1 CH Nea 2019001

MF Country Report No.
19/172
PEOPLE’S REPUBLIC OF CHINA

DETAILED ASSESSMENT REPORT ON ANTI-MONEY
June 2019 LAUNDERING AND COMBATING THE FINANCING OF
TERRORISM
This paper for People’s Republic of China was prepared by a staff team of the
International Monetary Fund as background documentation for the periodic consultation
with the member country. It is based on the information available at the time it was
completed in July 2018.
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© 2019 International Monetary Fund

PEOPLE’S REPUBLIC OF
CHINA
June 2019
DETAILED ASSESSMENT REPORT ON ANTI-MONEY

LAUNDERING AND COMBATING THE FINANCING OF
TERRORISM
Prepared By This Detailed Assessment Report was prepared in the

context of an IMF Anti-Money Laundering and
Legal Department Combating the Financing of Terrorism (AML/CFT)
assessment mission in China during
July 9 to 27, 2018, led by Ian Carrington, IMF and
overseen by the Legal Department, IMF. Further
information on the IMF’s AML/CFT program can be
found at:
[http://www.imf.org/external/np/exr/facts/aml.htm]
CONTENTS
Glossary __________________________________________________________________________________________ 6
EXECUTIVE SUMMARY __________________________________________________________________________ 9
KEY FINDINGS ___________________________________________________________________________________ 9
DETAILED ASSESSMENT REPORT _____________________________________________________________ 19
ML/TF RISKS AND CONTEXT __________________________________________________________________ 20

A. ML/TF Risks and Scoping of Higher-Risk Issues _______________________________________________ 21
NATIONAL AML/CFT POLICIES AND COORDINATION ______________________________________ 36

A. Key Findings __________________________________________________________________________________ 36
B. Recommended Actions________________________________________________________________________ 36
C. Immediate Outcome 1 (Risk, Policy and Coordination) ________________________________________ 37
LEGAL SYSTEM AND OPERATIONAL ISSUES _________________________________________________ 42

A. Key Findings __________________________________________________________________________________ 42
C. Immediate Outcome 6 (Financial Intelligence ML/TF) _________________________________________ 45
D. Immediate Outcome 7 (ML Investigation and Prosecution) ___________________________________ 58
E. Immediate Outcome 8 (Confiscation)__________________________________________________________ 65
TERRORIST FINANCING AND FINANCING OF PROLIFERATION_____________________________ 73

A. Key Findings __________________________________________________________________________________ 73
C. Immediate Outcome 9 (TF Investigation and Prosecution) ____________________________________ 76
D. Immediate Outcome 10 (TF Preventive Measures and Financial Sanctions) ___________________ 83
E. Immediate Outcome 11 (PF Financial Sanctions) ______________________________________________ 89
PREVENTIVE MEASURES ______________________________________________________________________ 92

A. Key Findings __________________________________________________________________________________ 92
C. Immediate Outcome 4 (Preventive Measures) _________________________________________________ 94
2 INTERNATIONAL MONETARY FUND

SUPERVISION _________________________________________________________________________________ 106

A. Key Findings ________________________________________________________________________________ 106
B. Recommended Actions______________________________________________________________________ 107
C. Immediate Outcome 3 (Supervision) ________________________________________________________ 108
LEGAL PERSONS AND ARRANGEMENTS ____________________________________________________ 124

A. Key Findings ________________________________________________________________________________ 124
C. Immediate Outcome 5 (Legal Persons and Arrangements) __________________________________ 126
INTERNATIONAL COOPERATION ____________________________________________________________ 131

A. Key Findings ________________________________________________________________________________ 131
C. Immediate Outcome 2 (International Cooperation) _________________________________________ 132
BOXES
1. Example of Law Enforcement Use of Financial Intelligence for a Predicate and
an ML Investigation ___________________________________________________________________________ 52
2. Use of Financial Intelligence in a Predicate Offense Investigation _____________________________ 53
3. Example of a Successful CFT Case Initiated by the FIU Based on an STR by an FI ______________ 56
4. Examples of a Narcotics and ML Cases Using Article 191 ______________________________________ 63
5. Examples of Corruption and ML Cases Using Article 191 ______________________________________ 63
6. Examples of Illegal Fund Raising and ML Cases (Article 191) __________________________________ 64
7. Case Example of Operation Foxhunt __________________________________________________________ 65
8. France–China Criminal Legal Assistance Agreement ___________________________________________ 70
9. KU—Terrorist Financing Through the Provision of Mobile Phones and Cash __________________ 78
10. YA—Terrorist Financing Through the Operation of an Underground Bank ___________________ 79
11. Extradition of a Suspect Y to Japan_________________________________________________________ 135
12. Special Operation to Combat Cross-Border ML Crimes ____________________________________ 136
13. Case Involving Both the FIU and Law Enforcement Cooperation ___________________________ 139
FIGURES
1. System of Government ________________________________________________________________________ 21
2. TF Case 1 ______________________________________________________________________________________ 78
3. TF Case 2 ______________________________________________________________________________________ 80
4. Process of Reporting of Suspicious Transactions in China ___________________________________ 101
TABLES
1. Overview of the Financial Sector (as of December 31, 2017)___________________________________ 29
2. Statistics of Online Lending Institutions (P2P and Internet Lending Companies) ______________ 32
3. FIU Disseminations ____________________________________________________________________________ 51
INTERNATIONAL MONETARY FUND 3

4. Convictions Entered Pursuant to the Three ML Articles ________________________________________ 60

5. Instrument Confiscations (2013–2017) ________________________________________________________ 68
6. Criminally Derived Property Confiscated (2013–2017) _________________________________________ 68
7. Property Confiscated to Satisfy Equivalent Value (2013–2017) ________________________________ 69
8. Convictions Entered Against Article 395 _______________________________________________________ 69
9. Customs Cross-Border Currency Cases (2013–2017)___________________________________________ 72
10. Number of Cases and Convicted Persons Involved in TF (2012–2016) ________________________ 81
11. Internal CTF Training Provided by the PBC ___________________________________________________ 81
12. Penalties for Crime of Providing Assistance in Terrorist Activities ____________________________ 82
13. Approved Arrests and Prosecutions Initiated against the Financing (Assisting) of
Terrorist Activities ____________________________________________________________________________ 83
14. Rejection of Relationships by Three Commercial Banks When Identifying Use of
False IDs to Open Account (Unit: Persons or Times) __________________________________________ 96
15. Number of STRs Submitted by FIs (2012–2016) (in thousands) _____________________________ 102
16. Key STRs by FIs (2012–2016) _______________________________________________________________ 102
17. Number of Institutions by Category that Reported STRs (2015–2017)______________________ 103
18. Key STRs on TF from 2015 to Mid-2018 ____________________________________________________ 104
19. AML/CFT Training for 24 Institutions Directly Supervised by the PBC ______________________ 105
20. Applications for FIs and DNFBPs, and Senior Management Appointments (2015–2018) ___ 109
21. Number of Applicants in Banking Institutions ______________________________________________ 110
22. Types of PIs Licensed as of the End of 2017 ________________________________________________ 111
23. Number of Institutions with Ratings Categorized by the PBC (2015–2017) _________________ 114
24. Statistics of Various Supervision Measures Conducted at FIs by the PBC in 2015–2017
(Number of Institutions) ____________________________________________________________________ 117
25. Numbers of FIs and Individuals Penalized Financially ______________________________________ 119
26. Weaknesses Identified by PBC in PI Sector _________________________________________________ 122
27. MLA Requests Received by the MOJ of China ______________________________________________ 134
28. MLA Requests Received by Authorities of China ___________________________________________ 134
29. Types of Information Requested by Countries through the MFA ___________________________ 134
30. Foreign Extradition Requests Received _____________________________________________________ 135
31. MLA Requests Sent by the MOJ of China Abroad __________________________________________ 136
32. MLA Requests Sent by the MFA of China Abroad __________________________________________ 137
33. Offenses for Which China Requested Extradition (2012 to the First Half of 2018) __________ 137
34. Requests Sent Abroad by CAMLMAC ______________________________________________________ 138
35. Number of Requests by CAMLMAC to Foreign FIUs by Jurisdiction ________________________ 139
36. Requests Sent by China via Police Cooperation ____________________________________________ 140
37. CSRC Requesting Regulatory Information __________________________________________________ 141
38. Number of Financial Intelligence Requests Received by CAMLMAC________________________ 142
39. Financial Intelligence Provided by CAMLMAC to Other Jurisdictions (Top 10 Countries) ___ 142
40. Requests Received by China via Police Cooperation _______________________________________ 142
41. Requests Received on Tax-Related Information ____________________________________________ 143
42. CSRC Providing Regulatory Information ___________________________________________________ 143

ANNEXES
Technical Compliance Annex __________________________________________________________________ 144
Summary of Technical Compliance—Key Deficiencies _________________________________________ 235

Glossary
AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism
AMLB Anti-Money Laundering Bureau
AMLJMC Anti-Money Laundering Joint Ministerial Conference
BO Beneficial Ownership
CAMLMAC China Anti-Money Laundering Monitoring and Analysis Center
CBIRC China Banking and Insurance Regulatory Commission
CCDI Central Commission for Disciplinary Inspection
CDD Customer Due Diligence
CIRC China Insurance Regulatory Commission
CSP Company Service Provider
CTL Counter Terrorism Law
CSRC China Securities Regulatory Commission
DNFBP Designated Non-Financial Businesses and Professions
DPM Dealers in Precious Metals
DPRK Democratic People’s Republic of Korea
ECID Economic Crime Investigation Department
ETIM Eastern Turkistan Islamic Movement
FI Financial Institution
FIU Financial Intelligence Unit
GAC General Administration of Customs
GDP Gross Domestic Product
LEA Law Enforcement Agency
LVTR Large Value Transaction Report
MCA Ministry of Civil Affairs
MER Mutual Evaluation Report
MFA Ministry of Foreign Affairs

ML Money Laundering
MLA Mutual Legal Assistance
MOF Ministry of Finance
MOJ Ministry of Justice
MOHURD Ministry of Housing and Urban-Rural Development
MOU Memorandum of Understanding
MPS Ministry of Public Security
MOS Ministry of Supervision
MSS Ministry of State Security
NPC National People's Congress
NPO Nonprofit Organization
NRA National Risk Assessment
PBC People’s Bank of China
PEP Politically Exposed Person
PI Payment Institution
PF Proliferation Financing
POC Proceeds of Crime
SAIC State Administration of Industry and Commerce
SAMR State Administration for Market Regulation
SAR Special Administrative Region
SAT State Administration of Taxation
SGE Shanghai Gold Exchange
SPC Supreme People’s Court
SPP Supreme People’s Procuratorate
STR Suspicious Transaction Report
TCA Technical Compliance Annex
TF Terrorist Financing

TFS Targeted Financial Sanctions
UNSC United Nations Security Council
UNSCR United Nations Security Council Resolution

EXECUTIVE SUMMARY
This report provides a summary of the anti-money laundering/combating the financing of terrorism
(AML/CFT) measures in place in the People’s Republic of China (China) 1 as at the date of the onsite
visit (July 9–27, 2018). It analyzes the level of compliance with the Financial Action Task Force (FATF)
40 Recommendations and the level of effectiveness of China’s AML/CFT system and provides
recommendations on how the system could be strengthened.
KEY FINDINGS
1. 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.
2. 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 the development of a holistic view. Therefore, major improvements are
needed.
3. 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 that are skilled in the investigation of complex financial crime and associated predicate crime.
Effective, proportionate, and dissuasive sanctions are available and are applied for ML.
4. China has an institutional framework in place to investigate and prosecute TF activities, in

line with its understanding of TF risks and in line with its strategy to prevent TF and disrupt TF
channels. Since the implementation of a new counterterrorism law in 2015 and related
interpretations, the number of TF prosecutions and convictions has increased.
5. The implementation of TF and proliferation financing (PF) targeted financial sanctions (TFS)
is negatively affected by three fundamental deficiencies, related to (i) scope of coverage of the
requirements and a lack of a prohibition covering all persons and entities; (ii) the types of assets and
funds of designated entities that can in practice be frozen, and the type of transactions that can be
prohibited; and (iii) a lack of implementation without delay for non-domestic designations. That
said, the Counter Terrorism Law (CTL) and relevant PBC Notice are a good starting point for future
1 The following territories were not included as part of this assessment: Hong Kong Special Administrative Region
(Hong Kong, China), Macau Special Administrative Region (Macau China), and Chinese Taipei.

updates to the legal system in line with revised FATF standards, and to improve effective
implementation. While not covered by the FATF standards, authorities have taken measures in
relation to other aspects of United Nations Security Council Resolution (UNSCRs) related to the
Democratic People’s Republic of Korea (DPRK).
6. 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.
7. China’s AML/CFT supervisory system is almost exclusively focused on the financial sector,
as there are no effective preventive or supervisory measures in respect of the designated non-
financial businesses and professionals (DNFBP) sector. The PBC has an inadequate understanding of
risks overall. Although their understanding of risk impacting the financial sector is adequate, its
understanding of institution-specific risk seems to be largely based on the FIs’ own risk assessment
rather than that of the authorities.
8. China handles mutual legal assistance (MLA) and extradition requests in accordance with
the procedures and standards for approval stipulated by domestic laws, bilateral treaties and
multilateral conventions, but due to a complicated decision-making structure for providing MLA or
executing extradition requests, it is often a protracted process. At the same time, China can arrange
an expedited procedure for urgent requests or cases. There is an effective cooperation in some areas
between China and some of its neighbors; however, there is a lack of data that would establish
effective implementation of ML/TF related cooperation.
Risks and General Situation
9. The main proceeds-generating predicate crimes in China are illegal fundraising, fraud,
trafficking in illicit drugs, corruption and bribery, tax crimes, counterfeiting of products, and illegal
gambling.
10. 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 the 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. 2
11. 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, they 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
2 See for example the Soufan Group Foreign Fighters Update Final 2015 (http://www.soufangroup.com/foreign-
fighters), but also see paragraph 230 of this report for other estimates (up to 300 persons).

12. 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, which is particularly noteworthy in the context of a country where corruption is a major
predicate offense and state-owned-enterprises play a dominant role in the economy.
13. 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 that 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. The abuse of legal persons has also
been identified as a method of laundering illicit proceeds. Such abuse is facilitated, in part, by
ineffective arrangements in place for registering and retaining beneficial ownership (BO)
information.
Overall Level of Effectiveness and Technical Compliance
14. China has a good legal framework with respect to the criminalization of ML and TF,
national coordination arrangements, the powers and responsibilities of law enforcement authorities
and arrangements for international cooperation. There is scope for strengthening the legal
framework with respect to a number of preventive measures and the coverage and supervision of
DNFBPs.
15. An incomplete understanding of risk impacts negatively on the effectiveness of several

aspects of China’s AML/CFT arrangements. These include the implementation of preventive
measures by FIs, the supervision of these institutions and the investigation and prosecution of ML.
Weaknesses in institutional arrangements and related practices impact negatively on the
effectiveness with respect to the use of financial intelligence.
16. There are significant weaknesses in both technical compliance and effectiveness with
respect to the transparency of legal persons and legal arrangements and the framework and
practices related to TFS.
Assessment of Risks, Coordination and Policy Setting (Chapter 2—IO.1; R.1, R.2, R.33)
17. Overall, authorities in China demonstrated a strong understanding of the contents of the
NRA which was finalized just prior to the onsite visit. However, given the focus of the NRA and the
activity of LEAs, on predicate offenses and the lack of attention to how the proceeds of crime (POC)
are actually laundered, beyond those directly implicated in the crime, China’s overall understanding
of ML risks, while achieved to a large extent, is hampered by such a focus. The assessment of risks of
legal entities focuses on existing control measures. The TF assessment contained within the NRA is
based mainly on qualitative analysis. The analysis collates information from departments involved in
countering terrorism, primarily Ministry of State Security (MSS), Ministry of Public Security (MPS),
and the PBC, identifying sources and channels of terrorist financing (TF), and identifying the TF
threats faced by China.

18. China has demonstrated strong cooperation and coordination at the political and policy-
setting levels. China’s main mechanism for national coordination and cooperation is the Anti-Money
Laundering Joint Ministerial Conference (AMLJMC) established in 2002 and comprising of
23 government departments. The AMLJMC is responsible for guiding the AML/CFT work throughout
the country, formulating AML/CFT policies and strategies, and coordinating various departments in
conducting AML/CFT activities.
Financial Intelligence, Money Laundering and Confiscation (Chapter 3—IOs 6–8; R.3, R.4,
R.29–32)
19. Provincial and local investigative agencies conduct the majority of ML and predicate
offense investigations in China. China’s FIU arrangement set up within the PBC mirrors this
decentralized approach with the following three largely independently functioning components:
CAMLMAC and AMLB at the central level and AML units within each of the 36 PBC provincial
branches. While the decentralized FIU in China has the potential to produce financial intelligence
that supports the operational needs of competent authorities, the FIU’s ability to properly analyses
and spontaneously share accurate and timely financial intelligence presents limitations. The analysis
and dissemination by the various FIU components prevent the development of a holistic view. Other
factors also limit the FIU’s ability to properly analyses and share financial intelligence that is relevant
for use by law enforcement. First, the suspicious transaction reporting (STR) requirements only
extend to FIs and their level of implementation is insufficient. Second, other sources of information,
such as information on cross-border currency declarations and BO information, are either limited or
nonexistent. Finally, the FIU’s operational independence is potentially undermined.
20. LEAs at central, provincial, and local levels access and use financial intelligence and other
information to identify and trace proceeds, and to support investigations and prosecutions of
predicate offenses, but do so for a limited extent for AML purposes. While LEAs recognize the value
of “following the money,” their focus (when developing evidence and tracing criminal proceeds) is
on supporting investigations and prosecutions of domestic predicate offenses, as opposed to
supporting stand-alone ML and TF investigations more broadly. The use of financial intelligence by
LEAs leads to dismantling criminal networks but does not result in an adequate identification of ML
operations.
21. The MPS and subordinate Public Security Bureaus (PSB) have responsibility for ML
investigations. The Economic Crime Investigation Department (ECID) is the branch of MPS and PSB
who have the lead responsibility for investigating complex financial crime including ML. Within this
department, there are skilled and capable investigators who have adequate investigative tools and
resources to undertake their function.
22. There are three discrete ML offenses in China. Persons who are proven to have knowledge
of the requirement to launder or conceal POC prior to the commission of the predicate crime are
routinely prosecuted as ‘accomplices’ to the predicate offense. Self-laundering is not criminalized.
Accomplices and self-launderers are convicted and sentenced in accordance with the predicate
crime penalty, based on the principle that serious crimes absorb less serious crimes. Authorities

reported that the “knowledge” element, that funds or property were derived from crime, presented
challenges. A review of ML prosecutions identified that these largely relate to family and close
associates of the predicate offenders; on a limited number of occasions, legal persons were
prosecuted. The majority of ML convictions in China have been secured under Art. 312 of the
Criminal Law. This same article criminalizes the behavior of receiving stolen property. China is of the
view that purchasing or acquiring dishonestly obtained property (as opposed to concealment or
disguise) constitutes a ML activity. The inability to separate convictions under Art. 312 or to quantify
convictions associated with these discrete behaviors has challenged the assessment of effectiveness
for IO.7.
23. The pursuit of criminal proceeds is a policy objective for China. Criminal proceeds and
instrumentality forfeiture routinely occur as part of the sentencing process. China has the ability to
confiscate property in the absence of conviction in certain circumstances such as where the criminal
has absconded from China or has died.
Terrorist Financing and Financing Proliferation (Chapter 4—IOs 9-11; R.5-8)
24. Authorities have taken some legal measures that enable the domestic designation of
possible terrorists; however, these have not been used since 2012. As with these domestic freezing
measures, measures by PBC to require the freezing of UN-designated entities focus mainly on the
financial sector and are not effectively implemented. In general, the implementation of TF and PF
TFS is negatively affected by three fundamental deficiencies, related to (i) scope of coverage of the
requirements and a lack of a prohibition covering all persons and entities; (ii) the types of assets and
funds of designated entities that can in practice be frozen, and the type of transactions that can be
prohibited; and (iii) a lack of implementation without delay for non-domestic designations.
25. Authorities have expressed a high-level political commitment to establish a comprehensive

legal framework for the implementation of TFS related to PF which is a positive step. While not
covered by the FATF standards, authorities have taken measures in relation to other aspects of
UNSCRs related to DPRK. On the other hand, authorities provided insufficient information to
establish a degree of implementation of any of the TFS related to Iran.
Preventive Measures (Chapter 5—IO.4; R.9–23)
26. FIs have a satisfactory understanding of their AML/CFT obligations. They generally have an
insufficient understanding of ML/TF risks and apply mitigation measures that are not commensurate
with these risks. Online lending institutions have not developed an understanding of ML/TF risks or
AML/CFT obligations.
27. FIs apply customer due diligence (CDD) measures ineffectively, with notable weaknesses in
customer identification and verification measures including for BO and ongoing due diligence.
Considering prevailing risks, FIs do not effectively apply measures for PEPs, TFS, and measures
related to countries with high risk. FIs are relatively more successful in implementing measures

related to record-keeping, correspondent banking relationships, new technologies, and wire

transfers.
28. Inconsistent practices of reporting suspicious transactions by FIs raise the risk of tipping-
off. Types of proceeds reported in STRs seem inconsistent with the risk environment and are
concentrated in the banking sector. The number of STRs reported appears to be modest,
considering the size of the financial sector in China. Internal controls of financial groups are often
inappropriate for mitigating risks, especially when regulations of host countries prevent access to
information.
29. Overall, banks implement preventive measures better than the other FIs, with limited to no
implementation of these measures by online lending institutions. DNFBPs generally do not apply
such measures. The reporting of suspicious transactions by DNFBPs is virtually nonexistent.
Supervision (Chapter 6—IO.3; R.26–28, R.34–35)
30. There are some shortcomings in the fit and proper framework in most of the regulated FI
subsectors (see TC analysis), notably the period of scrutiny for criminal records does not have to go
beyond three years. Entry requirements in the online lending sector are basic. A relatively small
number of appointments of individuals are revoked each year, which, given the size of the financial
sector and corruption as a major threat, seems quite low. In the DNFBP sector, the real estate, DPS,
and company service provider (CSP) sectors are not subject to entry or ongoing criminal
background checks.
31. The PBC demonstrates a moderate level of understanding of risk in the financial sector. Its
processes are highly dependent on the correct implementation of the prescribed risk assessment
methodology by FIs and their ability to understand ML/TF risk (FIs are assessed in Chapter 5 as
having a low level of understanding of risk). The quality of control measures is verified using about
20 criteria. Internal control information of uneven content and quality is also received from the
sector FI regulators on their own observations on the effectiveness of internal controls applied to
ML/TF risks. The online lending sector is not subject to this process. The PBC’s level of
understanding of risk in the DNFBP sector is low, as little work has been done in this sector.
32. The AML/CFT supervisory system in China is heavily oriented to the financial sector. The
PBC’s overall ability to require remedial measures to control systems seems generally consistent with
the overall risk profile of the financial sector, with an emphasis on banking which presents the
highest levels of risk. The level of inspections in the banking sector is not commensurate with the
level of risk. Sector supervisors are generally supportive but do not play a major role. There are
inconsistencies in the approach used by sector supervisors. Low or no levels of supervision apply in
the DNFBP sectors, with sector supervisors or SROs not playing an effective role in supervision.
33. AML/CFT financial penalties applied by the 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 given the size of the banks and other FIs in the financial sector, and the lack of initial

responses to remedial measures. No AML/CFT remedial actions or sanctions have been applied to
any online lending institutions or to DNFBPs.
34. The PBC has had a moderate impact on FIs compliance and risk management processes.
The sector supervisors play a supportive role, but their impact is lower as they are mostly limited to
the assessment of risk controls. There is no discernible impact on the online lending sector as
specific AML/CFT requirements are not applicable. In the DNFBP sectors, the PBC and sector
regulators have had a low to nonexistent impact up to the time of the onsite. The overall impact of
the PBC and sector supervisors’ activities on the sectors’ understanding of risk and obligations is
moderate in the financial sector and low in the DNFBP sector.
Transparency of Legal Persons and Arrangements (Chapter 7—IO.5; R.24–25)
35. Basic or legal information is collected and publicly available on the internet for all types of
legal entities, although the information is not always accurate, and it seems relatively easy to
circumvent the registration rules (for example through straw persons). BO information of legal
entities (domestic or foreign) is not (publicly) available in China. Authorities make use of available
basic information, CDD information collected by FIs, and law enforcement powers. Each of these
sources poses shortcomings and significant challenges, and the combination of measures at the
current stage falls short of an effective system for obtaining accurate, adequate and current BO
information in a timely manner. That said, authorities have already initiated plans and measures that
may improve effectiveness in the future, including through a BO register at PBC.
36. There is no granular understanding of the ML/TF risks of each type of legal person, and the
risk classification that has been produced for the purposes of the NRA focuses on control measures
related to technical compliance. The Trust Law provides for the existence of domestic civil trusts. No
measures have been taken to mitigate the misuse of domestic trusts, although the current risks of
civil trusts are low due to a lack of regulation that would foster the use of these arrangements.
Foreign legal arrangements (e.g., foreign trusts) operate in China, such as the legal or beneficial
owner of a Chinese legal company. Authorities have been able to detect foreign trusts that operate
in China.
International Cooperation (Chapter 8—IO.2; R.36–40)
37. China has a legal and procedural framework for providing and seeking MLA, which it uses
in practice (including for extradition). The complicated procedure of ensuring a request is consistent
with Chinese legislation, results in a very lengthy process, although this can be expedited in urgent
cases. Feedback from other jurisdictions on China’s international cooperation was mixed.
38. Judicial and law enforcement authorities seek international cooperation and legal
assistance in a wide range of cases, mostly related to predicate offenses, but very seldom to ML or
TF. They use different channels in the efforts to return funds to the country. While China requests
detention of terrorists and freezing/confiscation of terrorist financiers’ assets overseas, there is room
for enhancing MLA and other international cooperation tools.

CAMLMAC exchanges information with foreign FIUs. In doing this, it sends requests abroad to a
much lesser extent than it receives from foreign FIUs, which is not commensurate with the volumes
of STRs analyzed and work undertaken on domestic LEAs inquiries. Supervisory authorities
cooperate in a wide range of information exchange and other forms of cooperation with foreign
counterparts.
Priority Actions
The prioritized recommended actions for China, based on these findings, are:
• China should expand the information sources relied upon to formulate its NRA to include
broader perspectives of the ML/TF threats, vulnerabilities, and risks it faces, such as academic
and international organizations’ publications on the subject as well as feedback from foreign
jurisdictions. This will allow a more balanced understanding of the ML and TF risks faced by
China beyond those directly linked to proceeds generating predicate offenses.
• China should review the functioning of its FIU to ensure that all information received, analyzed,
and disseminated by all three FIU components is readily available and accessible both at the
central and provincial levels. This review should include the creation of a database to unify and
centralize all components of the current (stand-alone) databases at central and provincial levels.
In addition, to ensure the operational independence of the FIU, China should remove the
signature of the president of the PBC provincial branch as a condition for dissemination of
information to competent authorities.
• Reconsideration of the policy, which focuses on pursuit of those involved in predicate crime to
combat ML, to include a broader focus to “follow the money” beyond those who are active
participants in the predicate crime.
• Authorities should create comprehensive legal frameworks for the implementation of TF- and
PF-related TFS that includes a general prohibition, extends to all assets of designated entities,
and is implemented without delay, with regard to designations by the UN Security Council
(UNSC). In the interim, the PBC should update its existing Notice to address delays in freezing.
The exiting legal framework for TF and the contemplated law on PF could be instrumental in this
regard.
• Shortcomings in the AML/CFT legal framework related to the coverage of online lending
institutions, DNFBPs, domestic PEPs, TFS, and the criteria for reporting suspicious transactions
should be addressed. Corresponding guidance should be provided as needed.
• China’s attention should focus on (i) the robustness and usefulness of risk assessments of FIs, to
ensure that these reflect actual threats and corresponding vulnerabilities exposing these
institutions to risk; (ii) the effectiveness of ongoing due diligence, notably the monitoring of
transactions; and (iii) the consolidated supervision of financial groups, to ensure a robust
management of ML/TF risks by these groups.

