authorities to the fullest extent possible to determine the beneficial owner. - No BO information is collected or maintained, but if BO information was collected as part of CDD, then it must be kept for five years after the end of the business relationship. - There are no measures for bearer shares, nominee shareholders and directors. - The sanctions available only relate to basic information, not to BO information. - International cooperation is limited because BO information is not available and/or difficult to obtain and/or to exchange. - 25. Transparency and BO of legal arrangements — NC - There are no obligations that require the identification of the settlor when establishing a civil trust and acting as a trustee, or the registration of the names of the settlor and beneficiary. - There are no requirements regarding accurate record-keeping for domestic civil trusts and/or for foreign legal arrangements operating in China. - There are no obligations requiring trustees of domestic civil trusts and/or of foreign legal arrangements operating in China to disclose their status to an FI or DNFBP. - Law enforcement bodies and supervisors have powers to obtain all of the information that FIs and other businesses hold, but there are no specific legal obligations that set out that the three categories of information that this criterion requires are available for civil trusts and foreign legal arrangements. - There are no specific legal obligations that require information for civil trusts and foreign legal arrangements to be available for exchange with foreign partners. - There are no rules for trustees of domestic civil trusts and/or of foreign legal arrangements operating in China regarding legal liability for failure to comply with obligations, and there are no sanctions available. - 26. Regulation and supervision of financial institutions — PC - The online lending sector is not subject to the AML Law and is not supervised for AML/CFT requirements. This scope issue has an impact on all aspects of R.26 (except c.26.2). - The main shortcoming with regard to c.26.3 is that in most sectors the minimum period that directors and managers must be crime-free is limited to between three to five years. - 27. Powers of supervisors — LC - Sanctions are not in line with the standards set out in R.35. - 28. Regulation and supervision of DNFBPs — NC - There are no measures for regulation and supervision of DNFBPs, except for trust companies and DPMs. This scope issue has an impact on all aspects of R.28. - 29. Financial intelligence units — PC - China’s FIU arrangement does not fully qualify as a national center for the receipt and analysis of STRs and other information relevant to ML, associated predicate offenses and TF; and for the dissemination of the results of that analysis. - The FIU components face limitations in terms of operational and strategic analyzes, which use available and obtainable information, because of the stand-alone databases at the level of the PBC provincial branches and the limited access by these branches to CAMLMAC’s database. - The provincial branches require the signature of the president of their branch for disseminations to competent authorities. This requirement has the potential to limit the FIU’s authority to carry out its functions freely and its operational independence and autonomy. - China did not file an unconditional application for Egmont Group membership. - 30. Responsibilities of law enforcement and investigative authorities — C - The Recommendation is fully met. - 31. Powers of law enforcement and investigative authorities — C - The Recommendation is fully met. - 32. Cash couriers — LC - There are no declaration requirements for traveler’s checks in any currency and other types of BNI in foreign currency. This deficiency has an impact on China’s compliance with each of the individual criteria of R.32. - The relevant information that the FIU receives from the customs authorities only covers declaration violation cases of excessive amounts and does not specifically extend to false declarations nor suspicions of ML and TF. - Coordination and information sharing mechanisms are in an early implementation stage. - 33. Statistics — LC - While statistics are largely kept on the four main areas covered by R.33, China was not always able to breakdown the statistics into meaningful sub-components and at times needed to rely on samples. - 34. Guidance and feedback — PC - There is no guidance for online lending institutions. - Guidance specifically directed to the provision of trustee services does not appear to be issued. - DNFBPs, (aside form trust companies and DPMs) are not subject to the AML law and hence related guidance is not applicable. - 35. Sanctions — PC - There are concerns that the sanctions applicable to the financial sector are not effective, dissuasive, and proportionate given their low scale and cap compared to the size and composition of the financial sector in China. - No sanctions applicable to designated DNFBPs. - 36. International instruments — LC - Not all offenses set out in the international conventions are offenses under the Chinese law. - 37. Mutual legal assistance — LC - There are no clear processes for the timely prioritization and execution of MLA requests. - There is no legal provision requiring that fiscal and confidentiality issues cannot be grounds for refusal. - Although China insists on using dual criminality as a condition for providing MLA, it can, in particular situations, negotiate with a foreign party on not using the basis of “dual criminality” as the condition for rendering assistance. - 38. Mutual legal assistance: freezing and confiscation — PC - Beyond the legal provisions and procedures that apply for any MLA requests (see R.37), there are no additional legal provisions or procedures to expedite foreign freezing, seizure, and confiscation requests. - There is no legal provision for executing equivalent value seizures and confiscation requests in China. - There is no specific authority or procedures for providing MLA to requests made on the basis of foreign non-conviction-based confiscation proceedings—except in cases where the criminal suspect or defendant escapes (and cannot be present in court after being wanted for a year (including being missing)), or a criminal suspect or defendant dies. - 39. Extradition — LC - There are no procedures for simplified extradition. - 40. Other forms of international cooperation — LC - Feedback from the Global Network suggests that it takes CAMLMAC on average between one to four months to provide foreign counterparts a response to their non-urgent information requests. This cannot be considered to be rapidly. - Relevant laws do not specifically provide for international cooperation in the cases covered by criterion 5 of R.40 in the Methodology. - Information received from the Global Network points to a number of international requests for information that have not been honored without supporting feedback from the Chinese authorities. - The CSRC and CBIRC cannot conduct inquires domestically and give feedback upon receiving requests from foreign counterparts. - Since there are deficiencies in collecting and maintaining BO information (see R.24), and financial institutions are only required to take reasonable measures to identify BOs (see R.10), it is likely that PBC will not be always be able to share BO information with other supervisors. - The AML Law is silent on the PBC’s power to investigate AML/CFT information and provide feedback, at the request of the foreign counterparts. - There are no clear processes for the timely prioritization and execution of requests. *Source: 1chnea2019001 - 11. Record-keeping C (PDF chapter).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1chnea2019001.pdf_