• The PBC should introduce an effective system of assessing individual entities' risks and
supervising and monitoring DNFBPs (apart from trust companies and dealers in precious metals
(DPMs)) for compliance with AML/CFT obligations. In doing so, China should review the strategy
and necessity of collaborating with sector supervisors in the DNFBP sectors, given their low level
of knowledge about ML/TF risks.
• Authorities should ensure that competent authorities can obtain adequate, accurate and current
basic and BO information (beyond legal owner information), in a timely manner. This will require
measures that ensure that such information is accurately registered or kept somewhere that is
accessible.
• China should pay more attention to the exchange of information in ML/TF cases and increase
the number of spontaneous requests sent to foreign counterparts, as a result of its strategic and
operational analysis and should, in general, reduce the time taken to respond to foreign
requests.
Effectiveness and Technical Compliance Ratings
Effectiveness Ratings (High, Substantial, Moderate, Low)
IO.1 IO.2 IO.3 IO.4 IO.5 IO.6

Risk, policy International Supervision Preventive Legal persons Financial
and cooperation measures and intelligence
coordination arrangements
Substantial Moderate Moderate Low Low Moderate
IO.7 IO.8 IO.9 IO.10 IO.11

ML Confiscation TF TF preventive PF financial
investigation investigation measures and sanctions
and and financial
prosecution prosecution sanctions
Moderate Substantial Substantial Low Low

Technical Compliance Ratings (C—compliant, LC—largely compliant, PC—partially compliant, NC—

noncompliant)
R.1 – Assessing R.2 – National R.3 – Money R.4 – R.5 – Terrorist R.6 – Targeted
risk and Cooperation Laundering Confiscation Financing Financial
Applying Risk- and Offense and Provisional Offense Sanctions—
Based Coordination Measures Terrorism and
Approach Terrorist
Financing
LC C PC C LC PC
R.7 – Targeted R.8 – Nonprofit R.9 – Financial R.10 – R.11 – Record- R.12 –
Financial Organizations Institution Customer Due Keeping Politically
Sanctions— Secrecy Laws Diligence Exposed
Proliferation Persons
NC PC C LC C PC
R.13 – R.14 – Money R.15 – New R.16 – Wire R.17 – Reliance R.18 – Internal
Correspondent or Value Technologies Transfers on Third Controls and
Banking Transfer Parties Foreign
Services Branches and
Subsidiaries
LC LC PC PC LC PC
Technical Compliance Ratings (C—compliant, LC—largely compliant, PC—partially compliant, NC—

noncompliant)
R.19 – Higher- R.20 – R.21 – Tipping- R.22 – DNFBPs: R.23 – DNFBPs: R.24 –
Risk countries Reporting of off and Customer Due Other Measures Transparency
Suspicious Confidentiality Diligence and BO of Legal
Transactions Persons
C LC LC NC NC NC
R.25 - R.26 – R.27 – Powers R.28 – R.29 – Financial R.30 –

Transparency Regulation and of Supervision Regulation and Intelligence Responsibilities
and BO of Legal Supervision of Supervision of Units of Law
Arrangements Financial DNFBPs Enforcement
Institutions and
Investigative
Authorities
NC PC LC NC PC C

R.31 – Powers R.32 – Cash R.33 – Statistics R.34 – R.35 – R.36 –

of Law Couriers Guidance and Sanctions International
Enforcement Feedback Instruments
and
Investigative
Authorities
C LC LC PC PC LC
R.37 – Mutual R.38 – Mutual R.39 – R.40 – Other

Legal Assistance Legal Extradition Forms of
Assistance: International
Freezing and Cooperation
Confiscation
LC PC LC LC
DETAILED ASSESSMENT REPORT

Preface
This 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.
This 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.
The evaluation was conducted by an assessment team consisting of:
• 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)
The report was reviewed by Mr. Richard Walker (Guernsey), Ms. Paola Arena (Italy),
Ms. Shereen Billings (United Kingdom), and Ms. Anne Wallwork (United States).
China previously underwent a FATF Mutual Evaluation in 2007, conducted according to the 2004
FATF Methodology. The mutual evaluation concluded that China was compliant with
8 Recommendations; largely compliant with 11; partially compliant with 13; and 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 Mutual Evaluation Report
(MER). In light of the progress made, China was placed under regular follow-up in October 2008 and
was removed from this status in 2012. The 2007 MER and follow-up reports are publicly available at
http://www.fatf-gafi.org/countries/#China.
ML/TF RISKS AND CONTEXT

39. The People's Republic of China (China) was established in 1949. The country covers an area
of approximately 9.6 million square kilometers and comprises 34 provinces, autonomous regions,
and municipalities and special administrative regions (SARs). Beijing is China's capital city, and other
major cities by population size include Shanghai, Tianjin, Shenzhen, Chengdu, and Guangzhou.
China shares land borders, which stretch for 22,800 kilometers, with 14 countries. At the end of
2017, China had a population of approximately 1.37 billion.
40. China continues to make progress with its policy of gradual economic opening-up which
started in 1978. China implements a socialist market economy. While the state controls much of the
economy, private enterprise continues to play an ever-increasing role.
41. The National People's Congress (NPC) is the legislative branch and the highest agency of
state power. It elects all supervisory, executive, judicial, and prosecutorial arms of state and has
authority over local people's congresses across the country. The NPC has the power to enact and
amend the Constitution and laws. The State Council is the leading body of the executive branch and
reports to the NPC. It is led by the premier and has authority over all other executive state agencies.
It has the authority to develop administrative legislation and regulations in accordance with the
provisions of the Constitution. Departmental regulations can be issued by ministries and
commissions of the State Council, the PBC, the National Audit Office, and institutions under the
State Council which perform administrative functions.
42. The supervisory branch is accountable to the People's Congress and independently
exercises supervisory power in accordance with the Constitution.

43. The judicial branch is comprised of the People's Courts and the People's Procuratorates,
which exercise their powers independently from each other in accordance with the Constitution and
are both subject to the supervision of the People's Congress.
44. The Constitution of China is the highest law in the country. Other laws in hierarchical order
are laws, administrative regulations, local regulations, and rules. National and local administrative
regulations are administered by the ministries under the State Council and local executive agencies
respectively.
Figure 1. System of Government
A. ML/TF Risks and Scoping of Higher-Risk Issues
Overview of ML/TF Risks
ML/TF Threats
45. The highest ML threat in China stems from illegal fundraising, fraud, drug-trafficking,
corruption and bribery, tax crimes, counterfeiting of products, illegal gambling and
telecommunications and internet fraud. Illicit drugs in China are sourced from outside the country
and are also produced domestically. The NRA indicates that the southeast region is both the transit
point for drugs originating outside of China and the area where most domestic production takes
place.

46. A large amount of illicit proceeds flows out of China annually. As was noted in other
MERs, 3 significant amounts of illicit proceeds flow from mainland China into Macau, China and Hong
Kong, China, from where the funds are often forwarded to other jurisdictions. 4 The NRA indicates
that illicit proceeds flow out of the country through underground banking operations and that
between 2014 and 2016, illicit proceeds totaling RMB 8.64 billion were repatriated to China from
over 90 countries. China indicates that the proceeds recovered during this two-year period, are
estimated to have flown out of China over a period of 20 years. The NRA highlights that there are
several instances in which criminals have fled the country, including suspects in corruption cases.
The abuse of legal persons has also been identified, in the NRA as a method of laundering illicit
proceeds.
47. China faces a serious threat from terrorism. From 2011 to 2016, China registered
75 terrorist incidents that killed 545 people. 5 The main conflict area and focus for the authorities is
the northwest province of Xinjiang, from where the ETIM operates, but attacks occur throughout
China. Around 60 people each year from China have participated as foreign terrorist fighters in Syria
and Iraq. 6
ML/TF Vulnerabilities
48. With total assets of approximately RMB 252 trillion, banks dominate financial sector activity
in China. Based on the nature of their products/services and volume of activity, they 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. The China Banking and
Insurance Regulatory Commission (CBIRC) has issued regulations which require these online lending
entities to adopt AML/CFT preventive measures and LEAs are currently undertaking comprehensive
actions to clean up the sector. However, the sector is not subject to ongoing AML/CFT supervision
by the PBC. The NRA highlights that at the end of 2016, transaction volumes of RMB 2 trillion and
loans outstanding of RMB 816.2 billion in this sector had grown by 110 percent and 101 percent
respectively, over the previous year. It also indicates that nonbank payment sector has experienced
rapid growth with transaction volumes escalating from RMB 17.6 trillion to approximately
RMB 100 trillion from 2013 to 2016. While mobile payments must be linked to a commercial bank
account and, as of end-June 2018, channeled through a central clearing house, the non-face-to-face
feature of mobile payments, as well as the use of bearer pre-paid cards represents a notable level of
ML/TF vulnerability. Private sector entities have reportedly also been engaged in business with
3 See for example: MERs of Australia, Canada, and Singapore.

4 See for example: https://qz.com/186757/wealthy-chinese-are-smuggling-their-riches-out-of-the-country-with-a-
state-backed-bank-card/; https://www.ft.com/content/6aa1faca-bd2e-11e6-8b45-b8b81dd5d080;
http://www.ibtimes.com/chinas-money-laundering-wealthy-chinese-smuggling-cash-out-using-art-1557155;
https://nypost.com/2014/07/26/why-10b-of-chinas-money-is-laundered-every-month/.
5 See for example the Soufan Group Foreign Fighters Update Final 2015 (http://www.soufangroup.com/foreign-
fighters), but also see paragraph 230 of this report for other estimates (up to 300 persons).
6 Ibid.

entities from higher risk areas, such as those countries targeted as high risk by FATF or those
countries with entities that are subject to UN-based TFS.
49. China does not have effective arrangements in place for registering and retaining BO
information. The lack of coverage of DNFBPs by the AML/CFT framework is a significant
vulnerability, especially considering the sustained growth in the real estate and precious metals
sector and opportunities for legal professionals to exploit weaknesses that can facilitate the abuse of
legal persons. The absence of coverage of domestic PEPs is another significant vulnerability, which is
particularly noteworthy in the context of a country where corruption is a major predicate offense
and state-owned enterprises play a dominant role in the economy.
Underground Banking
50. China has a large underground financial sector with broad international connections. It
consists of unlicensed operatives who provide financial services including, payments, settlements,
remittances and currency exchange. The NRA indicates that this sector, which is considered to
facilitate the movement of significant amount of illicit proceeds, provides a wide range of services,
including remittances, overseas cash withdrawals with bank cards, foreign exchange, and point-of-
service (POS) machine cash. Although competent authorities believe that underground banks do not
have a direct link to the formal financial system, they recognize that underground banks may
illegally utilize the settlement network of financial institutions (FIs) to conduct activities. The
competent authorities consider that the trend for using underground banking in TF is on the rise
and both LEAs and financial sector supervisors are concerned about this development.
51. The NRA indicates that in 2015, LEAs cracked down at least 170 major cases and in 2016,
national public security agencies also resolved 380 major cases of underground banking, arrested
800 suspects, and closed 500 locations where the activity took place. It also indicated that in 2017, a
total number of 468 major underground banks and ML cases have been resolved with 892 criminal
suspects arrested and 1,100 operating centers destroyed. Notwithstanding these initiatives, the
authorities still consider underground banking to be a thriving activity.
Fintech Products
52. China has witnessed a rapid growth in the use of Fintech products, particularly in the
nonbank payment sector (see section on Financial Sector and DNFBPs). According to the NRA, there
were approximately 164 billion internet payment transactions conducted in this sector in 2016,
representing an almost 100 percent increase from the previous year. Many institutions that operate
in this sector are increasingly offering products that facilitate cross-border transactions. The
authorities' concerns about the ML/TF vulnerability of these products relate to the ease with which
accounts can be opened and the non-face-to-face nature of the delivery channel. While limits are
set for individual transactions, the authorities are concerned that criminals could use multiple
accounts for ML/TF purposes.

53. Since 2017, the PBC has started to work with sector regulators and other government
agencies to develop measures to address risk associated with the 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.7
Country’s Risk Assessment and Scoping of Higher Risk Issues
Country’s Risk Assessment
54. China completed its first NRA in 2017. It draws primarily upon an analysis of 680,000
published court judgements from 2013 to 2015 to inform itself of threats to the country's economy
and social order. The NRA also analyses inherent risks and the mitigating controls in place related to
financial sector products and the activities of some DNFBPs. The NRA analyses the various proceeds-
generating crimes in China both on a national and regional basis. It 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.
55. The NRA identifies the ETIM as the main TF threat to China with limited threats posed by
local “violent terrorist gangs.” The NRA analysis is based on quantitative data and qualitative data
(including cases), and information obtained through interviews with counter terrorism departments.
Scoping of Higher-Risk Issues
56. Assessors focused on how cases involving proceeds from the main predicate offenses are
investigated and prosecuted and proceeds are confiscated. They assessed the use of financial
intelligence with respect to both ML and TF cases.
57. Considering their dominance of financial sector activity and the nature of their products
and services, the team assessed banks' understanding of ML/TF risk, the risk management systems
in place, and the challenges, if any, that the strong presence of state-owned banks present for
effective supervision.
58. Considering the significance of cross-border transfers and the volume of criminal proceeds
that flow from China to several international destinations, attention was paid to the activity of the
nonbank money or value transfer services sector. Due to the rapid growth of their activities,
assessors paid attention to the online lending and payment sectors. The assessors' attention also
focused on the supervision of the above categories of FIs, as well as the fast-growing Fintech sector.
59. Due to the deficiencies in the transparency of BO of and the documented abuse of legal
persons, assessors focused on China's ability to trace funds and ownership information through
7 IMF People’s Republic of China Staff Report for 2018 Article IV Consultation, pp. 78–80.

corporate structures and, in general, the effectiveness of arrangements in place to prevent abuse of
these structures.
60. Considering the substantial volume of illicit proceeds flowing out of China and the
incidence of suspects fleeing the country, assessors examined the measures in place with respect to
international cooperation generally, as well as the effectiveness of border protection and customs
agencies.
61. The team assessed law enforcement's and prosecution's understanding of the TF risk and
TF investigations and prosecutions, including the use of financial intelligence, both domestically and
in cooperation with foreign counterparts. Assessors also focused on the private sector's and
supervisors’ understanding of the obligations related to TFS.
Areas of Lesser Risk and Attention
62. Group financing companies and asset management companies whose activities are
focused primarily on managing portfolios of nonperforming loans of domestic FIs have a lower level
of ML/TF risk as they are limited with respect to the volume of their transactions and interaction with
third parties. The assessment team devoted lesser attention to these areas.
Materiality
63. China's gross domestic product (GDP) grew by 6.8 percent in 2017 with nominal GDP
reaching RMB 82.1 trillion. The average annual GDP growth rate over the 5-year period from 2013 to
2017 was 7.1 percent, and the unemployed rate has averaged 5.1 percent over the period. China is
transitioning from high-speed to high-quality growth, and the authorities have set a GDP growth
target of 6.5 percent for 2018. 8 Domestic credit to the private sector, which averaged 15 percent
over the 5-year period, fell to 12.8 percent in 2017. 9
64. China has a large and complex financial sector. 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. Banks dominated financial sector
activity with total assets of RMB 252 trillion at the end of 2017. China's banking sector has witnessed
rapid growth over several years. This trend has moderated over the past year and growth in banking
sector assets of 8 percent in 2017 was half the rate of growth for the previous year, and banking
sector assets fell as a percentage of GDP for the first time since 2011. 10 Assets of insurance and
capital market institutions totaled RMB 16 and 13 trillion respectively.
8 IMF, China Article IV Report, p. 59.

9 IMF, China Selected Indicators, China Article IV Report 2018, p. 3.
10 IMF, China Article IV Report, p. 8.

Structural Elements
65. China has a stable political system and well-developed institutional infrastructure. The
AMLJMC, comprised of 23 different government departments, has been meeting regularly since
2002 to direct and coordinate the implementation of the AML/CFT framework, with the State
Council approving the outcomes of its work.
Background and Other Contextual Factors
66. There are strong and mature institutions across the public sector and mechanisms are in
place for the national coordination of AML/CFT initiatives. Regulatory objectives and strategies are
transmitted through a multiplicity of secondary legal instruments with a degree of duplication in
several instances, which has the potential to negatively impact the system’s effectiveness. The
country’s vast size requires a fragmentation of the institutional arrangements which presents
coordination challenges, some of which were observed by the assessment team.
67. Corruption is considered to be a significant predicate offense, and the authorities have
prioritized anti-corruption initiatives. There is, however, no strong indication in terms of the
operation of government agencies, that corruption has negatively impacted the overall effectiveness
of the AML/CFT system.
AML/CFT Strategy
68. China’s national AML/CFT strategy is 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. The strategy emphasizes the role of the AMLJMC as the national coordination
body and the PBC as the leading AML/CFT authority. Its objectives include strengthening the legal
and regulatory framework, the capacity of AML/CFT institutions and cooperation among the
agencies. The strategy also seeks to strengthen international cooperation.
Legal and Institutional Framework
Policy Coordination Bodies
69. The AMLJMC is the highest AML/CFT coordination body in China. It is led by the Governor
of the PBC, and its membership includes the main AML/CFT government agencies.
70. 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.
71. 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 (see IO.6 for more details). The report
refers to the three components together as China’s FIU arrangement.

72. CAMLMAC is the central component of China’s FIU. It 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. It undertakes analysis, makes disseminations to central LEAs or
forwards information to the AMLB or provincial branches for administrative investigations.
73. The AMLB is responsible for supervision, administrative investigations, policy oversight, and
the overall coordination of the PBC’s AML/CFT work.
74. The 36 PBC branches are the primary recipients of key STRs and conduct administrative
investigations at their own initiative or after referral from CAMLMAC. They disseminate information
to local LEAs.
75. The Supreme People’s Court (SPC) supervises and directs all AML/CFT trials. It works closely
with the Supreme People’s Procuratorate (SPP) and is directly accountable to the NPC. The SPC is
responsible for developing judicial interpretations on issues relating to all laws related to ML/TF
convictions.
76. The SPP supervises and directs arrests and prosecutions with respect to all cases related to
ML and TF. It is also responsible for developing judicial interpretations on issues relating to all laws
related to ML/TF prosecutions. The SPP works closely with the SPC and is accountable to the NPC.
77. The National Supervisory Commission (NSC) is the highest anti-corruption agency and is in
charge of investigating irregularities related to state administrative agencies, judicial agencies,
procuratorial agencies, civil servants, and other officers appointed by such agencies. It absorbed the
former MOS.
78. The MPS has principal responsibility for law enforcement in China. It directs and
coordinates LEAs across the country with respect to the investigation of ML and TF.
79. The MSS is responsible for investigating crimes that threaten state security including ML
and TF. It collects and processes ML/TF intelligence and shares such information with other
investigative bodies.
80. The General Administration of Customs (GAC) monitors and regulates China’s ports of
entry and monitors all imports and exports. Its monitoring functions include oversight of cross-
border movement of currency and precious metals.
81. The State Administration of Taxation (SAT) focuses on the collection of taxes. It is an
administrative body, but it may support the prevention of tax offenses including tax evasion and tax
fraud through the sharing of relevant information with the MPS.
82. The Ministry of Civil Affairs (MCA) is responsible for the registration and supervision of
social organizations (nonprofit organizations (NPOs)).

83. The State Administration for Market Regulation (SAMR), previously the State
Administration of Industry and Commerce (SAIC), has a company registry function. It cooperates
with the PBC, the MPS, the MSS, the GAC, and tax authorities.
84. The CBIRC is a new entity that has the combined responsibility of the former China Banking
Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC). It is the
prudential regulator for bank and insurance entities and supports the PBC on AML/CFT supervision.
85. The China Securities Regulatory Commission (CSRC) is the prudential regulator for
securities institutions and supports the PBC on AML/CFT supervision.
86. The State Administration for Foreign Exchange (SAFE) is administratively part of the PBC
and is in charge of supervising foreign exchange transactions.
87. The Ministry of Justice (MOJ) coordinates MLA pursuant to relevant treaties and
conventions. It is also responsible for licensing and supervising lawyers and notaries.
88. The Ministry of Finance (MOF) is responsible for licensing and supervising accounting firms,
and certified public accountants. It is also responsible for allocating budget to competent
authorities, including to the PBC and its branches.
89. The Ministry of Foreign Affairs (MFA) develops policies on international cooperation and
facilitates China’s cooperation with other governments and leads on the implementation of UNSCRs.
It facilitates China’s accession to international and regional AML/CFT organizations.
90. The Ministry of Housing and Urban-Rural Development (MOHURD) is responsible for the
supervision of the real estate sector.
91. The Shanghai Gold Exchange (SGE) is a nonprofit self-regulatory body established by the
PBC. It supervises large-scale gold trading conducted by its members who consist of persons
authorized to trade in gold in China. The members include major gold producers, processors, and
retailers, but does not cover the downstream network of 11,500 institutional customers.
Financial Sector and DNFBPs
Financial Institutions
92. Banks dominate financial sector activity in China. As of December 31, 2017, 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.
93. The activity of foreign branches and majority-owned subsidiaries is significant when
compared to China’s financial sector. Most foreign branches and majority-owned subsidiaries are
owned by the top five banks. As of the end of 2017, these 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.
94. There are licensed capital market entities in China with assets totaling RMB 13.5 trillion.
Securities and funds management firms dominate the sector’s activity. Assets held by insurance
entities totaled RMB 16.8 trillion.
Table 1. Overview of the Financial Sector (as of December 31, 2017)

Undertakes the
Number Assets Following Activities
Type of Sector
of Billions AML/CFT Supervisor Defined as Financial
Institution Supervisor
Entities RMB Activities in the FATF
Glossary
Commercial Banks
Large Commercial PBC in collaboration with 1, 2, 4, 5, 6, 7(a, b, c), 8, 10,
5 92,815 CBIRC
Bank CBIRC 13
Joint-Stock PBC in collaboration with 1, 2, 4, 5, 6, 7(a, b, c), 8, 10,
12 44,962 CBIRC
Commercial Bank CBIRC 13
1, 2, 4, 5(debit card,
Urban Commercial PBC in collaboration with cheques, bills, certification
134 31,722 CBIRC
Bank CBIRC of deposit), 6(some banks
have), 7(a, b), 8, 12, 13
Rural 1/ Small and Medium FIs and Other Deposit-Taking Institutions
1, 2, 4 (domestic transfer),
Rural Commercial PBC in collaboration with 5 (debit card), 7(a,
1,262 23,703 CBIRC
Bank CBIRC cheques, bills, certificates
of deposit)
Rural Cooperative PBC in collaboration with 5 (debit card), 7(a,
33 363 CBIRC
Bank CBIRC cheques, bills, certificates
of deposit)
Rural Credit PBC in collaboration with 1, 2, 4 (domestic transfer),
965 7,353 CBIRC
Cooperatives CBIRC 5 (debit card),
PBC in collaboration with 1, 2, 4 (domestic transfer),
Rural Bank 1,562 1,396 CBIRC
CBIRC 5 (debit card)
PBC in collaboration with
Policy bank 2 CBIRC 1, 2, 4, 6, 10, 12, 13
CBIRC
25,531
Development type PBC in collaboration with
1 CBIRC 1, 2, 4, 6, 10, 12, 13
FIs CBIRC
Private Banks 17 338 CBIRC 5 (debit card), 7(a,
CBIRC
certificates of deposit)

Table 1. Overview of the Financial Sector (as of December 31, 2017) (continued)
1, 2, 4, 5 (need to be
Foreign-funded PBC in collaboration with
39 3,244 CBIRC authorized), 6, 7(a, b, c),
legal person bank CBIRC
12, 13
PBC in collaboration with 1, 2, 4, 5, 6, 7(a, b, c), 8, 10,
Postal Saving Bank 1 9,001 CBIRC
CBIRC 13
Housing Saving PBC in collaboration with
1 — CBIRC
Bank CBIRC
Total Banks, Rural
FIs and Deposit- 4,034 252,404
taking Institutions
Other Nonbank FIs
Loan Company 13 2 CBIRC 2
CBIRC
Rural Mutual
48 4 CBIRC None
Cooperatives
Financial Asset
Management 4 — CBIRC
CBIRC
Company
Trust Company 68 658 CBIRC 9
CBIRC
Financial Leasing PBC in collaboration with
69 250 CBIRC 3
Company CBIRC
Finance Company PBC in collaboration with
247 5,539 CBIRC 2
of Enterprise Group CBIRC
Automotive
Finance 25 745 CBIRC 2
CBIRC
Corporation
Consumer Finance PBC in collaboration with
22 282 CBIRC 2
Corporation CBIRC
Money Brokerage PBC in collaboration with
5 1.5 CBIRC 13
Corporation CBIRC
Others 14 — CBIRC None
CBIRC
Total Nonbank FIs 515 11,976 CBIRC
CBIRC
Insurance Companies
Group Holding PBC in collaboration with
11 664 CBIRC None
Company CBIRC
Property Insurance PBC in collaboration with
83 2,500 CBIRC None
Company CBIRC
Life Insurance PBC in collaboration with
92 13,214 CBIRC 12
Company CBIRC
Reinsurance PBC in collaboration with
11 315 CBIRC None
Company CBIRC

Table 1. Overview of the Financial Sector (as of December 31, 2017) (concluded)
Insurance Asset
Management 24 49 CBIRC 9 (portfolio management)
CBIRC
Company
Others 4 7.04 CBIRC None
CBIRC
Total Insurance
227 16,749
Companies
Capital Market Firms
Securities Firms 131 1,850 CSRC 7(d), 8, 9, 11
CSRC
Futures Firm 149 1,054 CSRC 7(e)
CSRC
Fund Management PBC in collaboration with
109 11,600 CSRC 9, 11
Firms CSRC
Total Securities
393 13,451
Firms
Payment Institutions
See
volume
of
Online payment 115 transacti PBC PBC 4 (domestic transfers)
ons in
the table
below
Bank card receipt
61 PBC PBC None
business
Prepaid card
Not 5 (issuing and managing
issuance and 158 PBC PBC
available prepaid card)
acceptance
Total payment
247
institutions (PIs)
Online Lending
Institutions
See loan
Local 2 (Provide information
balances
financial PBC in collaboration with and technical support for
P2P 2,625 in the
regulatory CBIRC loans between individuals
table
department and individuals)
below
Online lending
2
company
1/ Can only be operated within one county. Total assets account for 13 percent of the total for the banking sector.

95. Online lending is one of the seven categories11 of China’s internet finance sector. It refers
to direct lending between individuals through internet platforms (also referred to as "P2P online
lending"). These platforms provide intermediary services, including information exchange, matching,
and credit rating assessment, for investors and financiers, as well as credit loans directly from
microlending companies to users. Most P2P credit loans are processed through internet platforms,
while P2P collateral loans require offline review. Currently, 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. However, 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.
96. There was a decrease in the number of online lending platforms in 2016, with 2,448
platforms operating by the end of the year. Guangzhou, Beijing, and Shanghai ranked top three in
terms of the highest amount of online lending platform distribution, which amounted to
51.7 percent of the national total, while the loan balance from these three regions amounted to
78.9 percent of the national total.
Table 2. Statistics of Online Lending Institutions (P2P and Internet Lending Companies)
Period The third quarter of The third quarter of The third quarter of
Items 2016 2017 2018
Number of platforms 3,216 2,805 2,057
Loan balance of platforms (billion
690.9 1,224.7 871.6
and RMB)
97. 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.
DNFBPs
98. The following DNFBPs operate in China but have not be designated under the AML Law:
• Real Estate Agents: At the end of 2017, there were approximately 130,000 real estate
agencies in China, employing over one million agents. The sector is estimated to generate
income in excess of RMB 15 billion annually.
• Dealers in Precious Metals include SGE’s 253 members and its network of institutional
customers. No data have been provided on the number of persons who trade with SGE
members or the number of unorganized/unregulated DPMs outside the SGE framework.
11 Includes internet payment, online lending, equity crowdfunding, internet fund sales, internet insurance, internet
trust, and internet consumer finance.

• Lawyers in China must be part of a law firm. It is estimated there were 325,500 lawyers in
China at the end of 2016 and 26,200 law firms.
• Notaries: At the end of 2016, there were 13,175 notaries in China and 3,001 notary
institutions. Notaries dealt with 13,990,000 cases during 2016.
• Accountants: At the end of 2016, there were 105,200 certified public accountants in China
and 7,408 accounting firms.
• Company Service Providers (CSPs): No data have been provided on the number of such
providers.
99. It is illegal to operate casinos in China.
100. When assessing the effectiveness of preventive measures and AML/CFT supervision, the
assessment team gave the highest importance to banks, followed by payments institutions. The
securities and futures, insurance, internet finance, real estate agents, CSPs, and DPM were
considered to be at a medium level of importance. Less importance was given to other DNFBPs
sectors.
Preventive Measures
101. China’s preventive measures regime is set-out in the AML Law and a vast number of
secondary legal instruments, including regulations, notices, administrative measures, opinions, rules,
and guidelines. In the process of conducting the assessment, the team reviewed more than 30
AML/CFT regulations in addition to many other secondary legal instruments relevant to the
assessment. This fragmented framework results in several instances of overlap and duplication
across the legal framework and, in some cases, makes it difficult to understand the source and
nature of specific obligations.
Legal Persons and Arrangements
Legal Persons
102. There are three types of legal persons in China: (i) special public legal persons;
(ii) nonprofit; and (iii) for-profit legal persons:
i. Special legal persons include state agency legal persons (230,000), basic self-governing mass
organizations (660,000), rural collective economic organizations (7,700), and urban and rural
cooperative economic organizations (2,017,000). These legal persons are created by state
organizations. The latter can undertake commercial activities, and although the ownership of
these entities is collective, the control is not. These types of legal persons are for the most
part not covered in this report.

ii. Nonprofit legal persons include public institutions (970,000), social groups (352,000),
foundations (6,300), social service organizations (397,000), and overseas NGOs (393). These
entities are covered under IO.10 (NPOs).
iii. For-profit legal persons consist of limited liability companies (LLC, 23,798,000), joint-stock
limited companies (JSLC, 142,000), state-owned enterprises (357,000), listed companies
(3,400), and foreign investment enterprises (539,000). These foreign investment enterprises
include wholly owned foreign enterprises, Chinese-foreign equity joint ventures, and
Chinese-foreign contractual joint ventures. Other for-profit legal persons include enterprises
owned by the whole people, enterprises owned collectively, private enterprises, and
associated enterprises. In addition to these, there are also legal entities that do not qualify as
legal persons under Chinese law, but that are nonetheless relevant for this report. These
other for-profit quasi-legal persons include other noncorporate persons that do not meet
the requirements of legal persons, partnerships (556,000), sole proprietorships (2,586,000),
enterprises of foreign jurisdictions that are involved in business operations within China,
resident and representation offices of foreign enterprises. LLCs and JSLCs are also referred to
as “companies,” based on the terms used in the Company Law.
103. Notably, the Civil Law defines for-profit legal persons to “…include limited liability
companies, joint stock limited companies, and other enterprise legal persons” without indicating
what these other for-profit legal persons are. This provides legal flexibility as China continues its
reforms, but also creates some uncertainty as to the types of legal entities that exist.
Legal Arrangements
104. In addition to foreign trusts, which are not recognized or regulated in China but can
undertake business in China (e.g., owning Chinese companies), the Trust Law recognizes three
types of trust: (i) civil trusts; (ii) charitable trusts; and (iii) business trusts. In the previous
FATF/EAG assessment report of China, all of these trusts were considered to meet the definition
of legal arrangements under the old R.34; however, under the current standard only civil trusts
meet the definition of legal arrangement.
• Civil trusts: There are three types of civil trusts: wealth, educational, and testamentary.
Educational civil trusts aim to provide funds for education; testamentary civil trusts aim to
ensure that the will of a deceased is executed (as far as the distribution of assets of the
deceased is concerned); and wealth civil trusts allow a person's wealth to be managed by
another person. Unlike business trusts and charitable trusts, civil trusts are not regulated by
the CBIRC and the only legal provisions governing civil trusts are those found in the Trust
Act. While the legal framework explicitly requires business and charitable trusts to be
managed by trust companies, no professional trustees are required for civil trusts. As was
indicated in the previous assessment report, it remains possible for civil trusts to be
established and administered outside the regulated sector. According to authorities and
(academic) literature, civil trusts are said to be rarely used in China, which is in line with the
observations of the assessment team.

• Business trusts: The assessment team considers that business trusts despite their name do
not meet the FATF definition of legal arrangements, but that these are financial investment
products offered by trust companies that are FIs (as covered under IO.3/IO.4 in this report). 12
• Charitable trusts: Regarding charitable trusts, these are comparable to

foundations/charities found elsewhere (with specific Chinese characteristics) and are
discussed under IO.10 (NPOs).
Supervisory Arrangements
105. 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.
International Cooperation
106. Illicit proceeds from China have been traced to several countries around the world. China
has worked closely with several countries on ML investigations, including Singapore, Australia, New
Zealand, Italy, Spain, the United States, and Canada. China also works closely with countries in the
region in the investigation of predicate offenses and successively launched two joint anti-drug
actions called “Safe Waterway” with Laos and Myanmar. Feedback on international cooperation was
mixed with some countries indicating the need for China to enhance the speed and efficiency of its
processes.
107. China does not have one central authority dealing with MLA requests. It has established a
multi-channel method of carrying out international cooperation. Government agencies which are
involved in this process include the MOJ, the MPS, the MFA, and the SPP. 13
12 A business trust mainly refers to the trust business operations carried out by a trust company. Although the
(translated) Trust Law uses familiar trust terms (e.g., trustee, settlor, beneficiary), in fact these “business trusts” are, in
fact, regular investment products or assets and wealth management products offered by trust companies. In most
cases, the investor (in the Trust Law referred to as “settlor”) will invest his/her assets into a pooled investment
(e.g., real estate) offered by the trust company (referred to as the trustee). By law, the investor (settlor) is also the sole
beneficiary of the investment, which must be stipulated in the investment contract. Ownership and control and not
separated. Ownership and control of the investment will be transferred from the investor (settlor), to the trust
company (trustee), and then back to the investor (beneficiary). However, under the investment contract, the trust
company (trustee) and the investor/beneficiary are under contractual obligations that protect the interests of the
investor/beneficiary (to receive the profits of their investments) and trust company (to receive management fees).
The amount of assets managed by trust companies as of July 2018 was around RMB 20 trillion.
13 The function has been transferred from the SPP to the NSC.

NATIONAL AML/CFT POLICIES AND COORDINATION

A. Key Findings
• Since 2002, China has demonstrated an ongoing practice of developing AML/CFT policies and
risk mitigation activities based on risk assessments, as evidenced by the number of threats,
vulnerability, and risk studies conducted in China since that time, and the subsequent issuance
of opinions, measures, regulations, and laws resulting from such studies. With the publication of
its first NRA in June 2018, China has formalized the process for identifying and assessing its ML
and TF risks.
• China’s framework for AML/CFT cooperation and coordination is well established. The AMLJMC,
comprised of 23 different government departments, has been meeting regularly since 2002. The
State Council’s approval of outcomes of the AMLJMC’s work is an indication of the importance
the authorities attach to AML/CFT. The PBC is the lead department responsible for formulating
and updating the AML/CFT strategy which is published by the State Council and to which
implicated departments are held accountable through the national audit process.
• While China demonstrated that it has a good understanding of ML/TF risks and that its
understanding of risk was not based solely on the NRA but rather on its long history and
practice of undertaking threat, vulnerability and risk assessments, its understanding has gaps.
Notable among them are DNFBPs (expanded upon further in the following Key Finding) and
legal persons and arrangements. In addition, China’s understanding of ML/TF risks is hampered,
to some extent, by an overreliance on known threats derived from the analysis of predicate
offenses thereby missing information on the methods and trends of ML activity that would only
be derived from ML crimes that were not prosecuted.
• While there is a reasonably good understanding of risks at the sectoral level for DNFBPs, there is
a lack of risk assessments of individual DNFBPs due to the absence of supervisory arrangements.
China is aware that the lack of guidance for DNFBPs represents a vulnerability along with the
failure of DNFBPs to implement effective CFT systems. China’s understanding of ML/TF risks
faced by DNFBPs would be significantly enhanced once AML/CFT obligations are fully and
properly imposed on all entities in the DNFBP sectors.
B. Recommended Actions
• China should expand the information sources relied upon to formulate its NRA to include
broader perspectives of the ML/TF threats, vulnerabilities, and risks it faces such as academic
and international organizations’ publications on the subject as well as feedback from foreign
jurisdictions. This will allow a more balanced understanding of the ML and TF risks faced by
China beyond those directly linked to proceeds generating predicate offenses.

The relevant Immediate Outcome considered and assessed in this chapter is IO.1. The
Recommendations relevant for the assessment of effectiveness under this section are Rs.1, 2, 33,
and 34.
C. Immediate Outcome 1 (Risk, Policy and Coordination)
Country’s Understanding of its ML/TF Risks
108. China has demonstrated a pattern of studying threats, vulnerabilities, and risks on a variety
of subjects related to ML since the inception of AMLJMC in 2002. With the completion and
subsequent publication of its first NRA in June 2018, China has formalized the process for identifying
and assessing its ML and TF risks. The NRA is a culmination of a 2-year effort that involved input
from 23 government departments as well as different FIs and DNFBPs.
109. While considering a range of credible information sources, China’s NRA primarily draws
upon an analysis of 680,000 published court judgements of predicate offenses, between 2013 and
2015, to inform itself of the threats to the country’s economy and social order. The NRA places,
however, a focus on predicate offenses and lacks sufficient attention to how the POC are actually
laundered beyond those directly implicated in the predicate offense. While authorities in China
demonstrated a strong understanding of the contents of the NRA and proceeds generating crimes,
the overall understanding of China’s ML risks was demonstrated to be much lower.
110. The NRA also analyzes inherent vulnerabilities and the mitigating controls in place related
to financial sector products and the activities of some DNFBPs. The NRA examines vulnerabilities in
China’s AML/CFT regime through an analysis of the preventive measures, such as the system of laws
and regulations, supervision, and the effectiveness and/or weakness of criminal penalties, law
enforcement mechanisms and capabilities. For example, in discussing supervision relative to CFT, the
NRA states: “…currently, the relevant DNFBPs have not yet constructed effective CFT working
systems. First, the specific coverage of DNFBPs in China is not clear. China has not yet specified the
AML/CFT obligated DNFBPs, which is mentioned the in laws and regulations. Second, the detailed
CFT obligation requirements for DNFBPs have not been issued. At present, there are no detailed
requirements specific to DNFBPs on customer identification, due diligence, or transaction reporting.
Overall, there is a lack of relevant regulation and guidance for CFT measures in DNFBPs…” While
China indicated that these gaps were identified at the beginning of the NRA process in early 2017, at
the time of the onsite visit, authorities were unable to demonstrate an understanding of the ML/TF
risk faced by most DNFBPs.
111. China’s understanding of risk is hampered by an overreliance on the known threats, as

evaluated by an analysis of adjudicated criminal cases of predicate offenses, thereby missing
information on specific methods and trends of ML activity that were not prosecuted. A significant
factor that contributes to this gap is China’s position that their Criminal Law does not allow the
prosecution of self-laundering in addition to the prosecution of a predicate offense, and their
position that most ML crimes are committed by the predicate offenders themselves. The self-
laundering activity becomes an aggravating factor in sentencing of the predicate offense. China

asserts that the investigation and prosecution of ML activity is generally inseparable from the
predicate offense. For example, China identified illegal fundraising as the highest proceeds
generating crime, yet ML prosecutions where illegal fundraising is identified as the predicate
offense, represents less than one percent of the ML convictions.
112. China’s NRA includes a section on TF. The NRA identifies ETIM as the main TF threat to
China with limited threats posed by local “violent terrorist gangs.” The NRA addresses some
fundraising techniques, mainly self-funding through the sale of personal assets and family support.
The TF assessment contained within the NRA is based mainly on qualitative analysis. The analysis
collates information from departments involved in countering terrorism, primarily MSS, MPS, and
the PBC, identifying sources and channels of TF, and identifying the TF threats faced by China. The
analysis addresses China’s organizational structures, regulatory and law enforcement CFT work, and
analyses the vulnerabilities. In reference to DNFBPs, however, as stated earlier, the NRA notes a lack
of coverage of DNFBPs and concludes that there is a lack of relevant regulation and guidance for
CFT measures in DNFBPs.
113. While China has addressed risk for some DNFBPs in the NRA, the PBC has not conducted
any risk assessment of individual DNFBPs (aside from trust companies) thereby missing information
related to risks posed by the clients of DNFBPs and their products that would have been available
were the sectors appropriately supervised for AML/CFT. The CSP and DPS sectors are not discussed
in the NRA and are unrated. During the onsite visit, the DNFBP sector supervisors (the MOHURD, the
MOF, and the MOJ) demonstrated a low level of understanding of ML/TF risk within their supervised
sectors. The authorities stated that the sector supervisors are actively involved in the ML/TF risk
assessment process, but no specific or detailed information was provided to demonstrate this.
114. While an important step in understanding its ML/TF risks, China’s NRA contains some gaps
in its analysis of ML/TF vulnerabilities. One such example was identified in the context of FIs
conducting CDD measures. The NRA states that “…there is no authoritative channel to inquire about
the BO information of legal persons and legal arrangements. Most banks do not carry out checks of
ownership, in the absence of regulatory requirements…” The NRA does not address CSPs.
115. Another example of gaps in the NRA relates to the assessment methodology: the risk
mitigation factors considered are, in some instances (e.g., in the vulnerability assessment of the real
estate sector) not the controls specified in the AML Law; rather the NRA considers various sector
controls either unrelated to, or only indirectly related to, AML/CFT controls.
116. Chinese authorities indicated that the NRA was a confirmation of a pre-existing
understanding of ML/TF risk formulated over the past several years from the various industry risk
assessments conducted and the Annual National Threat Assessment exercise. The rating of IO.1 is
positively affected by China’s overall level of understanding of risks, supported by the long-standing
practice of threat, vulnerability, and risk studies conducted in China, and the subsequent
coordinated actions to combat predicate offenses ML and TF.

National Policies to Address Identified ML/TF Risks
117. As mentioned earlier, China has demonstrated a pattern of studying threats, vulnerabilities
and risks on a variety of subjects related to ML since the inception of AMLJMC in 2002. These
studies, as is the case with the NRA, resulted in action plans often involving the issuance of opinions,
measures, regulations and laws to serve as mitigating factors to address the risks identified. Through
the oversight of the State Council, and the national audit process, implicated departments are held
accountable to delivering on these action plans
118. In 2013, China established the National Leading Group for Countering Terrorism (the
Leading Group). The Leading Group plays a leading role in intelligence warning, prevention,
emergency response, aftercare, and publicity in every aspect of countering terrorism, including
terrorism financing. The Leading Group is served by State Councilors, which consists of a leading
group office and a countering terrorism operations office. The members of the Leading Group
include fixed members and ad hoc members. The fixed members include the MFA, MPS, MSS, and
the PBC, while ad hoc members may include the Ministry of Transport, MCA, Ministry of Health, etc.
depending on the topics to be discussed/addressed. The Leading Group sets policies and drafts
action plans, the latest of which was shared with the assessment team but for security reasons are
not published publicly. After the establishment of the Leading Group, various provinces,
autonomous regions, and cities also established local leading groups accordingly.
Exemptions, Enhanced, and Simplified Measures
119. China identified bank cards as high-risk products. In response, China points to the Notice of
the PBC on Strengthening the Administration of Bank Card Business (PBC Document No. [2014] 5) and
the Notice on Further Strengthening the Anti-Money Laundering Work of Bank Card Business (PBC -
GAD Document No. [2014] 124) as two examples of enhanced measures put in place to mitigate the
risk related to bank cards. These notices strengthened requirements for the identification during the
application and usage of bank cards outlined in the AML Law and the Administrative Measures for
Customers Identification and Documentation of Customers Identity Information and Transaction
Records by Financial Institutions.
120. China indicated that FIs are permitted to implement certain simplified measures. Jointly
with regulatory authorities, FIs are to evaluate the ML/TF risks of the relevant business products,
including the vulnerabilities of adopting any recommended simplified measures. Any simplified
measures adopted must be done through reaching a mutual agreement with the regulatory
authorities. One such example was in 2016 when, after assessing the risk of various account activity,
the PBC issued a classification system for personal bank accounts. Accounts were classified into
three categories: I, II, and III. Category I is an unrestricted, fully functioning bank account that must
be opened in person at the FI and is subject to onsite verification of identity. Only one Category I
account is permitted per customer per FI. Category II accounts allow for the electronic transfer of
funds, the purchase of financial products, and for making payments of less than RMB 10,000 per
day. Category II accounts are restricted, however, and cannot be used to withdraw cash. Category III
accounts only allow for small value consumption and payments with the account balance of no

more than RMB 1,000. Based on an identification of low ML risk and in an effort to enhance
convenience and inclusiveness of financial services, China allows Category II and Category III
accounts to be opened through e-banking, mobile banking, and other electronic channels without
providing identity information repeatedly or showing identity documents, thus simplifying control
measures. China indicated that no risk incidents have arisen from adopting these simplified
measures.
Objectives and Activities of Competent Authorities
121. The prevalence of underground banking has been identified by China as a risk related to
ML/TF in that it provides a vehicle for the remittance of illicit income to foreign jurisdictions with
ease. In response to this risk (see IO.7) MPS has focused resources and efforts on this criminal
behavior with considerable success. Authorities report that in response to these efforts they are
seeing a reduction in the prevalence of underground banking.
122. CAMLMAC prioritizes its strategic analysis initiatives to focus on financial transactions
associated to predicate crimes, which are identified as higher risk through the NRA and other
assessments. These initiatives resulted in various high-risk crime related typologies reports
disseminated to LEAs to assist them in prioritizing their financial investigations. LEAs advised that
these strategic analysis products are very helpful and assist them in setting priorities for their
investigations. It should be noted however, as outlined in detail in both IO.6 and IO.7, LEAs use
financial intelligence primarily to drive predicate investigations, as opposed to ML investigations. In
addition, as identified in the write up IO.6, the majority of criminal investigations using financial
intelligence from CAMLMAC originate in requests from LEAs rather than spontaneous
disseminations by CAMLMAC.
National Coordination and Cooperation
123. China’s main mechanism for national coordination and cooperation is the AMLJMC
established in 2002 and comprising 23 government departments. The AMLJMC is responsible for
guiding the AML/CFT work throughout the country, formulating AML/CFT policies, and coordinating
various departments in conducting AML/CFT activities. The PBC, as the lead department, is
responsible for organizing the plenary sessions of the AMLJMC; reviewing national action plans;
analyzing domestic and international ML/TF risk; and formulating and updating the AML/CFT
strategy. China has demonstrated a high level of political commitment for its AML/CFT work, as
evidenced by State Council approval of outcomes of the AMLJMC’s work.
124. At the operational level, China has demonstrated that cooperation between the PBC and
the other government departments is generally good (see IO.6). CAMLMAC has signed memoranda
of understanding (MOUs) with relevant LEAs and their branches regarding the use of financial
intelligence, information sharing, and intelligence consultations, however, these intelligence
exchanges are predominantly related to predicate crimes as opposed to ML or TF.

125. LEAs, CAMLMAC, and local PBC branches cooperate to share financial intelligence amongst
themselves. A dedicated Electronic Inquiry Platform also allows these agencies access to information
provided by many FIs. Tax authorities’ access to the same financial intelligence is conditional upon
them meeting the threshold for opening a criminal case and access must be sought through the
MPS.
126. Action plans and the AML/CFT strategy stemming from the AMLJMCs often include
initiatives related to different government departments conducting joint operations to address
different risks identified by the conference as a priority. Between 2013 and 2018, the MPS together
with the PBC and other ministries jointly launched special operations, such as the “Special Operation
of Combating New Types of Criminal Activities by Telecommunication;” the “Special Operation
Against the Use of Offshore Companies and Underground Banks to Transfer Illicit Money;” the
“Cross-Border Special Operation to Capture Criminals and Recover Corrupted Funds;” and, the
“Special Operation to Combat the Fictitious Export-Tax Refund and Falsifying VAT Invoices.” The
focus of these operations, however, is on combating the predicate crimes associated with ML with
little results addressing ML activity. While these operations access the support of financial
investigators, such financial investigations are limited to the financial activity associated to the
proceeds of a specific criminal act as opposed to comprehensive financial investigations related to
criminal activity more generally. It is analogous to pursuing the proceeds of a drug transaction as
opposed to pursuing the assets of a drug trafficker.
127. While China lacks a comprehensive legal framework to deal with TFS related to PF (see
IO.11), the MFA and the PBC have coordinated on steps to implement UNSCR requirements for the
financial sector. The MFA is responsible for informing other state entities of the existence of new
UNSCRs related to PF. PBC is then responsible for communicating the UNSCRs (based on PBC Notice
187/2017) as well as issuing risk warnings to selected vetted FIs. As far as domestic coordination is
concerned, to support implementation by banks, the PBC has provided training and asked selected
banks to screen their entire database against the UNSCRs. Furthermore, as detailed in IO.11, the
authorities have coordinated to implement measures against PF, such as in relations to export
control measures and the smuggling of banned goods.
Private Sector’s Awareness of Risks
128. Many private sector entities were involved in the development of the NRA alongside
government entities. Electronic copies of the NRA were sent to government departments and the
major FIs. Smaller FIs and other regulated entities were provided copies through their local PBC
branches. The NRA was also distributed to industry association bodies where it is available to
DNFBPs. The distribution method used for the NRA has also been used to distribute the Annual
National Threat Assessments with a summary version posted on the PBC website.
129. While the NRA was only published in June 2018, as identified earlier, China has produced,
and shared numerous threats, vulnerability, and risk studies related to specific topics over the past
several years. In addition, CAMLMAC produces strategic analysis products and ML/TF risk reminders
to guide FIs in their identification of ML/TF risks and facilitate and increase the quality of STR

reporting. In addition to CAMLMAC, local PBC branches will issue guidance and risk warnings as
well.
Overall Conclusions on Immediate Outcome 1
130. China is rated as having a substantial level of effectiveness for IO.1.
LEGAL SYSTEM AND OPERATIONAL ISSUES

A. Key Findings
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. However, their focus is 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 the operational
needs of competent authorities, but its current functioning results in incomplete access of all
parts of the FIU to all data, fragmented analysis and disseminations, and limits the development
of a holistic or integrated or comprehensive view to financial intelligence.
• Other factors also limit the FIU’s ability to properly analyze and share financial intelligence that is
relevant for use by law enforcement. First, the STR reporting requirements only extend to FIs and
their level of implementation is insufficient. Second, other sources of information, such as
information on cross-border currency declarations and BO information, are either limited or
nonexistent. Finally, the FIU’s operational independence is potentially undermined.
• The FIU’s cooperation and coordination with other 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 it produces.
Immediate Outcome 7
• There exist three discreet ML offenses which could be applied to similar or the same factual
circumstances, with the 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. It is likely that this is an outcome of the difficulties and challenges
with proving the requisite level of “knowledge” required to successfully prosecute ML. Most ML

prosecutions involve immediate family members and close associates of predicate offenders,
which confirms that the “follow the money” mantra has a limited impact on the effectiveness of
ML investigations and prosecutions. There have been three occasions where legal persons have
been charged with ML.
• Predicate crime investigation outcomes reflect that China has capable LEAs that are skilled in the
investigation of complex financial crime and associated predicate crime. Financial intelligence is
not routinely driving ML investigations. It is, however, identifying predicate criminal behaviors
which are actively investigated.
• Effective, proportionate, and dissuasive sanctions are available and are applied for ML. In
addition, there exists a range of alternative measures which can be applied when prosecution for
ML is not possible or not appropriate. These include administrative sanctions, administrative
forfeitures, and the use of disciplinary procedures which can be imposed by the CCP against its
membership.
Immediate Outcome 8
• China demonstrates a commitment to deprive criminals of property through the seizure and
confiscation of instruments of crime and criminal proceeds. Confiscation broadly aligns with
China’s policy and risk although the accuracy of statistics collection and analysis to monitor and
improve performance could be improved and an extension of the non-conviction framework or
a broadening of the unexplained wealth provisions could be considered.
• The NRA acknowledges that substantial amounts of criminal proceeds flow from China to
foreign jurisdictions through underground banks. In recognizing this weakness, considerable
effort has been invested to target and dismantle underground banking networks. This is
commendable. Authorities report that they are detecting less such activity as a result of their
enforcement efforts; however, the activity persists and continues to provide for a mechanism to
remit the POC to other jurisdictions. Focus of recovery of foreign remitted illicit proceeds that
has exited China is a current policy objective which has resulted in the recovery of significant
amounts of POC.
• China borders 14 countries and experiences hundreds of millions of movements of people and
goods, therefore challenges are significant. A currency declaration system operates in China and
enforcement occurs with focus on people, and, to a lesser extent, mail and cargo. Resources and
equipment are deployed to high-risk border crossing entry and exit points which have a degree
of effectiveness, further investment of resource is occurring at other entry and exits points, mail
centers and at ports. China acknowledges its border risk and the need to implement processes
to improve the flow of information and intelligence between the border agency, the PBC, 14 and
the neighboring jurisdictions.
14 NRA, p. 221.

Immediate Outcome 6
• In addition to the current use of financial intelligence for predicate offense investigations, LEAs
should also 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 which is
received, analyzed, and disseminated is readily available and accessible to all constituent parts of
the FIU at both the 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 the 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 of the current legislation 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 in addition
amend “obviously know” to a lower level of knowledge threshold as an element for the ML
offense (e.g., “should have known”; or similar wording as appropriate under Chinese law) and
increase the understanding and use of the ML offense by the prosecution and judiciary in
practice. This would enable the ML offense to be applied against a much wider range of ML
behaviors.
• The authorities should reconsideration the policy, which focuses on pursuit of those involved in
predicate crime to include one that has a broader focus to “follow the money” beyond those
who are active participants in the predicate crime, which will identify more persons (natural and
legal) undertaking ML activities.
• China identifies significant risks with underground banking, and therefore the strategy should
extend beyond the current disruption activities to that of a focus on the identification of third-
party launderers and predicate offenders who are using the services of underground bankers to
launder and remit criminal proceeds to foreign jurisdictions. Reorientation of the existing focus
to include the identification of the “criminal customer” as well as the “service provider” may
reduce the demand for an underground banking service which would increase the effectiveness
of this strategy and could identify criminals involved in high-risk crime types.

Immediate Outcome 7
• The authorities should create a legal framework for the registration and enforcement of foreign
confiscation orders. This would enhance international cooperation and provide a clear
framework that other countries could apply when seeking the 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 the unexplained wealth provisions, which apply only to
public officials. Amending this provision to include ML/TF and other high-risk predicate crime
types as identified in the NRA inclusive of the behavior of operation of underground banking
activities would complement China’s AML strategies.
The relevant Immediate Outcomes considered and assessed in this chapter are IO.6–8. The
recommendations relevant for the assessment of effectiveness under this section are R.3, R.4, and
R.29–32.
C. Immediate Outcome 6 (Financial Intelligence ML/TF)
Introduction
131. The MPS is China’s main law enforcement body and competent authority responsible for
investigating ML, associated predicate offenses, and TF. The MPS has a decentralized structure with
specialized investigative agencies at provincial, municipal, and county level responsible for
conducting most of the ML, predicate offenses and TF investigations. For more details, see the
analysis of R.30 (c.30.1) in the Technical Compliance Annex (TCA).
132. The MPS is the primary recipient of disseminations by China’s FIU arrangement set up
within the PBC. China’s FIU arrangement therefore mirrors the MPS’ decentralized approach with the
three components listed below. The assessment team recognizes that a country has the choice to
implement a decentralized FIU approach and does not question nor criticize the fact that China has
chosen this approach. However, the assessment team has serious concerns regarding the
implementation of this decentralized approach in China, as set out in detail below.
• CAMLMAC;
• The AMLB; and
• Anti-Money Laundering Units within each of the 36 PBC provincial branches.
133. CAMLMAC is established at the central level and has primarily responsibility for the receipt
and analysis of LVTRs and ordinary STRs (i.e., transactions related to criminal activities such as ML,

TF, and predicate offenses—STRs). CAMLMAC also receives the information contained in all key STRs
directly and simultaneously reported to the 36 provincial PBC branches. It thus centralizes the
receipt of disclosures filed by reporting entities, as required by c.29.2 (see relevant details in the
analysis of R.29 in the TCA). This approach also ensures that CAMLMAC has access to all relevant
details of key STRs to complement its own analysis of LVTRs and STRs. CAMLMAC reports the results
of its analysis to the MPS or other competent authorities at central level, or passes the information
on to the AMLB or a PBC provincial branch for an administrative investigation. The head of the
CAMLMAC takes the final decision in terms of dissemination to central LEAs or passing a case on for
an administrative investigation. CAMLMAC also conducts jointly with the AMLB analysis of complex
cases identified and transferred to them by the PBC provincial branches. As of June 30, 2017,
CAMLMAC had 103 employees.
134. While the AMLB is primarily a policy driven unit, it also has the power to conduct
administrative investigations of STRs identified by CAMLMAC. In addition, the AMLB coordinates
and steers administrative investigations with cross-regional aspects conducted by PBC provincial
branches (AML Law, Arts. 8, 23–26). The AMLB has the independent power to disseminate the results
of its administrative investigations to central or local LEAs and other competent authorities. As
mentioned above, the AMLB and CAMLMAC conduct joint analysis of complex cases. As of June
30, 2017, the FIU division within the AMLB had seven employees.
135. The PBC provincial branches are the primary recipients of “key STRs” 15 identified by local
regulated institutions and whistle-blower reports. In addition to the analysis/administrative
investigation of these types of reports, the provincial branches are also responsible for conducting
administrative investigations based on suspicious activity identified through CAMLMAC’s analysis
and subsequently passed on to the provincial branches (AML Law, Arts. 8, 23–26). During this
process, the 36 branches have limited access to information collected, analyzed and disseminated by
the other FIU components at the central or local levels nor systematic coordination with any of these
FIU components. Subsequently, the 36 provincial branches take independent decisions as to
whether or not to disseminate the results of their analysis/investigation to local competent
authorities. Each of the 36 provincial branches shares information on its disseminations with
CAMLMAC to ensure that information on key STRs and related dissemination data are centralized.
However, the branches keep process information and information collected during the
analytical/investigative process, including the information of cases not disseminated, in a stand-
alone database, which is not accessible outside the individual PBC branch itself (i.e., not to
CAMLMAC, AMLB, and other branches). In addition, and equally important, local LEAs work closely
together with each of the 36 provincial branches and frequently send requests for information
directly to the relevant branch. Upon receipt of such requests, the receiving branch enters them in
its stand-alone database. CAMLMAC or any of the other branches have no access to information
requests directly sent by LEAs to an individual branch and are thus completely unaware of the
process and the information itself. CAMLMAC receives relevant information at the time of branch’s
15 Key STRs are defined as follows: (i) The transaction is evidently suspected of ML, TF, or any other criminal activity;
(ii) the transaction seriously compromises national security or affects social stability; and (iii) any other serious
circumstance or emergency.

dissemination upon request and this information is then included in its database. As of the end
2017, all 36 provincial branches together employed 90 specialized AML investigators.
136. The dissemination of all cases to LEAs and other competent authorities, both
spontaneously and upon request, by each of the 36 PBC provincial branches requires the signature
of the president of the branch. While the assessment team has no indication nor evidence that this
requirement has led to any undue interference in the dissemination process, these requirements
could however limit the independence of the FIU and delay the timely dissemination of analysis
results. Moreover, this additional step in the dissemination process could delay disseminations to
LEAs and other competent authorities, which is of concern taking into account that key STRs by their
nature are often urgent and highly suspicious.
Use of Financial Intelligence and Other Information
Use of Financial Intelligence and Other Information by the FIU
137. CAMLMAC receives STRs and LVTRs from all categories of FIs as its main type of financial
intelligence, while the PBC branches are the primary recipient of key STRs from FIs. Reporting
institutions also simultaneously send the information contained in the key STRs to CAMLMAC, for
inclusion into CAMLMAC’s database and possible use of the information to support its analysis of
STRs and LVTRs. However, the lack of reporting by the majority of FIs and the absence of reporting
by DNFBPs limits CAMLMAC’s and the provincial branches’ ability to properly analyze and share
accurate and timely financial intelligence. For more information and details on STR reporting and on
coverage of DNFBPs, see Chapter 1 and IO.4.
138. 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. The
AMLB and PBC provincial branches also have the power to obtain any relevant documents and
materials from any reporting entity when conducting an administrative investigation. This broader
power (which happens to correspond to technical requirements in R.29 (c.29.3)), does not extend to
CAMLMAC. CAMLMAC only has the power to request a supplement and/or a correction from any
reporting institution when an STR or LVTR is incomplete or erroneous. If CAMLMAC considers that a
case file would benefit from additional information from reporting entities, then it has no other
option than to transfer the case for an administrative investigation to the AMLB or one of the
provincial branches. This approach limits CAMLMAC’s ability to develop a holistic view and produce
financial intelligence that is relevant for LEAs. This is a concern because CAMLMAC is the only
component of China’s FIU arrangement—and the only entity in the country—with access to all STRs,
key STRs, and LVTRs. For more details on the FIU arrangement’s access to information, see analysis
on R.29 (c.29.3(a) and (b)) in the TCA.
139. CAMLMAC, the AMLB, and the PBC provincial branches have direct access to police
databases for passport and other identification details. Each of the FIU components can obtain other
police information—beyond passport and identification details—upon request. There are

cooperation agreements in place to facilitate this exchange of information between LEAs and the
FIU.
140. CAMLMAC (but not the AMLB and the 36 provincial branches) recently started receiving
some information from Customs on incoming and outgoing cross-border transportation of both
national and foreign currency. However, the information made available by the customs authorities
to CAMLMAC is only partial and focuses especially on excessive declaration violation cases, as
opposed to violation or declaration information more broadly (for more details, see analysis on R.32
(c.32.9) in the TCA. In addition, the fact that the collection and storage of this information by
Customs is mainly paper-based, presents an additional challenge. China’s NRA identified clear
weaknesses in information exchange between Customs and other relevant AML authorities and
concluded that sharing of information associated with illegal cross-border transfers is not yet in
place. The fact that CAMLMAC only receives limited information and the AMLB and PBC provincial
branches do not have direct access to such information (but can obtain it upon request from
CAMLMAC) fully supports this NRA finding.
141. Finally, the lack of availability of BO information is another factor that negatively affects the
FIU arrangement’s (all three components) ability to properly analyze and share accurate and timely
intelligence (see analysis of IO.5 for more details).
Use of Financial Intelligence and Other Information by LEAs
142. LEAs at all levels access and use financial intelligence and other information to identify and
trace proceeds, and to support investigations and prosecutions of predicate offenses, but do so to a
limited extent for AML purposes. While the LEAs that the team met with recognized the value of
“following the money,” their focus in the development of evidence and tracing of criminal proceeds
is primarily on pursuing domestic predicate offenses, as opposed to ML and TF (see also IO.7 for
more details).
143. LEAs, in particular, the ECID within the public security agencies (see R.30 (c.30.1) in the TCA,
have access to specialist financial investigative personnel to aid in the pursuit and interpretation of
financial intelligence.
144. LEAs have access to and use a wide range of financial intelligence throughout the lifetime
of an investigation, both directly and upon request, including (i) financial information available at
the PBC as China’s central bank; (ii) information obtained through liaison officers at relevant
competent authorities; (iii) information from administrative sources such as, property ownership and
social security information; (iv) whistle-blower reports; and (v) information from public databases.
LEAs can obtain FIU data upon request. They do not have liaison officers at CAMLMAC, the AMLB, or
any of the 36 provincial branches to facilitate this indirect access.
145. While LEAs have the power to request information from Customs on incoming and
outgoing cross-border transportation of both national and foreign currency, the fact that collection

and storage of relevant information by Customs is mainly paper-based means that this type of
financial intelligence is not readily available for use in LEAs’ investigations.
146. LEAs, both at central and local level, have the power to obtain financial intelligence from
reporting institutions, either directly or via CAMLMAC and the 36 PBC provincial branches. To
facilitate the receipt of financial intelligence from reporting institutions, LEAs at the central level,
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
arrangements have recently been set up at the local level.
147. As set out in R.31 of the TCA, LEAs have the power to use special investigative techniques
when conducting a financial investigation and the authorities presented relevant cases to the
assessment team.
STRs Received and Requested by Competent Authorities
148. Since 2012, CAMLMAC, AMLB, and the PBC provincial branches have worked with FIs to
reduce the volume of defensive reporting and improve the quality of STRs and key STRs. These
efforts have resulted in a significant decrease in STRs reported to CAMLMAC (from 29.6 million in
2012 to 5.44 million in 2016) and an increase in key STRs directly and simultaneously reported to
both the relevant provincial branch and CAMLMAC (from 4,800 in 2012 to 8,504 in 2016).
149. The large majority of (key) STR reporting (95 percent) 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 their (key) STRs manually, but the assessment team has no indication that
CAMLMAC or the PBC provincial branches face challenges when entering the relevant data in their
databases.
150. The fact that CAMLMAC directly receives the information contained in a key STRs
simultaneously reported to the PBC provincial branches allows CAMLMAC to centralize the receipt
of all types of reports (STR, key STR, and LVTR) by China’s FIU arrangement. This is important
because each of the 36 PBC provincial branches operate stand-alone databases, which are not
accessible by CAMLMAC, the AMLB or any other branch.
151. FIs face challenges in determining whether they should report suspicions in the form of an
STR or key STR. Representatives of FIs informed the assessment team that they would only report a
key STR to a PBC provincial branch and CAMLMAC when they are able to identify an underlying
predicate offense through the results of their detailed and substantiated analysis, which they also
referred to as an investigation. Representatives of some institutions explained that in the absence of
a predicate offense, they would not report suspicions in the form of a “normal” STR to CAMLMAC.
They clarified that, in such cases, they would file a report—in the form of a whistle-blower report—
directly with central or local LEAs but would not simultaneously file an STR or key STR with
CAMLMAC and/or a PBC provincial branch. This is a concern because of the weaknesses identified in
FIs’ understanding of their exposure to POC (see write-up of IO.4 for more details). Moreover,

reporting entities are often not in a position to confirm that a suspicion is indeed associated with an
underlying predicate offense because they have no access to law enforcement information. This
means that some reporting entities provide possibly relevant financial intelligence directly to LEAs
but do not report it to China’s FIU arrangement. While this approach ensures that LEAs have access
to suspicious activity identified by reporting entities for incorporation in their investigations, it limits
the FIUs’ abilities to establish linkages with other data in its possession and to produce complete
and meaningful financial intelligence that could otherwise assist LEAs in identifying new leads for
investigation or support them in their ongoing investigations.
152. In addition to STRs and key STRs, CAMLMAC receives a high number of other reports
because of the requirement for FIs to report LVTRs, including large-value cash transactions, large-
value transfer transactions, and large-value cross-border transactions, based on a low threshold. For
details regarding the threshold for LVTRs, see R.29 in the TCA. The number of LVTRs has been
steadily increasing since 2012, reaching 4.94 billion in 2016.
Operational Needs Supported by FIU Analysis and Dissemination
153. All LEAs the assessment team met with during the onsite visit, both at the central level and
in Shanghai and Shenzhen, informed the team that disseminations by CAMLMAC and the PBC
branches are very helpful and often assist them in successfully completing predicate offense
investigations. They also mentioned that financial intelligence from the FIU arrangement allowed
them to initiate new predicate offense investigations. However, the statistics presented by the
authorities do not fully support these oral statements. While these statistics show a 100 percent
success rate of disseminations upon request (because CAMLMAC or the provincial branches respond
to each request received), the number of spontaneous disseminations, especially by CAMLMAC do
not result in or contribute to a comparative large number of criminal investigations by LEAs. The
following table gives an overview of the number of both spontaneous disseminations and
disseminations upon request by CAMLMAC and the 36 PBC provincial branches, and an indication of
how many of these disseminations resulted in or contributed to criminal investigations by LEAs.
154. In 2016, CAMLMAC disseminated a total number of 3,421 cases: 720 spontaneous
disseminations and 2,701 disseminations in response to a request from LEAs. These 3,421 cases
contributed to/resulted in 2,786 criminal investigations by LEAs: 85 because of spontaneous
disseminations and 2,701 in response to all of the requests from LEAs. This means that while
81.44 percent of CAMLMAC’s overall disseminations contributed to/resulted in criminal
investigations, CAMLMAC’s spontaneous disseminations only represent 3 percent of the total
number of these criminal investigations with the other 97 percent based on CAMLMAC’s responses
to requests by LEAs. The authorities did not provide any statistics to show how many of these 2,786
criminal investigations with financial intelligence from CAMLMAC resulted in prosecutions and
convictions because the focus of the statistics is on criminal investigations only. The authorities
explained that the investigative process following FIU disseminations is long and feedback up on
subsequent prosecutions and convictions is often not available.

Table 3. FIU Disseminations

Investigations
FIU Disseminations Following FIU
Disseminations
Disse
Spontaneous Disseminations Upon
minat % of
Disseminations Request Total
ing dissemi
Year % of % of numbe
FIU nations
Subseq total Subseq total r of Tot
Comp Nu Nu resultin
uent number uent number dissem al
onent mb mbe g in an
investig of investig of ination
er r investig
ations investig ations investig s
ation
ations ations
PBC
Branc 357 100 14.4% 591 591 85.6% 948 691 72.9%
hes
2012 CAML
122 15 2.9% 507 507 97.1% 629 522 83.0%
MAC
1,09 1,21
TOTAL 479 115 9.6% 1,098 90.5% 1,577 76.92%
8 3
PBC
Branc 490 168 20% 669 669 80.0% 1,159 837 72.2%
hes
2013 CAML 1,00
204 17 1.6% 989 989 98.3% 1,193 84.33%
MAC 6
1,65 1,84
TOTAL 694 185 10% 1,658 90% 2,352 78.36%
8 3
PBC
1,14
Branc 931 155 13.5% 994 994 86.5% 1,925 59.69%
9
hes
2014 CAML 1,69 1,73
416 39 2.2% 1,699 97.8% 2,115 82.17%
MAC 9 8
1,34 2,69 2,88
TOTAL 194 6.7% 2,693 93.3% 4,040 71.46%
7 3 7
PBC
1,57 1,56 1,76
Branc 198 11.2% 1,567 88.8% 3,144 56.14%
7 7 5
hes
2015 CAML 2,64 2,71
588 70 2.6% 2,647 97.4% 3,235 83.99%
MAC 7 7
2,16 4,21 4,48
TOTAL 268 6% 4,214 94% 6,379 70.26%
5 4 2
PBC
1,98 1,61 1,90
Branc 286 15% 1,619 85% 3,599 63.14%
0 9 5
2016 hes
CAML 2,70 2,78
720 85 3% 2,701 97% 3,421 81.44%
MAC 1 6

155. An explanation for the lower success rate of CAMLMAC’s spontaneous disseminations
compared to its disseminations upon request is the high threshold that CAMLMAC applies for most
of its spontaneous disseminations to LEAs, namely when it has a clear indication of a specific
predicate offense. This shows to be a challenging approach taken by CAMLMAC, as one of the
essential components of China’s administrative FIU arrangement, and this appears to limit its
capabilities to disseminate meaningful financial intelligence to LEAs spontaneously. On the other
hand, PBC provincial branches spontaneously disseminate relative higher numbers of files to LEAs
compared to CAMLMAC, and this appears to be the direct result of the nature of key STRs, namely
that this type of STRs received by the provincial branches often already include an indication of the
predicate offense. It does therefore not establish that provincial branches undertake more extensive
analysis, or analysis of a higher quality than CAMLMAC
156. In 2016, the 36 PBC provincial branches disseminated together a total number of 3,599 to
local LEAs: 1,980 spontaneous disseminations and 1,619 disseminations upon request. These 3,599
disseminations contributed to 1,905 criminal investigations by LEAs: 286 because of spontaneous
disseminations (being on average 8 cases per PBC provincial branch) and 1,619 in response to the
same number of requests from LEAs (being 45 cases per PBC provincial branch). This means that in
15 percent of the 1,905 criminal investigations LEAs used financial intelligence from spontaneous
disseminations while the other 85 percent were a direct result of requests for information from LEAs.
The authorities did not provide any statistics to show how many of these criminal investigations
resulted in subsequent prosecutions and convictions as the focus of the statistics is on criminal
investigations only. As mentioned above, the authorities explained that the investigative process
following FIU disseminations is long and feedback up on subsequent prosecutions and convictions
is therefore often not available.
157. The authorities presented the team with successful cases, including the following example,
which demonstrates a successful dissemination upon request by one of the provincial branches.
Box 1. Example of Law Enforcement Use of Financial Intelligence for a Predicate and an ML
Investigation
This case is an example of the successful conclusion of both a predicate offense and an ML offense
investigation with the active involvement of a PBC local branch. In 2012, the Fuzhou Public Security Agency
investigated individual X for suspicion of “crime of illegal defrauding of public deposits.” During the lifetime
of the investigation, the Public Security Agency requested in 20 instances the assistance of the PBC’s Fuzhou
Central Sub-branch. The provincial branch identified the involvement of 8 banking institutions and 18 of
their customers, each with dozens of accounts. The provincial branch’s assistance clarified the source and
destination of the proceeds from the predicate offense and provided important evidence for solving the
case. The public security agency also identified that another person W and other individuals were involved
in laundering of X’s illegally obtained funds. The Fuzhou Intermediate People’s Court convicted X for
defrauding public deposits and W for ML, but the authorities did not provide the assessment team with
details on the sentences.

158. When the PBC provincial branches are not in a position to confirm a predicate offense
purely based on a key STR, they have the option to open an administrative investigation. During this
process, they have access to additional information from reporting entities as well as administrative
and law enforcement information (see core issue 6.1 for more details). However, the PBC provincial
branches have only limited direct access to CAMLMAC’s database—only to those STRs, key STRs,
and LVTRs associated to their jurisdiction. In addition, they do not have access to the stand-alone
databases at any of the other 35 provincial branches. They can obtain additional information from
CAMLMAC upon request, but representatives of the PBC provincial branches in Shanghai and
Shenzhen informed the assessment team that they do not systematically request data on STRs, key
STRs, and LVTRs or any other data from CAMLMAC. Authorities explained that they take this
approach to ensure that dissemination of information, if any, takes place as quickly as possible after
the receipt of the key STR, and requesting information from CAMLMAC would delay the
dissemination of financial intelligence. Direct access to the entire CAMLMAC database, including all
LVTRs, would therefore address part of the concerns set out above (stand-alone databases at the
other provincial branches remain inaccessible) and add value to the financial intelligence package.
159. PBC provincial branches would request CAMLMAC for assistance in more complicated
cases, as illustrated by the following case example. This case example also illustrates that LEAs use
disseminations by CAMLMAC and the PBC branches for successfully investigating and prosecuting
predicate offenses, as opposed to ML offenses, as set out above.
Box 2. Use of Financial Intelligence in a Predicate Offense Investigation

This example points to the use of financial intelligence for the conclusion of a predicate offense
investigation/prosecution with the active involvement of both CAMLMAC and a PBC local branch. In 2013, a
bank in Tianjin filed key STRs on individuals A and B. The PBC’s Tianjin Branch conducted an administrative
investigation and concluded that the suspicious transactions were likely to involve illegal business activities,
such as underground banks. Given the importance and complexity of the case, the provincial branch
transferred the initial results of its administrative investigation to CAMLMAC for further analysis and input.
CAMLMAC conducted data mining and transaction analysis and subsequently disseminated a number of
cases to the MPS (number unknown). The public security agencies at the local level investigated the case
based on suspicions of illegal business operations. Through the investigation, the public security agencies
identified a large underground banking case, wound up 10 underground banks, and froze 264 bank
accounts for a total amount of nearly RMB 140 billion. The local People's Court sentenced a number of
individuals (number unknown) for crimes of evading foreign exchange monitoring and foreign currency
purchase defrauding under Art. 190 CL.
160. The authorities provided other cases that resulted in identifying underground banking
networks. However, due to issues with evidencing the ML offenses, the focus of LEAs and
prosecutors in these cases was on pursuing persons for the predicate offense rather than for the ML
offense. These other cases identify that while LEAs make use of financial intelligence to dismantle
criminal networks, they often miss opportunities to identify ML operations through targeted
operations against underground bankers. See IO.7 write-up for more details.
161. Unless a PBC provincial branch explicitly requests CAMLMAC for assistance, as illustrated
by the example above, there is no systematic interaction between CAMLMAC and the 36 PBC

provincial branches upon the receipt of a key STR. CAMLMAC is therefore unaware of the action, if
any, the branch takes in response to a key STR, unless the branch spontaneously disseminates the
key STR and its associated analysis to the local LEAs, and subsequently makes relevant information
available to CAMLMAC. The main reason for this is that each of the PBC’s 36 provincial branches
operates a stand-alone database, which CAMLMAC or any of the other 35 provincial branches
cannot access, as set out in detail in core issue 6.1 above. Authorities do however not see this
fragmented approach as an impediment for effectiveness because CAMLMAC also receives the
information contained in each key STR to the provincial branch, and receives information on a
subsequent dissemination, if any, by the provincial branches. However, CAMLMAC does not have
access to information collected at a specific PBC provincial branch unless the branch makes these
details available to CAMLMAC following its dissemination. Nor would CAMLMAC be aware that a
branch is working on a key STR or responding to a request from LEAs, and what other information
the branch has to its disposal. Similarly, the branch would not know if any of the other 35 branches
or CAMLMAC would be working on cases related to the same subject, nor if CAMLMAC would have
any relevant LVTRs in its database.
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. In practice, this does not seem to happen systematically
for the following reasons. While CAMLMAC receives all information contained in a key STR and
includes it in its database for use in future analysis, it does not proactively check its database for
linkages with STRs, key STRs, or LVTRs. Nor does CAMLMAC give any specific follow-up to a
dissemination report it receives when a local branch disseminates a case based on key STRs. While
one would expect that a dissemination of key STRs by a local branch would trigger the subsequent
dissemination by CAMLMAC of any associated STRs, key STRs, and LVTRs in its database, this is not
the case.
163. Similar impediments arise when LEAs send requests for assistance to the PBC provincial
branches. While the receiving PBC branch introduces the details of such requests in its own
database, this information is not available to CAMLMAC or any other branch for use in their own
analyses because they are simply unaware of the relevant law enforcement information. CAMLMAC
receives a copy of all the disseminations upon request for inclusion in its own database but, as with
spontaneous disseminations, CAMLMAC does not give any specific follow-up to these
disseminations. This approach severely limits the analytical processes in place, prevents the
development of a holistic view, and ultimately limits the relevance of the FIU arrangement’s outputs
for use by LEAs and other competent authorities.
164. When the provincial branches suspect or identify linkages with other provinces they can
refer a case for joint analysis by CAMLMAC and AMLB or request the AMLB to initiate an
administrative cross-provincial investigation. From 2014 to 2017, the AMLB initiated 1,193 such
inter-provincial administrative investigations involving various branches, or nearly 300 administrative
investigations a year. However, it is not clear what disseminations, subsequent investigations, and
prosecutions and convictions, if any, followed from this, making it impossible to assess the

effectiveness. Moreover, in 2017, the 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; however, it is unclear how many of these
investigations resulted in prosecutions and convictions, which equally prevents the assessment of
effectiveness.
165. As mentioned above, CAMLMAC receives a high number of other reports because of the
requirement for FIs to report LVTRs based on a low threshold. The large volume and filing of LVTRs
has a high potential to become useful for intelligence operations through operational and strategic
analysis, following larger money trails and identifying wider networks. The authorities provided the
assessment team with 13 cases in which the LVTRs reported to and analyzed by CAMLMAC resulted
in/contributed to successful criminal investigations by LEAs and subsequent prosecutions and
convictions. Eleven of these cases clearly show that CAMLMAC successfully uses LVTR data to
support its analysis of STRs and subsequent disseminations, and to respond to requests from LEAs.
One case also showed how CAMLMAC initiated and successfully completed in-depth analysis of
LVTRs based on information received from foreign counterparts. The two other cases provided
evidence that CAMLMAC conducted datamining of LVTRs and identified involvement in predicate
offenses and this led to the dissemination of these cases to LEAs and supervisors respectively.
166. Both CAMLMAC and the PBC provincial branches produce strategic analysis. They primarily
issue these products to guide FIs in their identification of ML/TF risks and facilitate the (key) STR
reporting regime. For example, they published documents to guide FIs in their monitoring and
analysis of illegal fundraising and TF activities. They also issued various ML risk reminders on the
latest trends in and characteristics of ML/TF activities. These risk reminders thus also assist FIs to
increase the quality of STRs and this would ultimately result in higher quality financial intelligence. In
addition to the documents produced for reporting entities, both CAMLMAC and the provincial
branches issue so-called national and regional ML analysis and research reports to raise awareness
of and provide policy guidance to LEAs and other competent authorities on new trends and
typologies. C.29.4(b) requires strategic analysis to use available and obtainable information,
including data that may be provided by other competent authorities, to identify ML- and TF-related
trends and patterns. The limitations presented by the stand-alone databases at the level of the 36
PBC provincial branches and the limited access by branches to CAMLMAC’s database, as set out
above, also negatively affect effectiveness of strategic analysis processes. As pointed out in IO.1, the
strategic analysis products did, so far, not result in any significant changes in terms of ML and TF
investigations, but provided useful contributions in terms of predicate offense investigations.
167. The statistics provided to the assessment team show that in 2016, CAMLMAC and the PBC
provincial branches identified and spontaneously disseminated 412 instances of TF (176 by
CAMLMAC and 236 by provincial branches). During the same year, LEAs initiated
147 TF investigations. The authorities were unable to provide a concrete indication of how many of
these 147 investigations resulted from the 412 FIU disseminations but clarified that they 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.

Box 3. Example of a Successful CFT Case Initiated by the FIU Based on an STR by an FI
In 2014, an FI reported to CAMLMAC that Mr. A’s bank account presented suspicious transactions. The credit
transactions consisted of numerous cash deposits at ATMs in those regions of China where the ETIM
operates. Despite the very high fees charged for cash withdrawals abroad, the debit transactions mainly
consisted of cash withdrawals at ATMs in Malaysia and Turkey, but also in other regions of China. In mid-
July 2014, the account became dormant. Intelligence from the police showed that Mr. A had left China for
Turkey.
The characteristics of Mr. A’s transactions presented some similarities with the financing methods of the
ETIM and CAMLMAC therefore included an indicator in its database that would trigger an alert upon receipt
of additional (key) STRs or LVTRs. In June 2016, after two years of inactivity, new (and similar) credit
transactions took place on Mr. A’s account and the bank again reported these to CAMLMAC. The STRs
immediately triggered an alert and CAMLMAC’s analysis identified that debit transactions now also
consisted of international transfers via an underground bank, also under monitoring by CAMLMAC. In
addition, CAMLMAC had the beneficiaries of the various transfers on record for suspicion of terrorism
financing. On that basis, CAMLMAC disseminated the case to the competent LEA. In the course of the
subsequent investigation, the police identified another individual—Mr. M.—who confessed to act on behalf
of Mr. A. Mr. M was subsequently charged with the TF offense and sentenced to more than one decade in
prison.
168. The authorities provided several examples of TF investigations and subsequent

prosecutions and convictions following spontaneous disseminations and disseminations upon
request by both CAMLMAC and the provincial branches. The example above involving CAMLMAC
shows that financial intelligence produced by China’s FIU’s arrangement clearly has the potential to
offer added value for use in TF investigations.
Cooperation and Exchange of Information/Financial Intelligence
169. As mentioned in IO.1, China’s domestic framework for AML/CFT cooperation and
coordination operates under the overall supervision of the AMLJMC. China’s FIU arrangement and
LEAs have mechanisms in place to allow for the sharing of financial intelligence and other
information, as described in previous paragraphs.
170. The MPS’s ECID and CAMLMAC signed a Memorandum of Cooperation on Electronic
Exchange Platforms to facilitate online requests, assistance and feedback on use of financial
intelligence. CAMLMAC, the MPS, the Ministry of Industry and Information Technology, and others
also jointly established a platform for the management and possible suspension of suspicious
transactions involving new types of criminal activities, such as activities involving telecommunication
networks.
171. Apart from supporting LEAs, CAMLMAC and the 36 PBC provincial branches also provide
information that assists in PBC’s AML/CFT supervision. For example, CAMLMAC regularly issues
notices on the reporting of STRs and LVTRs by individual FIs to PBC’s supervisory departments.
These notices allow AML/CFT supervisors to take into account information on STRs reporting when
supervising FIs. PBC branches are also working on the implementation of a similar approach. While
the authorities provide that STR information facilitates AML/CFT supervisors’ understanding of

ML/TF risks and allows them to identify priorities for focused supervision, the assessment team has
not seen evidence that the cooperation between CAMLMAC and the PBC has had a positive effect
on the effectiveness of AML/CFT supervision of FIs (see IO.3 for more details).
172. Regarding international cooperation, CAMLMAC, which centralizes information exchange

with foreign counterparts, makes little use of its cooperation network with foreign FIUs. While China
is not yet a member of the Egmont network that currently covers 159 FIUs worldwide, CAMLMAC
has the power to exchange information with foreign counterparts based on the MOUs it concluded
with 52 foreign FIUs. However, since 2012, CAMLMAC only sent 63 requests16 (including 29 requests
in 2017) to its foreign counterparts. Fifty-nine of these requests related to ML and four were a
mixture of predicate offenses and TF. The extremely low number of outgoing requests is a major
concern given China’s exposure to inherent risks of cross-border transactions, including cross-
border trade, as identified in the NRA. In addition, the NRA points to TF as being a medium-high risk
and highlights China’s exposure to terrorist threats from outside the country. Seeking information
from foreign counterparts (through HQ) is not yet a routine part of FIU processes and procedures
both at the central and local levels. For instance, the PBC branch in Shanghai, which is the biggest
branch in an international financial center, had in July 2018 not yet engaged in any information
exchange with foreign FIUs.
173. CAMLMAC provided assistance in response to 1,244 requests received from its foreign
counterparts since 2012. As indicated above with regard to core issue 6.3, the authorities provided
the assessment team with a case example showing how CAMLMAC initiated in-depth analysis of
LVTRs based on an information request received from one of its foreign counterparts, and
subsequently completed with information from a third FIU. Despite this positive outcome, which is
very welcomed by assessors, feedback from the global network pointed to weaknesses in the scope
of assistance that CAMLMAC is able to provide. As mentioned above with regard to core issue 6.1,
CAMLMAC does not have the power to request information from any reporting institution. In
addition, fundamental deficiencies in availability of BO information in China also have an impact on
the exchange of financial intelligence with foreign counterparts, and the effectiveness of such
exchanges and the production of financial intelligence more broadly.
174. In November 2016, CAMLMAC set up a special cooperation mechanism with the Australian
FIU AUSTRAC. 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. On the other hand,
CAMLMAC conducts analysis of STRs it receives from Australia in view of dissemination to LEAs.
175. China is rated as having a moderate level of effectiveness for IO.6.
162012: 7, 2013: 6, 2014: 9, 2015: 4, 2016: 8, 2017: 29—total: 63 (59 ML and 4 involving a mix of predicate offenses
and TF).

D. Immediate Outcome 7 (ML Investigation and Prosecution)
ML Identification and Investigation
176. The MPS is the government ministry with responsibility for law enforcement. The MPS has
subordinate Public Security Bureaus (PSB) at provincial and municipal levels with sub-bureaus at
country and urban district level. Within the MPS and the PSBs there are approximately 1.9 million
police officers organized into various departments. The lead department responsible for
investigating ML is the ECID, which was established in 2002. Across China, circa 3,000 dedicated
investigators within the ECID at the PSB level have responsibility for investigating all complex ML,
financial, and economic crime. In addition, the ECID supports the financial aspects of serious crime
investigations when required. These investigators are supported by wider MPS staff as and when
necessary. Case reviews of complex financial investigations evidence the existence of skilled, capable
investigators and leaders within MPS.
177. The GAC is the border agency which supervises inbound and outbound activities. Within
the GAC is the Anti-Smuggling Department, which can investigate ML associated with customs-
related crimes. Generally, upon detection of ML activities, matters are referred to ECID.
178. Investigators within the newly formed National Supervisory Commission (NSC) (formally
the Central Commission for Disciplinary Inspections (CCDI) and the Bureau of Anti-Corruption and
Bribery of the SPP) have the mandate to undertake specialized investigation of suspected
misconduct by public officials. Suspected ML identified by CCDI is referred to public security
bureaus for investigation.
179. The SPP has a national responsibility for prosecution of ML and predicate crimes. The SPP
exercises authority over prosecutions, reviews investigations, determines evidential sufficiency for
prosecution, and oversees the activities of the public security agencies, as required. The SPP is an
agency that comprises trained legal practitioners, who present prosecutions to the SPC and the
subordinate courts. The SPP have an important role in that prosecutions only advance to the courts
upon SPP review. The SPP regularly enhance prosecution cases through a requirement for further
investigation which means that only quality prosecutions are presented to the courts which is
reflected in the conviction rates.
180. In addition to criminal enforcement by the aforementioned agencies, Chinese laws and
regulations authorize administrative departments to undertake investigations and issue sanctions for
illegal activities which do not amount to criminal conduct. In relation to ML, the leading
administrative agency is the PBC with its FIU components which routinely undertake administrative
investigation and refers identified criminal behavior to the relevant LEAs when appropriate.17 During
2012–2016, the PBC disseminated 21,368 intelligence reports to law enforcement, of which 245 18
17 Reference statistical reference in IO.6.

18 Statistics booklet 4.5.2.

related specifically to ML. Given that approximately 1.37 billion people reside in China, and given
that China is the second largest economy in the world with financial centers of considerable size and
importance, this number of disseminations is considered low. Similarly, taxation authorities and
financial regulatory departments can initiate administrative investigations and sanctions prior to
referral to the PSBs. Such administrative agencies routinely refer matters to PSBs. 19 In 2017, the
Central Committee of the Communist Party of China and State Council reaffirmed a commitment to
fight ML and tax evasion 20 and mandated that agencies should work in close collaboration.
181. The crime of ML is criminalized under three discrete articles of the Criminal Law Arts. 191,
312, and 349, each having a distinct application. Art. 191 addresses the behavior of laundering the
proceeds of a specified range of offenses. Art. 312 covers the laundering of proceeds generated
from any crime subject to a minimum threshold or particular conditions. Thresholds are established
at the discretion of each province within a range of not less than RMB 3,000 (approx. US$440) and
not exceeding RMB 10,000 (approx. US$1,467). Current thresholds implemented in each province of
China range between RMB 3,000 (approx. US$440) and RMB 7,000 (approx. US$1,027). 21 Art. 312
also criminalizes the offense of the receipt or receiving of property derived from crime. Art. 349
relates exclusively to the harboring or disguising of pecuniary benefit derived from narcotic crime
(which could also be captured under Arts. 191 or 312), but this offense also criminalizes the behavior
of “shielding” offenders involved in drug trafficking which extends to the harboring, transfer, or
concealment of narcotics (refer to R.3 of the TCA).
182. Officially, China pursues a strategy and investigation ethos of “follow the money;” however,
in practice the money is followed to the predicate offense, whereas ML prosecutions occur with
modest frequency. Authorities explained that it is a principle of Chinese law that where the offender
(launderer) knew of their intended role to deal with proceeds, (a behavior that would ordinarily be a
contravention of an ML offense) prior to the completion of the predicate criminal behavior, their
laundering actions are those of an “accomplice” to the predicate crime; they would therefore be
prosecuted for the predicate crime. Authorities identified that this strategy also ensured a harsher
penalty as the courts impose sentence in accordance with the most serious offense, which is
generally the predicate. China confirmed that it would only be appropriate to charge an individual or
a legal person with ML if it was proven that their knowledge as to the origins of property they dealt
with, was acquired after the predicate criminal act was completed. Public security agencies, and
representatives from SPP and the SPC confirmed this approach. This concept is understood, and it
confirms that the limited prosecution of ML is due to China having a narrow focus on third-party
launderers, who were not actively engaged prior to the commencement of the predicate crime. This
19Art. 3 of Provisions on Transferring Suspected Criminal Cases by Administrative Authorities obligates administrative
authorities to transfer detected crimes to public securities agencies.
20Opinion on Strengthening the Supervisory Framework and mechanism for Anti-Money Laundering, Combating the
Financing of Terrorism and Anti-Tax Evasion (State Council GAD letter [2017] 84).
21The Interpretation of the SPC of several issues on the application of the law in the trial of criminal cases on cover-
up or concealment of crime related income and proceeds therefrom (Interpretation of Supreme People’s Court No.
[2015] 11) places values thresholds and other conditions on when this offense can be prosecuted.

reveals that the mantra of “follow the money” would not routinely extend to those who are engaged
to provide ML services after the occurrence of the predicate criminal behavior.
Consistency of ML Investigations and Prosecutions with Threats, Risk Profile and National
AML Policies
183. Authorities have identified that significant proceeds are generated from high-risk predicate
crime types and increasing numbers of predicate convictions for crime types such as illegal
fundraising, tax crime, participation in pyramid selling schemes, corruption and telecommunication
frauds are reflective of China’s increasing focus on income generating crime. During 2013–2016,
China identifies that 2.6 million persons were convicted of predicate income generating crime.
184. Given the number of predicate convictions and the geographical size of China, it is difficult
for authorities to identify statistics as to the numbers of “accomplices” who provided ML services,
but who were convicted for the predicate crimes. For this reason, statistical data that confirmed the
existence of parallel investigations to identify and prosecute third-party launderers is limited to
those persons convicted under the three ML articles being Arts. 191, 312, and 349.
Table 4. Convictions Entered Pursuant to the Three ML Articles 1/

Year Convictions Verdicts Verdicts
Art. 191 2/ Art. 312 3/ Art. 349 4/
2013 4 5,530 15
2014 2 9,346 12
2015 10 7,058 16
2016 26 5,549 23
2017 45 10,193 37
1/ These statistics are conservative as they have been sourced from publicly available judgments. Not all judgements in China
are publicly available.
2/ Based on publicly available judgements. Total number of convicted persons totaled 87.
3/ Art. 312 criminalizes the crime of receiving dishonestly obtained goods such as stolen property and illegally harvested natural
resources—this offense is not used exclusively to prosecute ML. 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.
4/ Art. 349 criminalizes the crimes of concealing narcotics on behalf of a trafficker and “protecting or covering” up the behavior
of a narcotics trafficker in addition to ML. This data relates exclusively to ML convictions and China advises that there may be
additional convictions that have not been identified.
185. China identifies that the majority of ML convictions have been secured pursuant to Art. 312
of the Criminal Law. As referenced, Art. 312 also criminalizes the behavior of receiving and the
consuming of stolen or dishonestly obtained property. Initial statistical data provided identified that
during 2013–2017, 54.2 percent of Art. 312 convictions related to ML (26,953 convictions). This data
was later revised to reflect that 88.6 percent of Art. 312 convictions related to ML
(44,060 convictions). The reason for the adjustment was that China takes a position that receiving
stolen property in some circumstances is a ML behavior consistent with definition included in the
Palermo Convention, and therefore China has sought to rely upon previously categorized “receiving

convictions” to determine its effectiveness of this immediate outcome. Although this position is not
accepted by the assessment team, all Art. 312 convictions are included in the table without isolating
the discrete behavior of ML and that of receiving stolen property. Although such data has been
included, caution has been exercised in accepting this data in totality as a measure of the
effectiveness of this immediate outcome.
186. In contrast to the large numbers of predicate convictions, statistics for the three ML
offenses (Arts. 191 and 349, in particular) confirm that authorities do not routinely investigate,
identify, or prosecute persons who provide services of concealing and disguising criminal proceeds
after the predicate behavior has occurred. The NRA identifies that illegal fundraising, drug crimes,
corruption, fraud, and tax crimes, as well as the operation of underground banks are all high-volume
predicate activities in China. Analysis of the Art. 191 convictions (which targets the most serious ML
offending) during the period 2013–2017, identifies that convictions against this article are
increasing, but a comparison with the volumes of predicate crime highlights ML response using this
specific article remains low. China acknowledges that the gradual increase in application of Art. 191
is due to China’s judicial system being relatively conservative and therefore accepts the need to
increase the awareness of the application of Art. 191.
187. Illegal fundraising is the single highest income generating crime, reportedly contributing to
approximately 39 percent of all illicit income generated in China. However, corresponding Art. 312
convictions (China’s primary Article used to prosecute ML) predicated by this crime type comprise
less than one percent of all ML prosecutions. Similarly, national strategic documents such as the
NRA identify a current China policy to focus on tax crime. During 2013–2017, there were 19,850
convictions for this crime type with comparative ML prosecutions predicated from tax crime being a
relatively low 30 Art. 312 convictions.
188. Although it is accepted that additional ML behaviors will have been prosecuted in
accordance with the “accomplice strategy” (as is the case in many other countries), the high
incidence of predicate criminal behaviors all of which generate tens of billions of RMB, confirm
considerable ML activity is not being investigated and appropriately prosecuted.
189. Authorities identified that establishing the element of “obviously knowing” of an ML

offense remains challenging. SPC issued an interpretation in 2009 to assist investigators, the
procuratorates, and the courts with guidance as to how “obviously knows” could be inferred from
objective, factual circumstances. However, as a result of discussions onsite and from a review of
statistics, it is clear that this interpretation has had limited impact on the use of the ML Articles.
190. The prevalence of underground banking is a concern to Chinese authorities. The NRA
identifies that underground banks (together with cross-border cash smuggling) is a preferred
channel 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). Throughout the onsite visit, authorities made numerous
references to the use of underground banking networks to launder criminal proceeds (and assist in
the movement to TF funds). However, with limited exception, it was expressed that in the majority of

such investigations, the investigators struggle to establish that an underground banker has the
required knowledge of “obviously knowing” (with certainty) that specific transactions were derived
from a specified crime type or a specific crime event to support ML prosecution. Due to this
challenge and given the resource commitment required to extend investigation into the behavior of
all customers, persons conducting underground banking are pursued with narrow focus on the
offense of “undertaking an illegal business operation,” pursuant to Art.225 of the Criminal Law (as a
disruptive measure). It was noted that these investigations are routinely supported by financial
intelligence and that resolution includes a confiscation action. These investigations also confirm the
existence of quality financial investigation capability; however, it was noted that no examples have
been identified where investigation has extended to identify the laundering by third parties of the
generated income derived from the operation of such activities.
191. In line with the existing recommended actions from the previous assessment report, the
evaluation team has identified that the current three ML-receiving offenses need to be reviewed and
merged 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 the authorities with the identification of ML typologies, the
identification and mitigation of investigating challenges and provide greater accuracy of ML
investigation and prosecution performance. Combining the elements of “all crime” from Art. 312
into Art. 191 and reducing the knowledge threshold to a lesser standard to include “knowing or
believing or being reckless as to whether or not the property is the proceeds of an offenses” would
broaden the application of the ML offense to a much wider range of behaviors and enable
authorities to target persons involved in third-party laundering such as the operation of
underground banks. Such legislative amendments would also provide much greater opportunity to
maximize outcomes associated to the significant amount of financial intelligence that is being
collected from reporting entities.
Types of ML Cases Prosecuted and Convicted
192. Three cases have been provided where a legal person was charged with ML. Self-
laundering is not criminalized in China; however, authorities report it is an aggravating feature which
is reflected in sentencing outcomes for the previously referred “accomplices.” Despite the outlined
challenges, China identified that investigation and prosecution of various types of ML activities,
including three cases of ML with a foreign predicate offense, third-party ML, and stand-alone ML
have occurred, but in context of risk and predicate crime, convictions occur with insufficient
frequency.
193. Regarding the prosecution of ML associated with foreign predicate offenses, in 2005, a
Chinese citizen was convicted for the laundering of funds that were derived from predicate activities
that occurred in Malaysia. This individual was sentenced to three years’ imprisonment and fined
RMB 330,000 (approx. US$48,430). More recently, two additional examples of prosecution
associated with a foreign predicate crime have occurred both resulting in successful convicted
pursuant to Art. 312. Most of the limited Art. 191 prosecutions emerging out of domestic drug,

corruption, and fraud-related crime. The subjects of these prosecutions are often a family members
or close associates of the predicate offender.
194. The following are examples of ML cases, linked to narcotics, corruption, and illegal
fundraising.
Box 4. Examples of a Narcotics and ML Cases Using Article 191

Case 1: J assisted his cousin with laundering the proceeds of ephedrine sales. J established companies in
false names, he also established two liquor companies and a second-hand car dealership through which the
illicit proceeds were laundered to the value of RMB 11.2 million (approx. US$1.64 million). On
September 16, 2015, J was convicted of ML, sentenced to three years’ imprisonment, and fined RMB 600,000
(approx. US$88,056).
Case 2: B engaged the services of his sister, Y, and his brother in-law, H, to receipt his drug-dealing income
through their banking facilities. Y received RMB 10,950 (approx. US$1,607), and H received RMB 8,000
(approx. US$1,174) with the knowledge that their bank facilities were being used to disguise the illicit source
of B’s income. On December 27, 2016, Y was convicted of ML and sentenced to one-and-a-half years’
imprisonment and fined RMB 2,000 (approx. US$293), H was sentenced to one-year imprisonment with
18 months’ probation in addition to a fine of RMB 1 000 (approx. US$146).
195. A number of other drug-related case reviews identify the use of Art. 312 to prosecute the
concealed possession of criminal proceeds, such as possessing POC on behalf of, and for the benefit
of, a person involved in predicate criminal activity. In relation to Art. 349, case reviews identified that
this article was used to prosecute persons who held narcotics for safekeeping on behalf of another,
a behavior discrete from ML.
Box 5. Examples of Corruption and ML Cases Using Article 191

Case 1: Z received funds from his Uncle L, who was a mayor and Municipal Party Secretary, with the
knowledge that the funds were the proceeds of corruption. Upon receipt of the funds he invested them in a
property development on behalf of his uncle. On August 18, 2016, Z was convicted in the People’s Court for
ML, sentenced to three years imprisonment, and fined RMB 1.1 million (approx. US$161,437). Z appealed the
conviction which was upheld by the Intermediate People’s Court.
Case 2: L received bribery proceeds to the value of RMB 200,800 (approx. US$29,469) from his brother-in-
law who was a senior official in the Agricultural Machinery Management Bureau. The funds were held in L’s
bank accounts, and he undertook various financial transactions and acquired vehicles on instruction of his
brother-in-law. On December 18, 2014, L was convicted for corruption and ML and sentenced to six months
imprisonment and fined RMB 20,000 (approx. US$2,935).
196. Corruption is a recognized predicate crime in China, and authorities have made
commendable efforts in combating this problem. ML prosecutions identified in relation to this crime
type largely involved family members and close associates of the predicate offenders. No cases were
reviewed that involved corruption and bribery activities that were occurring in foreign jurisdictions.
197. Illegal fundraising is identified by China as a high-risk income-generating predicate crime

and considerable enforcement activities had occurred to combat this crime type.

Box 6. Examples of Illegal Fund Raising and ML Cases (Article 191)

Case 1: L was the cousin of a subject who without the approval of the National Financial Regulatory
Authority raised funds from the general public amounting to RMB 175 million (approx. US$25.7 million).
With knowledge that funds were illegally raised, L permitted the use of personal bank accounts for the
purpose of managing the funds. On July 21, 2016, L was convicted of ML and sentenced to two years and
three months and fined RMB 150,000 (approx. US$21,936).
Case 2: Between 2008 and 2001, funds were illegally raised from the public promising a high yield of return.
The principle offender transferred RMB 100 million (approx. US$146 million) to Z, his ex-wife. On
August 10, 2017, Z was sentenced to seven years imprisonment and fined RMB 40 million (approx.
US$5.9 million) for ML.
198. A review of 93 ML case examples provided by China demonstrated that there is the
capacity to effectively investigate these predicate offenses; however, statistics confirm that
investigation efforts are not consistently aligned to risk.
Effectiveness, Proportionality and Dissuasiveness of Sanctions
199. In addition to the previously referenced legal issues, authorities identified that the modest
number of ML prosecutions reflected their desire to pursue the “accomplice” strategy as that
approach achieves higher sentencing outcomes. That is, investigators and prosecutors identified
that stand-alone ML prosecutions resulted in lower punishments when contrasted with the
punishments for predicate offenses. The team, however, considered that the sanctions available are
effective, dissuasive, and proportionate, given that ML offenses each have a maximum sentence of
up to 10 years’ imprisonment, together with compounding fines and forfeiture-related measures.
200. An analysis of sentences from the case reviews evidenced that most convictions attract
imprisonment. With regards Art. 191, 70 percent of those convicted between 2013 and 2017
received a custodial sentence of 1 to 4 years, with 8 percent receiving sentences of more than
5 years’ imprisonment, with fines and associated recoveries for these convictions totaled
RMB 142 million (approx. US$20.8 million). Of verdicts associated with Art. 312, 79 percent of the
verdicts record sentences of less than one year’s imprisonment, 15 percent of verdicts imposed
custodial sentences of between 1 to 3 years’ imprisonment, and 5 percent of the sentences were of
more than three years. The sentencing analysis reflects the probability that a large percentage of
Art. 312 prosecutions relate to low-level criminality as opposed to the imposition of a nondissuasive
sanction.

E. Immediate Outcome 8 (Confiscation)
Confiscation of Proceeds, Instrumentalities and Property of Equivalent Value as a Policy

Objective
202. China, through policy, law, and strategy, demonstrates a commitment to pursue and
confiscate criminal proceeds through both criminal and administrative proceedings. The State
Council recently issues an Opinion on Strengthening the Supervisory Framework and Mechanism for
AML/CFT and Anti-Tax Evasion that reinforced the resolve of the country to pursue the recovery of
criminal proceeds as a national policy objective.
203. The Criminal Law of China reflects this intent with Arts. 59 and 64 providing legal authority
to confiscate criminal proceeds and any property used in the commission of criminal activities
(instrumentalities). Policy and strategy are also reflected in ministry-level documents, such as the
China AML Strategy 2008–2012, which described a goal of recovering criminal proceeds
domestically, and from foreign jurisdictions. These objectives can further be demonstrated through
“Operation Foxhunt.”
Box 7. Case Example of Operation Foxhunt

In 2015, the MPS commenced Operation Foxhunt to seek the return of fugitives and their assets who had
fled China having committed economic crimes, including corruption. China has sought and received
cooperation from many countries, and, between 2014 and 2016, a total of 2,566 fugitives returned to China
along with RMB 8.6 billion (approx. US$1.3 billion).
Yan
Yan was the chairman of a pharmaceutical company in Jilin province during 1998–2001. In his role, he
committed a series of crimes involving share-value manipulation, false loans, contract frauds, and thefts. Yan
then fled, initially to Australia and then New Zealand. Chinese authorities worked closely with both Australia
and New Zealand police to recover the criminal proceeds. With the New Zealand proceeding (where Yan
had become a citizen), extensive evidence was provided by China, including evidence associated with
450 bank accounts, more than 50 witnesses’ statements, and numerous financial records, including company
formation records. Various taxation records were also made available to New Zealand authorities to assist
with evidencing that Yan’s property in New Zealand was proceeds of foreign offenses. The forfeiture
proceedings in New Zealand were pursued using New Zealand’s civil forfeiture proceedings (nonconviction),
alleging that the inwards receipt of POC to New Zealand constituted a domestic ML offense. This was a
significant undertaking for China demonstrating effective international cooperation. In 2016 final resolution
resulted in the forfeiture of NZ$43 million (approx. US$29 million), which was shared between New Zealand
and China, pursuant to a sharing agreement.
204. Operation Foxhunt has led to positive results that Chinese authorities are able to cooperate
with foreign authorities to extradite criminals and recover illicit proceeds, which is relevant for this
immediate outcome. That said, much of the property recovered as a result of Operation Foxhunt is
as a result of persuasion (as it is referred to in Chinese media) and negotiations directly between the
fugitive and Chinese authorities, which is outside the scope of the requirements of the standard.

205. 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, China released a
judicial interpretation on the special confiscation procedure to promote the application of this
confiscation measure which applied to a specified range of predicate crime which include ML and
TF. This legal mechanism has been introduced in response 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 that permits the Chinese courts to impose equivalent value confiscation judgement
(that are not just limited to the conditions of Art. 280) in the absence of a conviction, provided that
such a framework includes sufficient provisions that respect all relevant rights of the owners of such
property.
206. In September 2014, a judicial interpretation was adopted by the Judicial Committee of the
Supreme Court that provided a framework for the enforcement of property confiscation judgements
which formed part of a criminal judgement. During this process, the court investigates the financial
status of a defendant to determine the value of property to be confiscated. 22 The property
confiscation judgements are then applied to satisfy fines, order the return of property, or direct the
forfeiture of property to provide for compensation to victims of crime. Property judgements are also
used to recover illicit income or proceeds, and property used in the commission of a crime
(instruments). Although equivalent value confiscation orders are not expressly described in law
(according to the SPC during the onsite), this interpretation, together with the general sentencing
guidelines, in practice provide for equivalent value confiscation.
207. Based on a SPC, SPP, and MPS notice, during the course of a criminal investigation, 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.
This process occurs when a criminal investigation is registered as an investigation case or a
prosecution has been initiated. Appropriate ministries are advised, such as the MOHURD, who
provide support to administer the seizure or preservation authorization. The authorization remains
in force until resolution of the criminal proceeding.
208. In addition to criminal forfeiture, administrative forfeiture is applied for behaviors that do
not constitute criminal behavior in Chinese law. This forfeiture is applied by various administrative
authorities such as the SAT or routinely the GAC. Further, 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 sanction for
administrate violations.
209. Property that is seized 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
22 This can be negatively impacted BO issues, see IO.5.

the custody of the owner or close family, subject to certain conditions that protect the value of the
property.
Confiscations of Proceeds from Foreign and Domestic Predicates, and Proceeds Located
Abroad
210. The legal processes and the various interpretations evidence policy objectives and provide
a sound legal framework for the confiscation of criminal proceeds. Emerging crime threats have
resulted in the development of several electronic enquiry platforms to allow public security agencies
and the courts to directly enquire with banks to freeze funds and suspend the operation of accounts
in response to increased occurrence of some crime types such as telecommunications-related
frauds. Public security agencies are routinely using this platform upon receipt of complaints to
recover victim funds and to assist with such investigations. 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.
211. Police officers across the public security agencies can initiate seizure and freezing upon the
approval of PSB leaders. Approximately 18,000 dedicated specialists in various LEAs are engaged in
the function of asset tracking and confiscation; and authorities themselves are of the view that
prosecution and judicial agencies are all adequately skilled and resourced to initiate and undertake
confiscation functions.
212. Statistics provided by China confirm that confiscation is being applied routinely to crime
types including those recognized as high risk. During 2013–2017, confiscations valued at
RMB 123.2 billion (approx. US$18.1 billion) have been identified from publicly available judgements.
There are additional judgements which are suppressed and therefore the likely confiscation value
would exceed this value. These forfeitures are primarily achieved through three discreet forfeiture
processes: instruments of crime (property which facilitates offending); direct POC; and forfeiture of
property which is applied to satisfy fines imposed to reflect equivalent value confiscation.
213. Confiscated instruments of crime between 2013 and 2017 were valued at RMB 288 million
(approx. US$42.3 million) from 192,715 cases. It is noted that instrument confiscation associated
with ML pursuant to Art. 312 averaged RMB 3,621 (approx. US$531) per case, and corruption cases
average RMB 190 (approx. US$27.80), reflecting that instrument confiscation values on a per case
basis, were negligible.

Table 5. Instrument Confiscations (2013–2017)

Cases Resulting
Predicate Instrument Forfeiture Value
Investigated/ Instrument
Convictions (RMB one thousand)
Prosecuted Forfeiture Cases
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, 35,712 7,016 25,407
Art.312
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
214. In 2013, RMB 2.9 billion (approx. US$425 million) of POC were confiscated increasing to
RMB 35 billion (approx. US$5.1 billion) in 2017. During the period 2013–2017, RMB 84 billion
(approx. US$12.3 billion) in illicit proceeds was subject to forfeiture. This reflects an average value
of a POC per case as RMB 227,183 (approx. US$33,223).
Table 6. Criminally Derived Property Confiscated (2013–2017)

Cases
Predicate Resulting POC POC Forfeiture Value
Investigated/
Convictions Cases (RMB one million)
Prosecuted 2013
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 identify that statistics provide may be incomplete as they have been sourced from publicly available
judgments only. There are likely to be additional verdicts and judgements that are unreported, and which are therefore
not reflected in these statistics.

215. Equivalent value forfeitures from 2013 to 2017 totaled RMB 38 billion
(approx. US$5.57 billion), with corruption, fraud, and proceeds of counterfeit goods, featuring as
high-value predicate crime types. The average confiscation per case was RMB 70,184
(approx. US$10,300).
Table 7. Property Confiscated to Satisfy Equivalent Value (2013–2017)

Cases Investigated/ Resulting POC POC Forfeiture Value
Predicate Convictions
Prosecuted 2013 Cases (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
216. In summary, during 2013–2017, in relation to the main predicate crimes, a combined value
of instruments, direct POC, and confiscation imposed to satisfy fines exceeds RMB 123 billion
(approx. US$18 billion). It is also identified that different forfeiture mechanisms can be applied to
the same case. For example, with the high-risk crime type of corruption, there were
11,058 instrument forfeitures, 43,568 POC forfeitures, and 27,591 equivalent value forfeitures (a total
of 82,217 forfeiture processes) applied across 71,048 prosecutions. Analysis identifies that there have
been significant increases year after year with confiscation undertaken under all three categories.
Table 8. Convictions Entered Against Article 395

Year Convictions Confiscation Value (RMB million)
2013 10 13.48
2014 20 95.56
2015 23 80.93
2016 33 216.78
2017 29 217.11
Total 115 623.86
217. China identifies corruption and bribery of public officials as high-risk offenses. In 1997,
Art. 395 of the Criminal Law was introduced detailing an offense of “unexplained wealth” by a public
functionary (any public servant). This offense requires authorities to identify that a public official has
more than RMB 300,000 (approx. US$44,025) over and above which is identified as legitimate,
verified income. In circumstances where such unexplained income exists, the onus is reversed to the

owner (not the Procuratorate) to explain the source of all of their wealth. Income and property that
cannot be explained is assumed to be illegally acquired income and is required by law to be
confiscated.
218. Art. 395 was introduced in response to risk and to complement policy objectives in China.
Persons (both natural and legal) who are involved in ML and the high-risk activity of “operation of
underground banking” have not become subject to a similar response, despite risk and the
probability that the persons who professionally operate and provide underground banking services
in particular are likely to have derived considerable income through fees received in the provision of
underground banking services. The investigative challenges presented by underground banking
activities also extend to foreign law enforcement when attempting to reconstruct financial events
and track illicit income back to predicate crime occurring in China. Assessors discussed with
authorities strengthening efforts through expanding the application of Art. 395 to underground
banking and to reduce its prevalence.
219. Requests from foreign jurisdictions are enforced at the discretion of the Chinese
authorities. Prior to the onsite an agreement of reciprocity was mandatory for China to cooperate
with foreign jurisdictions to recover POC. 23
Box 8. France–China Criminal Legal Assistance Agreement

In March 2016, France sought the assistance of Chinese authorities to recover the proceeds of a series of
frauds that were contained within a Chinese commercial bank. Chinese authorities immediately froze
accounts to a value of EUR 5.8 million. China and France are in current negotiations as to how to return
these funds to the victims.
220. China has developed processes to manage and dispose of property confiscated. In
accordance with the Law of Administrative Penalty (Order of the President No. 76). Property
confiscated is sold by public auction with the funds obtained turned over to the central or local
treasury in accordance to law. Currently, 3,290 courts in 32 provinces dispose of confiscated
property via online auction. The total value of confiscated property sold via the Ali Judicial Auction
Platform was RMB 580 billion (approx. US$85 billion), and authorities report that this platform is
proving to be a highly efficient disposal mechanism.
Confiscation of Falsely or Undeclared Cross-Border Transaction of Currency/Bearer

Negotiated Instrument
221. The movement of cash out of China is considered a main risk by the Chinese authorities,
and the flow of illicit proceeds from China has also been identified as a risk in third-party
23 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 (continued)
without an agreement of reciprocity and provided China with a more complete domestic legal framework for
international cooperation in confiscation.

countries. 24 China has currency control measures which regulate the amount of funds an individual
can remit from China, but these are currency-control restrictions that were not set up for AML/CFT
purposes. Authorities identify that bearer negotiable instruments are not able to be transacted in
China and are therefore not subject to any regulation. This is a gap, considering that bearer
negotiable instruments (such as checks) exist in China. China Customs website records that there
“are no quantitative restrictions on traveler’s checks or letters of credit” entering China which allows
China to be a transit country for the movement of such financial instruments. 25
222. In response to the growing use of Chinese debit cards in Hong Kong, China (said to be
caused by the introduction of ATMs with facial recognition in Macau, China), Chinese authorities
further restricted the 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), (Regulation Hui Fa
2017/29 of January 1, 2018). According to the authorities, AML concerns justified taking these
restrictive measures. However, these new restrictions were not complemented by specific AML/CFT
measures, such as alerting relevant customs units that there would be a higher AML/CFT risk of
increased flows of cross-border movements of cash between Shenzhen and Hong Kong, China. This
lack of a focused AML/CFT policy approach regarding cross-border flows of currency, negatively
impacts the effectiveness of the system. That said, the authorities have shared a general notice
issued around the same time that alerted customs staff of the risk of cash smuggling (but not
specifically of the increased risk of ML/TF).
223. Hundreds of millions of persons enter and exit China annually, for example 43 million
person-movements occurred entering and exiting Shanghai in 2017. China has implemented
controls such as the (x-ray) inspection of all luggage, which in Shanghai has resulted in the detection
of 170 cases of persons failing to declare currency in contravention of the declaration regulations.
This detection rate is modest given the NRA identifies the cross-border carriage of cash is a risk.
China-wide, during 2013 to 2016, China Customs detected 26,887 cross-border currency cases
resulting in the confiscation of RMB 510 million (approx. US$74 million). Upon detection, most cases
result in an administrative confiscation.
224. Customs has a range of resources and technologies available to detect cross-border
movement of cash, precious metals, narcotics, and counterfeit products. Given that movements of
persons and freight are however large and the borders lengthy, Customs face considerable and
significant challenges. Detections and the receipt of declarations are not submitted to the
CAMLMAC in a timely manner (currently it occurs six monthly) to enable inclusion of such
financial information in the process of developing intelligence. This reduces opportunities to
develop and provide tactical intelligence to border authorities to assist in effective resource
deployment and the development of strategies and policies to counter smuggling activities.
Assessors discussed with the authorities the benefit to China and its neighbors of developing
mechanisms for the exchange of intelligence with key counterparts in neighboring jurisdictions with
24 See for example the FATF/APG MERs on Australia, Canada (undertaken by the IMF), and Singapore.
25 See english.customs.gov.cn—Customs Clearance Guide for International Passengers—August 2, 2018.

regards to cash detection and declaration information. Authorities indicated that very limited use
was made of cash and drug dogs at the border. During the onsite, an additional 10 dogs were
acquired from another jurisdiction, this was encouraging; however, China should consider increasing
the capacity and capability of this highly effective resource.
Table 9. Customs Cross-Border Currency Cases (2013–2017)

2013 2014 2015 2016
Case Confiscatio Case Confiscatio Case Confiscatio Case Confiscatio
s n s n s n s n
(RMB (RMB (RMB (RMB
million) million) million) million)
Foreign Currency Cases Detected at Borders
Illegal 1 219 23.06 1,515 32.67 629 14.48 639 16.62
Entry
Illegal 5 675 87.18 4,413 61.25 2,188 35.20 2,672 168.69
Exit
Smuggl 53 0.27 319 0.06 121 0.67 182 0.28
e Out
RMB Cases Identified at Borders
Illegal 1,879 13.00 590 6.29 334 4.15 338 3.44
Entry
Illegal 1,538 14.04 632 7.38 719 7.55 1,177 13.32
Exit
Smuggl 2 0.008 9 0.28 4 0.16 10 0.15
e In
Smuggl 3 0.25 5 0.54 12 0.45 10 0.26
e Out
Consistency of Confiscation Results with ML/TF Risks and National AML/CFT Policies and
Priorities
225. China’s confiscation efforts are aligned with the main predicate crimes, and criminals are
routinely deprived of property. Statistics identify increasing efforts to confiscate property as an
effective measure against ML and associated predicates. Existing legal frameworks have been
designed and adapted over recent times to confront emerging threats and risks, and commendable
results have been achieved with the successful recovery of POC from foreign jurisdictions. China
identifies and acknowledges the risk associated with its borders and is continues to strengthen its
capabilities at the border.
226. China’s confiscation results are broadly in line with its risk understanding. Whereas the
NRA does not identify illegal gambling, and counterfeiting of goods as risks, the amounts
confiscated in relation to these offenses are as high, and sometimes even higher, than recognized
high-risks crimes such as drugs and corruption.

TERRORIST FINANCING AND FINANCING OF

PROLIFERATION
A. 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.
China’s mitigation of its 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. However, the 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, related to

(i) scope of coverage of the requirements and a lack of a prohibition covering all persons and
entities; (ii) the types of assets and funds of designated entities that can in practice be frozen,
and the type of transactions that can be prohibited; and (iii) a lack of implementation without
delay (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. In addition, 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. This is
somewhat worrisome with respect to the larger financial centers.
• 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 however, 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 three fundamental deficiencies, related to

(i) scope of coverage of the requirements and a lack of a prohibition covering all persons and
entities; (ii) the types of assets and funds of designated entities that can in practice be frozen,
and the type of transactions that can be prohibited; and (iii) a lack of implementation without
delay.
• There is a lack of awareness of Iran-related sanctions, with an almost exclusive focus by

authorities and private sector on DPRK.
• Despite the fact that authorities such as PBC are treating PF in relation to DPRK as an important
issue, the AML/CFT shortcomings in CDD (IO.4) and supervision (IO.3) are nevertheless largely
apply in relation to CDD and supervision in relation to PF shortcomings in this immediate
outcome,
• While not covered by the FATF standards, 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.
TF Offense (Immediate Outcome 9)
• China should enhance its mitigation of TF risk through a detailed analysis of the investigations
and prosecutions of TF cases it has already conducted. Such analysis should include a

breakdown the methods of TF, such as the collection, movement, and use of funds or assets. In
addition, the analysis should identify and categorize the various roles played by the individuals
and legal entities involved in the financing of terrorism. Resources should focus on TF and
terrorism cases, and on a more comprehensive focus on the seizure of criminal assets, including
overseas.
• In order to improve the detection, prevention, and prosecution of TF crimes, China should keep
up-to-date and detailed statistics relating to TF offenses and share this intelligence with LEAs
and reporting entities through ongoing training.
• To better mitigate the full range of risk TF poses to the country’s economic system, China needs
to broaden its 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)
• Authorities should 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).
• Authorities should 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, authorities should provide outreach to other (regional) competent
authorities and the public to sanitize all relevant stakeholders about TFS.
• China should 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.
• China should reconsider its 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)
• Authorities should 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, authorities should conduct outreach to other
(regional) competent authorities and the public to sensitize all relevant stakeholders about TFS.
• Authorities should monitor the FIs and DNFPBs compliance with these measures and continue to
focus on the possible misuse of front companies that facilitate PF TFS breaches.
The relevant Immediate Outcomes considered and assessed in this chapter are IO.9–11. The
recommendations relevant for the assessment of effectiveness under this section are R.5–8.
C. Immediate Outcome 9 (TF Investigation and Prosecution)
228. In the NRA, China identifies the ETIM also known as the TIM, as its major terrorist threat.
ETIM operate also (from) abroad and is 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. In addition to ETIM, the NRA identifies a limited terrorist threat
posed by local “violent terrorist gangs” mostly influenced by overseas terrorism or religious
extremism.
229. While the NRA does reference that, “some Chinese citizens have crossed the border to the
Middle East to join international terrorist organizations,” and while Chinese authorities did provide
TF cases relating to foreign terrorist fighters, the TF risk posed by foreign terrorist fighters is not
elaborated on. Estimates of the number of Chinese foreign terrorist fighters in Syria differ, one
estimate by officials in state media referred for example to 300 such fighters in 2014. 26 Irrespective
of the exact number, the issue is a concern for the authority. Moreover, this also suggests that
attention to the TF risk resulting from foreign terrorist fighters in China is warranted (see also for
IO.10).
26See for example Global Times, December 15, 2014, http://www.globaltimes.cn/content/896765.shtml, but also see
paragraphs 3 and 46 of this report for other estimates (around 60 persons per year).

230. The NRA indicates that the source of terrorist funds is derived from support by personal
and corporate sponsors; the sale of personal assets; the receipt of gifts from relatives and friends;
from funds generated through business income (such as restaurants); “Zakat” 27 from religious
believers; and, illegal activity such as robbery. The main source of this information is strictly
confidential and is only shared among authorities that belong to National Leading Group and
AMLJMC; however, cases presented are in line with the mentioned sources of TF funds. The NRA
states that it is China’s strategy to mitigate TF and terrorism risk through prevention and disruption
of TF and terrorist activity.
Prosecution/Conviction of Types of TF Activity Consistent with the Country’s Risk-Profile
231. China’s statistics on the prosecution and conviction of TF offenses are not broken down by
the type of TF activity investigated. Assessors were advised that authorities could not elaborate on
their CT/TF approach for security reasons. At a macro-level, the case information provided by
authorities suggest that these prosecutions and convictions are consistent with part of the risk-
profile. China’s prosecution and convictions related to TF offenses are generally consistent with the
country’s TF risks.
232. At a local level, LEA activity focuses mostly on preventive investigations and other
administrative violations of CFT measures 28 that authorities consider to be related to terrorism or
necessary to fight terrorism (but some are outside the scope of the FATF standards). For example, of
15 terrorism cases taken up by local security authorities in Shenzhen, only 1 related to terrorism, the
others to unrelated (lesser) offenses under the CTL. When a major TF offense is detected, the case is
often transferred to the courts of Xinjiang province, where the detected facts related to TF activities
were committed or originated. Authorities in Shanghai and Shenzhen advised that this further
lowered the low number of TF investigations and prosecutions in their regions. Cases transferred to
Xinjiang became inaccessible for the authorities in other regions.
233. China identified the risk of transferring funds overseas for TF activities which includes
overseas withdrawal of cash using ATM machines; cross-border cash transit; and underground
banking activities. The following case summaries provided by authorities details such cases.
27 A form of alms-giving treated in Islam as a religious obligation or tax.

28 Such as the requirement to provide passports when checking-in at a hotel.

Box 9. KU—Terrorist Financing Through the Provision of Mobile Phones and Cash
In March 2017, PSAs conducted a special operation targeting domestic and overseas TF. KU, a member of
ETIM overseas, was suspected of helping foreign terrorists purchase communication equipment. KU
commanded A, BA, and 2 other suspects to raise funds and transfer them to AI. AI sold mobile phones in the
Guangdong province.
The special operation involved PSAs in Guangdong and Shenzhen and representatives from the Counter-
terrorism, Economic Crime Investigation, Cyber Security, and Technical Investigation Departments. The local
branch of the PBC and CAMLMAC were involved in the financial analysis aspects of the investigation
pertaining to 17 accounts and in excess of 170,000 transactions involving banks and the online payment
service providers. During the investigation, evidence was gathered on 7 suspects from communication
intercepts related to 13 mobile phones and the electronic surveillance of 25 internet and social media
accounts.
The investigation revealed that KU had worked in AI’s mobile phone shop before departing the country. KU
had directed BA and A to obtain bank cards for KU’s use while out of China while A and RE were involved in
mobile buy-backs in Shenzhen. A value of RMB 3 million in mobile phones were exported to KU. In addition,
RMB 282 000 in cash was physically transferred across the border using couriers.
In June 12, 2017, the PSA of Guangdong, Shenzhen and Xinjiang arrested 26 suspects for TF offenses.
RMB 2.2 million is currently restrained. Prosecution of the case is ongoing.
Figure 2. TF Case 1

Box 10. YA—Terrorist Financing Through the Operation of an Underground Bank

In December 2014, the PSA in Xinjiang was notified by an office in another province that a known terrorist
from outside of China had transferred RMB 14,000 to YA in December 2013.
The PSA in Xinjiang began financial analysis relating to the transfer to YA. They consulted local and national
databases, accessed security intelligence, and analyzed disclosures from the FIU related to other national
security and criminal investigations dating back to 2013, linking YA to 133 of them. They discovered that
YA’s bank card had been linked to multiple TF-related disclosures.
An investigative task force was established made up of the Counter-Terrorism Department, the ECID, the
Technical Investigation Department, and the Cyber Security Department. The task force organized the case
investigation work across police types, regions, and levels. They used conventional police investigative
methods to identify household registration, passport information, and past behaviors of YA and those
associated to him both in and outside of China. YA was identified as a sophomore university student.
The local branch of the PBC was engaged to assist in the financial investigation expanding the analysis to
over 100 accounts and 1,000 transactions. The analysis revealed a pattern of multiple large-value currency-
exchange transactions, inconsistent with YA’s residence and his profile as a student. Funds-tracking revealed
hundreds of parties associated with YA, resulting in the belief that YA was involved in transferring funds to
terrorist organizations through underground banking channels.
The investigation involved monitoring of two mobile phones and six social media accounts belonging to YA
revealing a network associated to ETIM and ISIL. Identities of the network were identified and confirmed
through electronic surveillance. Transfers of funds, for the purpose of supporting ISIL, to AI, (identified to be
an overseas member of a terrorist organization) and SAI a key member of ETIM, were identified.
The investigation revealed that YA and his relatives operated companies and used them to cover the illegal
operation of an underground bank. YA and his brother 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.
The investigation into YA lead to the formation of other task forces to follow up on the TF transactions
identified during the YA investigation. In January 2017, YA was sentenced to 14 years for TF and 3 years for
operating an underground bank. In addition, RMB 20 million (the balance of the associated accounts
representing the total of YA’s assets) was forfeited.

Figure 3. TF Case 2
TF Identification and Investigation
234. Identification and investigation of TF is a challenge for the authorities. China set up the
National Leading Group for Combating Terrorism, which includes members from the SPC, the SPP,
the MFA, the MPS, the MSS, the MOJ, the GAC, and the PBC to mitigate terrorism and TF activities.
The ECID and Anti-Terrorism Department are the lead departments responsible for investigating TF
in China.
235. MPS maintains a watch list of international and domestic persons and entities related to
terrorism and TF. The full list is confidential (also the number of entities on the list) and only
disseminated to LEAs and CAMLMAC. A shorter list is shared with FIs on a need-to-know basis to
assist in STR generation. 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 in detecting suspicious transactions
related to TF.
236. Authorities indicated that, when necessary, investigations of complex terrorism and TF
cases are carried out by forming special investigation task forces consisting of LEAs, State Security,
the PBC and, in some cases, FIs. When dealing with international terrorism cases, China would
cooperate and coordinate with international law enforcement and intelligence services. If required,
TF investigations may include special investigative techniques such as wiretapping, internet
surveillance, and undercover and special operations.

237. The following table provided by authorities represents the number of TF cases and the
number of persons implicated in those cases. While the table represents a year-after-year increase in
the number of TF cases, given the size of China and the identified risks of TF, the number of cases is
relatively low. In addition, as mentioned earlier TF offenses are not broken down by the type of TF
activity investigated, so it is not possible to determine the extent to which investigations identify the
specific role played by the terrorist financier.
Table 10. Number of Cases and Convicted Persons Involved in TF (2012–2016)

Classification 2012 2013 2014 2015 2016 Total
Number of Case(s)
0 1 18 55 147 221
Involved in TF
Number of Convicted
0 0 6 51 153 210
Person(s) Guilty of TF
Source: AML/CFT Statistics China.
238. The PBC advised that it provides guidance to entities with reporting obligations and
promotes regular internal CFT training on TF. In addition, the PBC summarizes updates and gives
guidance on the “indicators for monitoring funds involved in terrorism.” On this basis, FIs further
study and develop monitoring models of STRs related to TF, mainly electronic platforms for real-
time scanning, that fit their own characteristics or needs. The PBC develop “clues” from submitted
STRs and disseminate them to LEAs. The PBC routinely cooperate with investigations by
participating in case discussions with LEAs and supporting ongoing investigations with analysis.
Table 11. Internal CTF Training Provided by the PBC

Classification 2016 2012–2016
Regional AML
316
managers
Key AML
Face-to-face 2,000+
personnel of
training 100
provincial
branches
Training courses 3 -
Branch personnel 3,000+ 800,000+
Remote training
Training courses 3 -
TF Investigation Integrated with and Supportive of National Strategies
239. As mentioned, China has established a national coordination mechanism, The National
Leading Group for Combating Terrorism, to coordinate overall planning of CTF strategies. The Office
for the National Leading Group for Combating Terrorism was established by the MPS to enhance
the coordination and promote effective operation of counter terrorism activity across China through
supervision, guidance, monitoring and inspection. The members of the National Leading Group
include the SPC, SPP, MFA, MPS, MSS, MOJ, GAC, and the PBC,

240. The National Leading Group for Countering Terrorism is responsible for developing China’s
counter terrorism strategy, which includes TF and developing work plans for implicated
departments. However, because operational plans are of a sensitive nature, involving classified
national security issues, no information beyond high-level counter-terrorism strategic goals, and no
information specific to CFT activities was shared with the assessment team.
Effectiveness, Proportionality, and Dissuasiveness of Sanctions
241. The following table, provided by the authorities, relates to sanctions imposed on natural
persons convicted of providing assistance in terrorist activities. Given that such crimes may include
administrative-type offenses under the CTL that are outside of the scope of the FATF Standards and
given that no specific separate statistics can be provided (see above regarding the classification of
TF-related information for state-security reasons) it is not possible to determine that China has
effectively imposed proportionate and dissuasive sanctions in TF cases. This negatively impacts the
assessment. In addition to statistics, the authorities also provided case examples (which are partially
consistent with China’s risk profile), with references to sanctions between three years and life, and a
conviction of a legal entity. In addition, some cases presented indicate that in eight TF cases in 2017,
assets were confiscated as an additional sanction (note that confiscation is generally assessed under
IO.8).
Table 12. Penalties for Crime of Providing Assistance in Terrorist Activities

Year Number Number of Number of Imprisonment Imprisonment Total
of Case Public Criminal of Not More of More than Number of
Closed Surveillance Detention than Five Five Years Individuals
Years with
Effective
Judgements
2016 147 1 1 45 106 153
2015 55 1 0 2 48 51
Alternative Measures Used Where TF Conviction is Not Possible (e.g., Disruption)
242. If it is not practical to secure a TF conviction, authorities can carry out arrests, prosecutions,
and trials in the name of other serious crimes such as accomplices of terrorist offense, crimes of
harboring criminals, assisting in endangering national security, or other crimes such as the crime of
disrupting order of the financial markets.
243. The following table, provided by the authorities, identifies the number of cases and
implicated persons in crimes related to TF activities.

Table 13. Approved Arrests and Prosecutions Initiated against the Financing (Assisting) of
Terrorist Activities
Classification 2012 2013 2014 2015 2016
Number of Approved Cases 2 3 41 92 135
Number of Approved
10 4 81 181 341
Arrests (Persons)
Number of Public
2 2 27 71 129
Prosecution (Cases)
Number of Public
3 13 61 167 300
Prosecution (Persons)
Source: AML/CFT Statistics China.
D. Immediate Outcome 10 (TF Preventive Measures and Financial

Sanctions)
Implementation of Targeted Financial Sanctions for TF without Delay
245. In January 2016, China enacted the CTL. The CTL combines criminal law elements, a broad
range of national security provisions that are unrelated to terrorism and TF, and asset
freezing/seizure/confiscation requirements. The law needs to be read in conjunction with the
Criminal Law, for example, the definition of terrorism is in the CTL and the criminalization of TF is in
the Criminal Law. The CTL absorbs the freezing requirements contained in previous Decisions.
Separately, the PBC has issued Notice 187/2017 in August 2017, which aims to focus on UNSCR
1267 and relevant successor resolutions as is set out in more detail in R.6.
General Implementation of Provisions Relevant to UNSCRs 1267 (and Successor Resolutions) and 1373
246. Notwithstanding measures taken by the PBC, the overall implementation of TFS related to
TF in China suffers from three fundamental deficiencies:
• Scope issues and lack of a prohibition: Although the CTL and Notice 2017/187 contain
obligations for FIs and designated DNFBPs to freeze assets of designated entities, China
lacks obligations that require 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 also lacks obligations that would prohibit all natural or legal persons to make
any funds or assets available to designated entities (i.e., there is no general prohibition). The
authorities were unable to demonstrate that these deficiencies in scope do not leave a gap
in the effective implementation of UNSCRs 1267 and 1373.

• Not all funds, assets, and transactions are covered: Because of these scope issues, as a
country, China is only able to freeze certain assets (e.g., those that would be held by a bank),
but is not able to freeze assets that designated terrorists may be holding themselves, or that
other third parties may be holding. In addition, transactions outside the financial sector are
not prohibited. The authorities were unable to demonstrate that these other types of assets
(e.g., real estate, land, and cash), or other transactions, are effectively frozen or prohibited
using other measures. This deficiency impacts the effective implementation of UNSCRs 1267
and 1373 as it allows designated entities to move their assets to safety.
• No implementation without delay (in relation to UNSCR 1267 and successor resolutions):
Authorities were unable to demonstrate that the freezing actions that the PBC Notice
provides for are implemented without delay (i.e., ideally within hours). The initial delays are
caused by untimely circulation of new UNSCRs within the government, even before PBC and
others could circulate the UNSCRs to supervised entities.
UNSCR 1267 and Relevant Successor Resolutions
247. Within the scope of PBC Notice 187/2017, the MFA is responsible for ensuring that UNSCRs
are implemented in China. It is doing so by circulating relevant UNSCRs to relevant competent
authorities, but consistent and timely circulation in all cases of UNSCR 1267 and successor
resolutions and amendments to the lists of designated entities related to these UNSCRs, could not
be demonstrated. Based on Notice 187/2017, the PBC is then responsible for following up on the
MFA circulars by circulating the information on new UNSCRs to FIs (as a notices); but consistent and
timely circulation in all cases could also not be demonstrated.
248. During the onsite period, the UNSC amended the list of UNSCR 1267-related
designations, 29 which provided an opportunity for competent authorities and FIs to establish, for the
purposes of this assessment, that new designations and amendments to the lists are indeed
circulated without delay. Assessors therefore checked with (regional) competent authorities and with
FIs if they were aware of a very recent change to the list of designations. This was not the case,
interviewees were not aware of this recent change to the UN list, or of other recent changes to the
UN lists. Assessors could therefore not confirm that UNSCRs (and amendments to designation lists)
are indeed circulated and reach FIs without delay (i.e., ideally within hours).
249. FIs interviewed made references to commercial compliance software solutions as their
main source of information. Indeed, PBC requires the use of commercial compliance software to
29The UNSC Subsidiary Organs Branch automatically conveys updates to the Consolidated United Nations Security
Council Sanctions List, to states, regional and sub-regional organizations by e-mail shortly following updates made
to a Security Council Committee's sanctions list. This particular update to the Consolidated United Nations Security
Council Sanctions List was made on July 17, 2018 following an update to the sanctions list maintained by the Security
Council Committee pursuant to resolutions 1267 (1999), 1989 (2011) and 2253 (2015) concerning ISIL (Da'esh), and
Al-Qaida and associated individuals and entities (the ISIL (Da'esh), and Al-Qaida Sanctions Committee). The onsite
period was July 9–27, 2018.

mitigate the delays in circulation of the UNSCRs. This is a positive step, albeit not unique to China,
and FATF has indicated that the use of commercial databases poses challenges. 30 The reliance on
third-party software may also explain why FIs were not aware of recent amendments to the list by
the UNSC. These commercial databases are said to be updated one day after the UN
designation/amendment, but this was not verified. The compliance software solutions do not
distinguish between UN, EU, the United States, or other sanction programs and some FIs suggested
that they implemented all these lists in China, regardless of the issuing jurisdiction. Such a
suggestion is problematic from a domestic legal point of view, although internationally operating FIs
may have no choice but to try to comply with competing lists from different jurisdictions.
250. Competent authorities and FIs were not able to share much information on how UN
designations would be implemented in practice. However, the PBC and CBIRC representatives were
able to respond to different scenarios that FIs may be confronted with in practice, when the country
is implementing sanctions and FIs are freezing assets. Such scenarios were inter alia related to
handling of false positives, and how to deal with interest accrued by frozen accounts. FIs and
regional competent authorities were less responsive to these questions.
251. There are no statistics related to the number of false positives or the number of frozen
assets related to UNSCR 1267. Authorities were able to provide one case example (2014, Shanghai)
of a false positive.
252. As far as submitting designations to the UN is concerned for listing under 1267 and
successor resolutions, authorities provided an example of one case, in 2002 when the UNSC agreed
to designate ETIM on the basis of a Chinese proposal. China also successfully joined other countries
in 2009 to add one of the leaders to the 1267 list. There have been no other submissions to the
UNSC since 2009. Possible other targets for preventive designation by the UN could have been
Chinese foreign terrorist fighters fighting in Syria/Iraq or other ETIM members. That said, authorities
also stressed that in case of the detection of any funds related to ETIM, authorities would likely
prioritize criminal justice measures. While this does not assist in the implementation of this
immediate outcome, it does positively impact IO.9 (see IO.9).
UNSCR 1373
253. Where applicable, issues that relate to UNSCR 1267 and successor resolutions as described
above equally apply to the implementation of the TFS provisions of UNSCR 1373 and are not
repeated in this subsection.
254. On the basis of a previous legal framework (that was absorbed by the CTL), China has
domestically designated 4 organizations and 25 persons as terrorists, in 3 tranches in 2003, 2008,
and 2012. The four organizations concern the ETIM, the Eastern Turkistan Liberation Organization
(ETLO), the World Uygur Youth Congress, and the East Turkistan Information Centre. The 25
designated individuals are all linked to one or more of these organizations. The designation of these
30
See for example FATF’s Guidance on Politically Exposed Persons, paragraphs 61–63.

persons and entities was prior to the current CTL which now requires FIs and DNFBPs to freeze the
assets of these persons or entities. Four accounts have since been frozen, for a total amount of
RMB 169.15 (approx. US$24.82), and the accounts remain frozen while the two account holders
remain at large.
255. Since 2012, there have been no domestic designations. The 2016 CTL includes provisions
that allow for the designation of terrorists. Designations can be made on an administrative basis by
the National Counter Terrorism Leading Body. Requests can be filed by the MPS, the MSS, the MFA,
or regional/provincial counter-terrorism leading bodies. Courts can also decide to designate a
person or entity as terrorists as part of criminal proceedings. As of the time of the onsite, no such
designations have taken place. As is the case with proposed designations to the UNSC, this is
despite the existence of Chinese nationals fighting in Syria and Iraq as part of ISIL or returning to
China from ISIL-held territory. The same applies to persons who have committed terrorist attacks in
China in recent years 31 and the support networks of these attackers, also in these cases, authorities
have not used TFS.
256. Regarding requests to other countries, authorities indicate that they have requested other
countries to designate ETIM as a terrorist organization. Such efforts have been successful in the case
of Turkey (2003), the UAE (2014), the United Kingdom, and the United States (both 2016). Requests
to Australia, Canada, the EU, Germany, and Saudi Arabia did not lead to a designation of ETIM by
these states, according to authorities. 32 The authorities explained that these ETIM designation
request must be considered as a political statement to signal the importance that China attaches to
the fight against ETIM, regardless of the fact that the UNSC since 2002 already requires ETIM assets
to be frozen in all UN member states. Despite the risks that China is facing (as described above), no
other requests were made by China to other countries.
257. Authorities indicated that the MFA would be responsible for receiving foreign requests to
China for designations under UNSCR 1373. According to the authorities, no foreign country has ever
made such a request to China.
258. FIs and DNFBPs were generally aware of the domestic lists of designated entities, but not
so much in relation to the four organizations and 25 persons related to ETIM. Most FIs would refer
to the regular, domestic, law enforcement watch list maintained by the MPS (which for the purposes
of the FIs would not make a difference).
259. FIs could not demonstrate an understanding that there is a possibility that the financial
infrastructure in one part of the country may be used to finance terrorism elsewhere, or that TF and
terrorism could be separated, with terrorist attacks taking place in one place, and the financing of
such attacks taking place elsewhere. Rather, FIs expected TF-related transactions to be linked closely
31 Such as, for example, the 2010 Aksu bombing, the 2011 Kashgar attacks, the 2013 Tiananmen Square attack, the
2014 Kunming train station massacre, 2015 Guangzhou train station attack, and the 2015 Sogan Coal Mine attack.
32 UNSCR 1373 does not require states to positively respond to requests for designation, only to consider these
requests.

to terrorism. This is somewhat of a concern considering that China has large financial centers, both
for traditional financial services and for new financial services (e.g., new payment systems and
Fintech). That said, authorities stressed that the FIs’ risk understanding in this case is actually in line
with existing typologies.
260. See also IO.4 for more details on compliance of FIs with TFS requirements.
Targeted Approach, Outreach and Oversight of At-Risk Nonprofit Organizations
261. China’s universe of NPO’s consists of 799,500 social organizations comprised of social
groups (368,000), foundations (6,500), and social services institutions (private nonenterprise units)
(425,000), as well as 1,227 separately regulated overseas nongovernment organizations. The MCA
has the responsibility for the registration and oversight of social organizations while the MPS has
the responsibility for the registration and oversight of overseas nongovernment organizations. China
has failed to date to identify the subset of NPOs that, based on their characteristics and activities,
are at risk of TF abuse as is required under R.8.
262. Since the reform and opening-up in the late 1970s, social organizations have developed
rapidly in China. China recognizes the positive role social organizations play in promoting economic
growth, the development of society, the innovation of social governance, and the deepening of
international relations.
263. In 2016, arising from a need to establish a comprehensive legal framework governing the
NPO sector, the General Office of the State Council issued the Opinions on Reforming the
Administrative System and Promoting the Healthy and Orderly Development of Social Organizations.
The opinion stipulates that the PBC shall work with the MCA to incorporate social organizations into
the AML regulatory system to prevent NPOs from the abuse of ML/TF. The Charity Law of the
People’s Republic of China came into effect in 2016, and China has started the process of registering
social organizations as charities. As of June 2018, China had registered 4,194 organizations, the
majority (3,265) of which are foundations. Many of the requirements under the Charity Law address
general issues related to financial integrity, governance and transparency; however, China has not
identified any specific measures being placed on these organizations initiated out of a concern
related to the risk of TF abuse.
264. 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. However,
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 also 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.
265. China addresses social organizations in its NRA under Chapter 7—TF Risk Assessment. The
analysis, however, is limited to a description of China’s NPO sector (social organizations) and the

laws and regulations in place to address fund management; responsible person management;
activities management; governance, and integrity and self-discipline. There is no analysis as to the
types or features of social organizations based on their activities or characteristics that make them
vulnerable to TF abuse, neither is there an analysis as to the nature of threats posed by terrorist
entities to social organizations or a subset of social organizations or how terrorist actors abuse
social organizations. The NRA acknowledges that there are issues within the sector related to ‘fund
irregularities’; however, no cases of NPOs being involved in TF activities were identified.
266. The MCA has the powers to conduct appropriate supervision of social organizations. It has
the authority to share information with other government departments if necessary 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. While China
recognizes the inherent risks of TF abuse faced by FATF-defined NPOs, it failed to identify any
specific risks of TF abuse faced by NPOs in China. The NRA did however identify ML and other
financial integrity risks faced by China’s broader NPO sector. As a result, China has chosen to
incorporate social organizations into its AML regulatory system. While oversight and regulation of
China’s broader NPO sector may be warranted out of a concern for financial integrity generally, and
while there may be incidental benefits to assessing and addressing the risk of TF abuse to FATF-
defined NPOs in doing so, initiatives addressing the ML and financial integrity of China’s broader
NPO sector are out of scope in relation to R.8 and IO.10 which is specific to the risk of TF abuse.
Deprivation of TF Assets and Instrumentalities
267. In the absence of the demonstration of the effective use of the TFS toolkit, and of NPO
requirements tailored specifically to NPOs that are at risk of being misused for TF, assessors are
unable to confirm that terrorists and their support networks are preventively deprived of their assets
and instrumentalities. At least not for the past years despite existing risks. However, the focus of the
authorities on criminal measures (convictions and confiscations) does balance this, as is set out
comprehensively in relation to IO.9.
Consistency of Measures with Overall TF Risk Profile
268. China is a regular victim of terrorism, and Chinese nationals are also active overseas, such
as most recently in ISIL controlled territory in Syria and Iraq. ETIM, has been designated by the UNSC
under 1267 and successor resolutions. As is described above, for the past years this TF risk profile is
not matched by corresponding measures to effectively implement preventive TFS measures.
However, the focus of the authorities on criminal measures (convictions and confiscations) does
balance this, as is set out comprehensively in relation to IO.9.
269. China is rated as having a low level of effectiveness for IO.10.

E. Immediate Outcome 11 (PF Financial Sanctions)
270. China lacks a comprehensive general legal framework to deal with TFS related to PF,
despite the fact that PBC issued Notice 187/2017 to address some of the shortcomings in relation to
FIs. Notwithstanding the legal framework, the overall implementation of TFS related to TF in China
suffers from three fundamental deficiencies (as set out below), as well as of a general absence of a
focus on UNSCRs related to Iran. These three shortcomings are largely similar to those referred to
under IO.10:
271. Scope issues and lack of prohibitions: Although Notice 2017/187 contains obligations for FIs
to freeze assets of designated entities, China lacks obligations that require 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 also lacks obligations that would prohibit all natural
or legal persons to make any funds or assets available to designated entities (i.e., there is no general
prohibition). The authorities were unable to demonstrate that these deficiencies in scope do not
leave a gap in the effective implementation of DPRK and Iran-related UNSCRs.
272. Not all funds, assets and transactions are covered: Because of these scope issues, as a
country China is only able to freeze certain assets (e.g., those that would be held by a bank), but is
not able to freeze assets that designated persons or entities may be holding themselves, or that
other third parties may be holding. In addition, transactions outside the financial sector are not
prohibited. The authorities were unable to demonstrate that these other types of assets (e.g., real
estate, land, cash), or other transactions, are effectively frozen or prohibited using other measures.
This deficiency impacts the effective implementation of DPRK-, and Iran-related UNSCRs as it allows
designated entities to move their assets to safety.
273. No implementation without delay: Authorities were unable to demonstrate that the freezing
actions that the PBC Notice provides for are implemented without delay (i.e., ideally within hours).
The initial delays are caused by untimely circulation of new UNSCRs within the government, even
before the PBC and others could circulate the UNSCRs to supervised entities.
274. It should be noted that the authorities acknowledged at a high political level the need for
China to introduce a comprehensive legal system to deal with TFS related to PF, and the assessors
fully support the authorities in this endeavor.
275. In the absence of a general legal and operational framework for the implementation of the
targeted financial sanction provisions of UNSCRs related to the financing of the proliferation of
weapons of mass destruction, the PBC has taken steps to implement DPRK-related requirements for

the financial sector, most notably through PBC Notice 187/2017 which includes freezing
requirements (see also IO.10). 33
Implementation of Targeted Financial Sanctions Related to Proliferation Financing

Without Delay
276. The MFA is responsible for informing other state entities of the existence of new UNSCRs
related to PF. Notices consist of a short cover note from the MFA, with a reminder to comply with
the requirements, and a copy of the new UNSCR. Authorities shared a few examples of such notices
with assessors. PBC is then responsible for communicating the UNSCRs (based on PBC Notice
187/2017), as well as issuing risk alerts to selected FIs. Risk alerts are reminders to FIs, but do not
impose legal obligations and are not enforceable means and they do not constitute an obligation to
freeze the assets of the designated entity. 34
277. Some or more DPRK-related UNSCRs and two Iran-related UNSCRs were circulated by the
MFA to the PBC. It takes the MFA on average slightly over seven days to circulate these to the PBC
(and other government entities) after issuing by the UNSC. This is not without delay, as defined by
the FATF Glossary (i.e., ideally within hours). It is not clear how long it subsequently takes for these
Notices to reach FIs, and it was not demonstrated that amendments to the lists of designated
entities are communicated to FIs.
278. As is the case with UNSCR 1267 (see IO.10), the PBC requires banks to use commercial
compliance software to screen for designated persons and entities. This is also done to address the
delays in circulation of MFA notices. This is a positive measure, despite the challenges that reliance
on commercial software providers can pose. See on this issue also below. Authorities also stated
that they consider that the general CDD framework also supports banks’ compliance, in addition to
the fact that the biggest banks are state-owned (and therefore should feel compelled to comply). FIs
that met with the assessment team generally did not show a well-developed understanding of the
requirements of the Notice, or of the UNSCRs, beyond having a high-level awareness of the
existence of UN sanctions, and none mentioned that they had identified or frozen assets. FIs also
generally were unable to share practical examples of issues that would arise when implementing
33 Although not required by R.7, the authorities report that China has taken other measures to reduce the overall
risks of PF. This includes the so-called whole-of-government counter-proliferation mechanism, in which 19 ministries
and commissions participate with an aim to effectively control export of sensitive items, in close coordination with
the so-called UNSCR implementation mechanism. In addition, the authorities report having taken measures that aim
to implement non-TFS-related UNSCR provisions. This includes closing banks and other measures to cut financial
connections with DPRK; close entities owned or controlled by designated persons; and using criminal measures to
suppress violations of the UNSCRs (such as a case of a successful seizure of banned metals by customs). It should
also be noted that China has used its mechanism to apply to the UNSC for (de)listing. For example, in 2016, Chinese
MFA successfully applied for the delisting of several Chinese vessels. Because of the limitations of the FATF
standards, these measures have not been assessed or rated in this report.
34 Four hundred and fifty such alerts are said to have been issued. The one example that was shared contained
generic language, reminding banks of the existence of UNSCRs.

measures (e.g., updating lists, transliteration issues, incomplete info, similar or identical identifier
information).
Identification of Assets and Funds Held by Designated Persons/Entities and Prohibitions
279. To support implementation by banks, PBC has taken additional measures, such as
providing training and requiring selected banks to screen their entire database against the UNSCRs.
As part of these screenings in May 2017 and May 2018, banks identified an undisclosed number of
accounts or transactions that may be linked to designated entities related to DPRK UNSCRs (none to
Iran). This is evidence that FIs must have some experience in the implementation of Notice 2017/187,
despite the lack of feedback given during the onsite (as mentioned above). Such hits include
possible false positives and include related transactions and customers (i.e., family members). It is
not clear how many of these hits were subsequently confirmed as formal or real hits (i.e., being the
assets of the actual person or entity designated by the UNSC). Separately, regarding nonbank FIs
and DNFBPs, there was no awareness or experience with the implementation of TFS. No information
was provided regarding Iran-related designations.
280. Authorities were able to provide data on the number of accounts frozen by Chinese banks
of six entities prior to their designation by the UNSC. 35 Although it is not clear how these assets
were identified (e.g., domestic intelligence, foreign requests, by the banks or by authorities), and
what the purpose of the freezing action was (e.g., criminal, preventive) these freezing actions do
evidence a commitment on the part of the Chinese authorities to act against PF.
281. The UNSC Panel of Experts established pursuant to Resolution 1874 (2009) (hence: DPRK
PoE) publishes annual updates on the implementation of DPRK-related sanctions, including the
financial provisions of relevant UNSCRs that have been incorporated into the FATF Standards. Based
on these updates, it appears that there is room for improvement regarding the identification of
assets and funds held by designated persons and entities. The DPRK PoE reports cite examples of
accounts, funds or assets held by designated entities in China, and (front) companies run by
designated entities in China, some of which acted as de facto banks for the DPRK in China, until
detected. The authorities report that the DPRK PoE has send 50 requests to China for information, of
which ten requests related to the financial sector, and that China actively cooperates with the PoE.
An example of such a request to which China responded related to assistance that the DPRK PoE
needed in the case of Kim Chol-Sam to investigate three companies. 36 37
35 The names of the entities and the details of the accounts that were frozen were shared with assessors.
36See for example the 2017 Midterm Report of the Panel of Experts established pursuant to Resolution 1874 (2009)
(UN document reference S/2017/742) paragraphs 51, 53–56, and the 2015 Report of the Panel of Experts established
pursuant to Resolution 1874 (2009) (UN document reference S/2015/131) sections VIII and IX.
37 Assessors disregarded for the purposes of this assessment the many references by the DPRK PoE to parts of China
that are separately assessed by the FATF and APG (e.g., Macau, China and Hong Kong, China). Also, it should be
noted that these PoE reports also describe positive achievements of China to implement DPRK UNSCRs that are
outside the scope of R.7 (and are therefore not covered in this report).

FIs and DNFPBs’ Understanding of and Compliance with Obligations
282. From discussions with the private sector, 38 only FIs (except for online lending institutions)
are aware of the existence of UN sanction regimes. No references were made to the specific
domestic legal obligations to freeze assets of designated entities in relation to PF, although in
practice this does not seem to matter. FIs would generally make general references to UN-related
obligations to freeze assets of designated entities, without distinguishing between TF and PF.
283. The benefits and challenges noted in IO.10 in relation to the use of compliance software to
detect funds or assets of designated entities, equally apply to IO.11. The same applies to the FIs
understanding of the legal requirements of the legal framework in China or of the UNSCRs, beyond
being able to cite the basic legal requirements. As indicated, this is somewhat in contrast to the
results of the screening exercises that were undertaken.
Competent Authorities Ensuring and Monitoring Compliance
284. As indicated, authorities stated that CDD rules (not related to PF) and self-imposed rules by
FIs robustly prevent the misuse of the financial system for PF, in addition to PBC Notice 187/2017. To
this end, the PBC has provided training to banks and, as noted above, has required some banks to
screen their databases. In addition, PBC provided case examples of improvements undertaken by
banks to implement PF TFS, both of larger banks and smaller regional banks. However, in line with
the assessment of IO.3/IO.4, overall, efforts fall short of what would be required to effectively
ensuring and monitoring the 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. Such and other sanctions by foreign regulators on banks operating in
China due to transactions connected to UN-designated persons and entities are also an indication
that the TFS regime may not be implemented effectively in China, although this type of challenge is
certainly not unique to China and something that many countries face.
285. China has achieved a low level of effectiveness for IO.11.
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 implemented to mitigate risk are
generally not commensurate with different risk situations.
38The private entities that the assessment team met with had been selected by the authorities and agreed to by the
assessors.

• 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. The
effectiveness of reporting of suspicious transactions is hampered by the insufficient
understanding of ML/TF risks, the onerous criteria for determining whether to report an STR or a
key STR and the lack of reporting from nonbank FIs. PIs seek to form more than a reasonable
suspicion of a predicate crime prior to reporting, which represents a high threshold. Less than
five percent of STRs are reported by PIs, while they are identified as having higher-risk of ML/TF
in the NRA.
• Internal controls of Chinese financial groups are often inappropriate for mitigating risks, notably
when regulations of host countries prevent access by FIs to information held by foreign
branches or majority-owned subsidiaries for the purposes of 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 a 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 and have not developed
an understanding of ML/TF risks and do not apply preventive measures effectively.
• 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 that these reflect actual
threats and corresponding vulnerabilities exposing these institutions to risk. Ongoing due
diligence should be strengthened to ensure a 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 the
inconsistencies of reporting practices by FIs. FIs and DNFBPs should be provided access to
reliable, independent source data that can be used for a more effective verification of customer’s
identity.
• Financial groups should (i) apply mitigating measures that are commensurate with the risks of
the host country, (ii) strengthen group oversight, including the scrutiny of transactions and the
reporting of suspicious transactions, and (iii) inform the PBC of instances of inability to access
information held by their branches or subsidiaries.
C. Immediate Outcome 4 (Preventive Measures)
Understanding of ML/TF Risks and AML/CFT Obligations
286. Except for online lending institutions, FIs have a satisfactory understanding of their
AML/CFT obligations, but an insufficient understanding of ML/TF risks. FIs generally recognize that
there is room for further developing their assessment of ML/TF risks. Banks are far more
sophisticated than other institutions in identifying and, to a certain extent, assessing ML/TF risks.
Online lending institutions and DNFBPs have not developed an understanding of ML/TF risks or
287. Most banks identify threats of ML, such as proceeds of illegal fund raising, underground
banking, and telecom fraud. This identification is largely derived from the results of the NRA and
priorities of regulators and law enforcement authorities. Some banks are more concerned about
proceeds of embezzlement, corruption, online gambling, and tax evasion, or POC generated outside
China. Information received form supervisors suggests that PIs consider online gambling and
pyramid scheme as main ML threats, while some PIs met during the onsite identified illegal fund
raising as main threat. Overall, nonbank FIs (including PIs) have a poor identification of threats of
ML. In general, FIs did not demonstrate a developed or comprehensive understanding of AML/CFT
vulnerabilities, such as determining the aspects of their business that are exposed to these threats
and the extent of this exposure. Except for online lending institutions, the threat of TF is commonly
identified by FIs; however, the understanding of domestic threats is primarily limited to transactions
associated with the Xinjiang province.

288. Banks identify AML/CFT vulnerabilities posed by geography inside China (e.g., Guangdong
and Xinjiang provinces; coastal regions in the southeast), or other countries, including those
identified for having strategic AML/CFT deficiencies by the FATF. Nonbank FIs generally did not
demonstrate such an ability. Except for online lending institutions, most FIs identify non-face-to-
face, including online, business as the main vulnerable delivery channels. Banks and some insurance
companies identify products/services most vulnerable to ML/TF (e.g., cross-border remittances, e-
banking, cash), while the other FIs did not demonstrate such an ability. Most FIs identify only PEPs as
a high-risk customer category. Instead, institutions focus on the risk assessment of individual
customers, as required by the PBC. Some banks, however, have a more comprehensive identification
of customer categories that are vulnerable for ML (e.g., small business owners; cash intensive
businesses; legal entities) and TF. Only some banks appeared to have developed a certain
understanding of these vulnerabilities, especially for products and services, delivery channels, and
geography. FIs, especially nonbanks, generally have a poor understanding of vulnerabilities posed
by the different categories of customers (e.g., legal persons, nonresidents, cash intensive businesses,
etc.). Information received from supervisors suggests that insurance and securities companies
identify businesses representing higher ML/TF vulnerability (e.g., securities companies identify
brokerage and asset management businesses), but it does not amount to an assessment of
vulnerability.
289. Except for online lending institutions, most FIs understand their AML/CFT obligations.
Some institutions tend to apply standards going beyond domestic requirements, due to the
purchase of IT solutions or databases from foreign third-party providers. A few institutions
demonstrated confusion regarding some obligations (e.g., reporting of suspicious transactions; due
diligence towards domestic PEPs and accounts in anonymous names).
290. DNFBPs relate the lack of understanding of ML/TF risks and AML/CFT obligations to the
lack of coverage by the AML/CFT framework. DNFBPs do not have a proper appreciation of the
existence and extent of ML/TF risks in China. Some DNFBPs (i.e., lawyers and DPS) consider that the
AML Law and some business regulations require the implementation of due diligence, record-
keeping and the reporting of suspicion; however, the understanding of such requirements is lacking.
It was noted that accountants do not perform any of the activities that could subject them to the
requirements of FATF standards.
Application of Risk Mitigating Measures
291. CDD measures applied by FIs are generally not effective. The low level of understanding,
identifying, and verifying of BO and deficiencies in obtaining BO information represent the most
serious deficiency. Customer identification and verification measures and ongoing due diligence are
generally performed with limited effectiveness. Record-keeping measures are relatively more
effective at most FIs. Banks demonstrated a better implementation of these requirements than the
other FIs. DNFBPs do not apply CDD and record-keeping measures effectively.
292. Most FIs describe a successful implementation of identification measures and verification
of identity through the System of Network Check of Citizen Identity Information (SNCCII). However,

supervisory findings commonly refer to breaches related to shortcomings in the CDD process, such
as incomplete or outdated information on customers, or the expiry of identification documents.
Among contributing factors are data limitations of the SCNCII, 39 the insufficient access to other
reliable, independent source data that can be used for verification purposes, and the inconsistent
use of data verification sources mainly by nonbank FIs. There are media reports concerning the
frequent utilization of stolen 40 or fake 41 identities, and reports about government initiatives to
address such breaches. 42 From March 2018, the PBC began the pilot work of requiring FIs to carry
out identity verification for invalid IDs, 43 including IDs which were lost or stolen, and IDs which were
inconsistent with information of SNCCII. The table below illustrates progress in identification of false
ID.
Table 14. Rejection of Relationships by Three Commercial Banks When Identifying Use of
False IDs to Open Account (Unit: Persons or Times)
Institution 2017 As to mid-2018 Total
A bank 3,126 1,968 5,094
B bank 1,400 115 1,515
C bank — 596 596
293. Several institutions adopted recognition technologies to mitigate this risk, however, some
institutions stated that it is not used on a systematic basis and may not detect all cases of falsified
identity. Others reported completing reviews to ensure that accounts are held by persons with valid
identity. Some FIs, including some banks, conduct identification and verification measures that are
not adapted to business relationships presenting higher risks (e.g., no additional measures regarding
nonresident customers or offshore companies operating in a free-trade zone). Some nonbank FIs
(e.g., insurance, payment, and online lending institutions) recognize challenges of identifying non-
face-to-face and nonresident clients. Generally, FIs do not develop an understanding of the purpose
and intended nature of the business relationship upon its establishment. Online lending institutions
have particularly weak CDD practices when dealing with customers referred by PIs.
294. The identification of BO is a challenge for FIs, many of which, including banks, did not
demonstrate a proper understanding of the concept thereof. Most institutions seemed content with
a customer declaration specifying BO or consider the beneficial owner to be the natural person(s)
owning 25 percent or more of the shares of a legal person. The NRA report indicates that “most
banks do not carry out checks of ownership.” Some institutions consider that the beneficial owner
Authorities reported that the SNCCII has a correction mechanism that regularly updates the system for error
39
messages identified, resulting in the coverage of invalid ID information as of April 2018.

40 See http://europe.chinadaily.com.cn/china/2016-05/25/content_25455433.htm.
41See https://www.thebeijinger.com/classifieds/2018/08/02/buy-passportsid-carddrivers-licensereal-or-fake-
passportvisa-france-driver.
42 See http://news.cnr.cn/native/gd/20170428/t20170428_523731160.shtml.
43See http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/3502768/index.html;
http://www.pbc.gov.cn/zhengwugongkai/127924/128038/128109/3503061/index.html.

can be the person controlling the company, such as by way of controlling finances or administration
or otherwise, or a person from the senior management; however, institutions stated that it is rarely
the case that beneficial owners are such persons. Institutions identify the trustee as the beneficial
owner of a trust. The verification of BO of Chinese legal persons is likely a challenge for all FIs given
the lack of availability of information or data on BO from a reliable source. FIs experience additional
difficulties in verifying BO of non-Chinese legal persons. Supervisors stated that they guide
institutions to verify BO information through the National Enterprise Credit Information Publicity
System and third-party data providers. However, it was not demonstrated that they are reliable
sources of information on BO. Online lending institutions do not seek to understand BO.
295. Except for online lending institutions, FIs generally rely on IT solutions for the real-time
monitoring of transactions to detect ML/TF unusual transactions. These solutions are developed, or
customized to a certain extent, by the institution, and are based on risk indicators that are mostly
drawn from PBC risk warnings, and in some cases, were pre-populated by vendors. Except for some
banks, most FIs rely on indicators that are generic or not comprehensive enough to detect all
unusual transactions. A few institutions (e.g., some securities brokerage institutions) rely on manual
or basic solutions for the monitoring of transactions, which does not seem to be commensurate with
the volume and risks of their activity. Some institutions (e.g., PIs) do not use information collected
under CDD in the monitoring process, in order to ensure that transactions are consistent with the
institution’s knowledge of the customers and their business. FIs generally recognize that there is
room for further improvement of their ongoing due-diligence systems and processes. Supervisory
findings commonly reflect breaches related to the monitoring of suspicious transactions.
296. Except for online lending institutions, most institutions conduct periodic reviews of
documents, data and information collected under the CDD process to update it, while only some of
these appeared to exert ongoing and effective efforts to maintain documents, data and information
up-to-date. However, efforts of most institutions are limited to periodic updating plans, with higher
frequency for higher risk clients. Some institutions do not update their records on the occurrence of
risk-related events. Supervisory findings commonly reflect breaches related to the updating of
documents and data.
297. FIs generally refuse business when CDD is incomplete, with the exception of online lending
institutions that do not apply effective CDD. A few institutions, including some banks, do not
systematically refuse business when CDD is deemed incomplete, and resort instead to limitations on
transactions or postponement of some identification measures with little regard to related risks. A
few institutions (e.g., banks) keep dormant anonymous accounts. These are accounts that existed
before the law prohibited anonymous accounts and the institutions have been unable to contact the
owners of the accounts to undertake the necessary CDD measures. Institutions reported that they
do not allow transactions to be conducted with these accounts.
298. Most FIs apply record-keeping requirements effectively. However, some institutions do not
keep records of business correspondence. Supervisory findings occasionally reflect breaches related
to record-keeping requirements more generally.

299. DNFBPs do not apply CDD and record-keeping measures effectively. Only some DNFBPs
(i.e., lawyers and DPS) apply limited customer-identification and record-keeping requirements for
regular business purposes risks; however, the implementation is not effective. DNFBPs generally do
not refuse business, except when basic identification measures could not be performed. Most
serious deficiencies are the verification of identity (for DNFBPs), due diligence towards beneficial
owners, and ongoing due diligence. Record-keeping is limited to transaction records and client
identity documents.
Application of EDD Measures
300. In general, FIs are moderately effective in applying EDD measures. Measures applied to
PEPs are not effective especially considering the significance of corruption. Measures related to
correspondent banking relationships, new technologies, and wire transfers are relatively more
effective. The implementation of TFS is not effective, especially considering the domestic and
external TF risks that China is facing. Measures related to countries with high risk are not
commensurate with the risk of business relationships and transactions involving such countries.
DNFBPs do not apply EDD measures.
301. Except for online lending institutions, FIs consider PEPs as high-risk customers and rely on
third-party databases for the identification of PEPs. Foreign PEPs and persons entrusted with a
prominent function by an international organization are subject to enhanced measures. However,
only a few banks appeared to have proper risk-management systems to identify customers that are
PEPs, such as by ensuring that beneficial owners, family members, and close associates are also
identified as PEPs. Other types of FIs relying on third-party databases do not adopt such diligence in
identifying PEPs. Some institutions (e.g., some trust management and securities brokerage
institutions) perform a manual screening to determine whether a customer is a PEP or not. FIs do
not apply specific measures towards domestic PEP; however, the risk classification of such customers
is likely elevated pursuant to identification. Most FIs do not establish the source of wealth and to a
certain extent the source of funds, of foreign PEPs and persons entrusted with a prominent function
by an international organization. Few FIs may terminate business relationships with such clients
when subsequently identified as PEPs. For some FIs (e.g., some PIs), senior management approval is
not necessary to initiate a business relationship with a PEP.
302. Most FIs providing correspondent banking relationships implement specific measures
before engaging with respondent banks, such as gathering information on the respondent’s
business and AML/CFT controls and obtaining senior management approval. However, only a few
banks appeared to have developed a satisfactory understanding of the nature of the business and
the quality of supervision of respondent institutions, including whether it has been subject to ML/TF
investigation or regulatory action. Such insufficient understanding of respondent institutions affects
the effectiveness of correspondent institutions in managing risks associated with these relationships
that may involve transactions with high-risk countries or countries under UN sanctions. Banks
reportedly do not provide services through payable-through accounts and do not establish business
relationships with shell banks.

303. FIs, especially payment and online lending institutions, rely extensively on new
technologies for the provision of services, mainly in areas of customer identification, channels of
delivery, and conduct of transactions. Banks and PIs assess the risk of using new products, practices,
and technologies prior to launching. The assessment of such risks by banks covers ML/TF risks and
reportedly led in some cases to dropping new products perceived as having an unacceptable risk.
Some PIs were sanctioned by the PBC due to the inappropriate management of ML/TF risk of new
products, which contributed to notable improvement in risk control measures. For other types of FIs,
it is not clear to what extent the risk assessment is performed or covers ML/TF risks. This is an area
of concern given the limited understanding of ML/TF risks by these institutions.
304. FIs providing wire transfer services ensure that necessary originator and beneficiary
information is included when initiating, forwarding, or receiving a wire transfer. If a transfer is
rejected by the receiving bank due to incomplete information, FIs will seek to complete the
information and resend the transfer. Institutions reject wire transfers received if necessary
information is lacking. It is not clear how effectively originating banks are implementing this
requirement considering the weaknesses in their CDD which are likely to affect the accuracy and
veracity of information of originators of transfers.
305. The implementation of TFS by FIs is not effective. Except for online lending institutions, FIs
maintain databases of names of persons and entities designated under UNSCRs relating to the
prevention and suppression of terrorism and TF. These lists are usually acquired from and updated
through third-party providers. These institutions also maintain lists of persons related to terrorism
offenses, provided by the PBC and the MPS. These lists are checked, generally using IT solutions,
against names of existing customers and parties to transactions. Due to deficiencies in obtaining BO
information, most institutions are not in a position to ensure that TFS are applied towards
designated persons that are beneficial owners. A few institutions (e.g., some trust management
companies) match transactions only at the end of the business day, which would not allow for an
effective implementation of possible freezing measures. Mostly banks encountered false positives,
but it is not a common practice for these to clear the case through conducting queries with the PBC.
However, some institutions, including some banks, reported that no false positives were
encountered. Due to the absence of statistics, it was not demonstrated that FIs identify or freeze
assets pertaining or destined to designated persons or entities. FIs consider that the deadline for
freezing such assets would be 24 hours, should any be identified, but would freeze assets promptly
if the hit is positive.
306. Except for online lending institutions, most FIs apply enhanced due diligence towards
business relationships and transactions with natural and legal persons from countries for which this
is called for by the FATF. These FIs maintain list(s) of higher-risk countries that include those for
which this is called for by the FATF. Some institutions would also supplement the list with countries
they deem to have higher ML or TF risk, spontaneously or based on information on risk
disseminated by the PBC. However, a few banks apparently apply a standard set of EDD measures
that is not commensurate with the specific risk of transactions with natural and legal persons from
countries for which this is called for by the FATF. For example, same EDD measures in scrutinizing of

transactions of domestic customers would also apply to customers from FATF-listed countries, thus
no regard to specific country risks. Therefore, given the shortcomings related to enhanced due
diligence, it is not likely that applied measures are proportionate to the risks of such business
relationships and transactions.
307. Despite ML/TF risks of various components of the DNFBP sector, the latter do not apply
EDD measures. This is mainly due to the lack of understanding of risks and the lack of legal AML/CFT
requirements.
Reporting Obligations and Tipping Off
308. In general, FIs are moderately effective in reporting suspicious transactions. There are
inconsistent practices of reporting, some of which could potentially trigger tipping-off (see further
below). Types of proceeds reported in STRs seem inconsistent with the risk environment and are
concentrated in the banking sector; the number of STRs reported appears to be modest, considering
the size of the financial sector in China. The reporting of suspicious transactions by DNFBPs is very
rare: only six STRs submitted so far.
309. FIs report to CAMLMAC funds that are suspected to be the proceeds of a criminal activity
or are related to TF. For transactions where ML/TF conduct is obvious, 44 or transactions identified
pursuant to the FI’s internal “investigations” as related to terrorism or TF or conduct affecting
national security, institutions report (as required) key STRs, 45 mostly in writing to PBC branches. The
same information is simultaneously reported to CAMLMAC. Some FIs experience challenges in
determining whether a case should be reported as an STR or key STR. If no predicate offense is
identified, some institutions would report STRs to CAMLMAC, while others would report the case to
MPS without submitting an STR to CAMLMAC. Some institutions (e.g., some banks) also send
reports on suspicion simultaneously to the local PBC branch and MPS. Therefore, reporting practices
are not consistent across all FIs. However, authorities explained the reporting process (see figure
below) and stated that FIs would report to MPS (with corresponding STRs sent to the “FIU”) cases
“when transactions obviously relate to serious crimes.”
44 See TC Annex c.20.1.

45 See analysis under IO.6 and TC Annex, c.20.1.

Figure 4. Process of Reporting of Suspicious Transactions in China
310. The reporting of suspicious transactions is not done promptly. For nonobvious ML/TF
conduct, an average of 10–15 days elapse between the discovery of an unusual transaction and the
reporting of suspicion by FIs (mainly banks), if any. During this time, the FI consults and updates as
necessary CDD information, and conducts further analysis to confirm suspicion. However, once a
suspicion is formed, most FIs consider that the deadline for reporting suspicion is five business days
(10 days for PIs); therefore, the practice tends to be the reporting within five days following a
confirmed suspicion. This practice is based on Art. 15 of the “Measures for the Administration of
Financial Institutions' Reporting of Large-Value Transactions and Suspicious Transactions” expecting
FIs to submit an STR promptly, which is specified to be no later than five working days. The
articulation of five working days is inconsistent with the notion of promptly and constitutes a
technical deficiency which has been addressed by a regulatory update at the end of the onsite visit.
311. As indicated in IO.6, CAMLMAC and the PBC provincial branches have worked with FIs
since 2012 to reduce the volume of defensive reporting and improve the quality of STRs and key
STRs. The number of STRs decreased significantly, against an increase in key STRs. Overall, the
quality of key STRs is higher than the quality of STRs because FIs conduct a more in-depth analysis
to identify a predicate offense in view of reporting a key STR. According to the PBC, a high
percentage of key STRs contributes to the development of “clues” 46 which are disseminated to LEAs.
Therefore, key STRs are generally good-quality reports, while STRs have less in-depth analysis
impacting their quality.
46 See analysis under IO.9.

312. Banks report more than 95 percent of STRs and key STRs (the majority of the other reports
are made by PIs). The structure of reporting by type of institution is therefore inconsistent with the
ML/TF risks of sectors, such as PIs and online lending institutions assessed to have high ML/TF
residual risks in the NRA, and life insurance institutions assessed to have medium ML/TF risks.
Online lending institutions, which are not subject to AML/CFT supervision, 47 did not report
suspicious transactions. There is also a concentration of reporting by a number of FIs under each
category (see tables below).
Table 15. Number of STRs Submitted by FIs (2012–2016) (in thousands)

Year Banks Securities, Insurances Others 1/ PIs and Bank Total
Futures Card
and Funds Organizations
2012 29,613.1 3.7 40.7 0.03 ------ 29,657.5
2013 24,497.7 1.8 31.4 0.09 0.1 24,531.1
2014 17,707.2 1.2 16.7 0.11 1.4 17,726.6
2015 11,170.9 1.6 11.7 0.23 5.5 11,189.9
2016 5,380.1 13.6 8.7 0.04 33.3 5,435.7
1/ Trust companies, financial asset management companies, finance companies, financial leasing companies, auto
finance companies, and money brokerage companies.
Table 16. Key STRs by FIs (2012–2016)

Securities, PIs and Bank
Year Banks Futures Insurances Others Card Total
2012 -- -- -- -- -- 4,800
2013 4,669 58 95 3 29 4,854
2014 4,846 15 41 3 35 4,940
2015 5,784 14 59 0 36 5,893
2016 8,391 17 45 17 34 8,504

Table 17. Number of Institutions by Category that Reported STRs (2015–2017)

Securities, PIs and Bank
Year Banks Futures Insurances Others Card Total
2015 684 114 61 7 22 888
2016 903 110 62 5 48 1,128
2017 1,068 151 69 8 68 1,364
Number of
Institutions in 4,330 386 227 529 266
2016
313. Considering the size of the financial sector in China, and the size, intensity of activity, and
ML/TF risks of some sectors, the overall number of STRs appears to be modest, yet decreasing in the
banking and insurance sectors (see first table above). One of the contributing factors could be the
insufficient understanding of ML/TF risks and the demanding criteria for reporting suspicious
transactions, requiring the determination whether an STR or a key STR should be filed. FIs only
report a key STR to a PBC provincial branch and CAMLMAC when they are able to identify an
underlying predicate offense, otherwise, they would file a whistle blower report directly with LEAs
without filing an STR or key STR in parallel. 48 Therefore, there clearly exists a need for guiding
reporting entities to address the ambiguity in the reporting requirements as to whether to file an
STR or a key STR. As for PIs, more than a reasonable suspicion of a predicate crime should be
formed prior to reporting, which represents a high threshold of suspicion. 49 These practices could
explain the quick drop in the number of STRs and the increase the number of key STRs since 2012,
thus affecting the effectiveness of reporting by FIs. Supervisory findings commonly reflect breaches
related to the reporting of suspicious transactions.
314. The authorities submitted information related to key STRs but could not submit
information on the nature of predicate offenses related to reported STRs. However, most FIU
disseminations 50 2016 related to the “disruption of financial management” order 51 (50 percent),
terrorism (15 percent), financial fraud (8 percent), drug crimes (4 percent), and corruption and
bribery (2 percent). FIs apparently have a better ability in identifying transactions associated with
terrorism than with TF. As a very limited number of institutions report suspicious transactions on TF
(see table below)—especially in the banking and PI sectors where TF risks are classified as high—
China could not demonstrate the effectiveness of reporting of suspicion TF. Except for online

49 See analysis under R.20 in the TCA below.
50 See IO.6: Table on Statistics of PBC’s Proactive Disseminations (by Types of Crimes).
51 Includes the crimes of: illegal absorption (including in disguised form) of public deposits, forging or altering
financial bills, relending loan currency to others at a high interest rate, evading the state control of foreign exchange
and ML.

lending institutions, FIs report attempted transactions involving suspicion; however, it is not clear to
what extent this practice is consistently applied.
Table 18. Key STRs on TF from 2015 to Mid-2018

Year Banks Securities, Insurances Others PIs and Bank Total
Futures Card
2015 233 0 0 0 1 234
2016 378 0 0 0 1 379
2017 436 0 1 0 11 448
Mid-2018 197 0 0 0 0 197
315. The practices of some institutions when reporting suspicious transactions appear to involve
risks of tipping-off. Some FIs (e.g., some PIs) reportedly freeze transactions with customers upon
reporting suspicious transactions without informing customers of the reason for the freeze. Such
actions may alert customers on the possibility that their activities are subject to close scrutiny.
316. STRs by DNFBPs are rare. Between January 2017 and mid-2018, a total of five DNFBPs
submitted six STRs. DNFBPs generally face cases of suspicion that go unreported despite the risks of
various components of the DNFBP sector. This is mainly due to the lack of a regulatory requirement
to report suspicion (up to the time of the onsite visit), and the ineffective implementation of CDD
measures, including the ongoing monitoring obligation. Some DNFBPs, that did not report
suspicious transactions yet, believe that they should submit future reports on suspicious transactions
to the relevant industry association (which would raise tipping-off concerns) and MPS, but not to the
FIU.
Internal Controls (Including at Financial Group Level) and Legal/Regulatory Requirements

(e.g., Financial Secrecy) Impending Implementation
317. FIs apply internal controls and procedures with a view to ensure compliance with AML/CFT
requirements, however, training programs and internal audit have limited effectiveness. In general,
online lending institutions and DNFBPs do not have AML/CFT internal control programs. Internal
control of financial groups is often inappropriate for mitigating risks, especially when regulations of
host country prevent access to information.
318. Except for online lending institutions, FIs implement programs against ML/TF and have
compliance arrangements in place; however, the effectiveness of these programs is often
questionable. Although institutions developed policies and procedures, these are not designed or
implemented on a risk-sensitive basis, as elaborated above. Institutions sanction staff who commit
financial crimes (e.g., fraud); however, most institutions do not sanction staff for breaching AML/CFT
policies and procedures. Training programs are frequently implemented by most institutions and
cover all staff with AML/CFT responsibilities, including senior management. However, training
programs of some institutions (e.g., some banks) do not effectively include senior management,
including directors of the Board, (see table below: compare attendance of senior management with
number of training sessions), and are not sufficiently sophisticated to improve the skills of staff with

key AML/CFT responsibilities. Some FIs, including banks, consider that they could benefit from
further investment in resources to improve the capacity of staff and senior management. Audit
findings generally do not cover important shortcomings identified by supervisors, such as the
monitoring and reporting of suspicious transactions. For many institutions, including banks, the
reporting of AML/CFT issues to the senior management focuses on regular compliance issues and
individual cases of suspicion. More general risk management issues identified by compliance
management are not consistently reported to the senior management.
Table 19. AML/CFT Training for 24 Institutions Directly Supervised by the PBC
No. of Senior
Year No. of Training Sessions No. of Attendees
Management Attendees
2015 36,255 1,900,965 24,027
2016 43,692 2,496,850 25,480
2017 54,223 3,719,423 37,949
First half of
29,051 1,542,955 18,139
2018
Total 163,221 9,660,193 105,595
319. Foreign branches and majority-owned subsidiaries of Chinese banks are significantly
relevant to the financial system. 52 The effectiveness of group-wide AML/CFT programs implemented
by financial groups is limited. Groups have compliance and audit functions at the group level.
Requirements for branches and majority-owned subsidiaries appear to mirror those applicable in
China, except for host countries with stricter requirements. However, the monitoring of transactions
and the management of risks of these branches and subsidiaries does not seem to be sufficiently
effective. Group oversight functions, sometimes, do not proactively identify, request information on,
nor analyze unusual transactions or questionable risk management practices. A number of
institutions reported their inability to access information held by their branches or subsidiaries in
some countries due to data protection rules. PBC statistics indicate that, on average, nearly
50 Chinese financial groups experienced issues in accessing information held by their foreign
branches and majority-owned subsidiaries in recent years. Most of these institutions stated that
issues of access to information are resolved by conducting onsite visits, and some did not take
actions to address these issues. In such circumstances, financial groups do not seem to apply
appropriate additional measures to manage the ML/TF risks, and do not inform home supervisors.
Sanctions applied by foreign regulators on branches and majority-owned subsidiaries operating
abroad (including for failure to identify and report obvious suspicious transactions, and, in one case,
for tipping off concerned customers) suggest that group-wide AML/CFT programs of some financial
groups do not ensure that stricter standards are implemented when there are jurisdictional STR
reporting differences and are therefore not effective in managing ML/TF risks.
320. DNFBPs do not implement programs against ML/TF. This is mainly due to the lack of
regulatory requirements.
52 See information under Chapter 1.

Overall Conclusions on IO.4
SUPERVISION
A. Key Findings
• China’s AML/CFT supervisory system is almost exclusively focused on the financial sector. There
are no effective supervisory measures in respect of the DNFBP sector. The DNFBP sector appears
to be of less importance than the financial sector, however, there has been insufficient risk
assessment information proving low inherent risks in the DNFBP sector. Therefore, the assessors
have assigned a medium weighting to some of the DNFBP sectors and gave less importance to
some sectors perceived as having lower risks.
• Although the PBC’s understanding of risk impacting the financial sector is adequate, this is
largely based on the FIs’ own risk assessment rather than that of the authorities. The PBC’s
understanding of risk in the DNFBP sector is low because no DNFBPs provide risk assessments
to the PBC and because most DNFBPs were not subjected to adequate (or any) risk assessments
in the NRA.
• The online lending sector is not supervised for compliance with, AML/CFT obligations.
• Financial sector supervisors have a moderate level of understanding of ML/TF risk (except for the
insurance regulator who demonstrated a higher level of understanding). DNFBP sector
regulators have a low level of understanding of ML/TF risk and undertake virtually no AML/CFT
supervision.
• The growth in the numbers of FIs rated as High Risk by the PBC is outpacing the numbers of
inspections of such FIs that result in remedial measures or sanctions. Conversely, there is a high
level of inspections in the securities and insurance sectors relative to the number of institutions
rated as high risk.
• Although there is an active program of applying remedial measures where issues are found in
FIs, China does not apply effective, proportionate, and dissuasive financial sanctions to FIs, and
there are no remedial measures or financial sanctions applied to the online lending sector or to
DNFBPs.
• There is an inadequate amount of guidance directed to the online lending sector and DNFBPs
because of the lack of AML/CFT obligations.

• Supervisory resources at the PBC should be reviewed to address the need for increasing onsite
inspections in the banking sector, adequate supervision of the DNFBP sectors, and the extension
of the AML Law to the online lending sector.
• The PBC should review the balance of resources applied to inspections of high-risk FIs by
increasing the frequency of inspections of high-risk banks to address the growth in this segment
of the supervised population.
• The PBC and other financial sector supervisors should ensure there is a consistent application of
supervisory processes to focus on effective risk-based implementation of internal controls
applicable to or 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 the relevant DNFBP sector regulators/SROs in
designating the DNFBPs that will be subject to the AML Law. It could also consider amending
this requirement of the AML Law to give sector regulators a supportive role similar to that of the
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 that (i) appropriate market entry and preventive measures
are established, and (ii) the PBC can supervise and monitor appropriate AML/CFT obligations. In
doing so, China should review the strategy and necessity of collaborating with sector supervisors
in the DNFBP sectors, given their low level of knowledge about ML/TF risks.
• China should review the effectiveness, proportionality, and dissuasiveness of financial sanctions,
and consider substantially increasing the size of penalties for violations of the AML Law,
especially for penalties levied against the largest FIs by PBC for violations of the AML Law or by
sector supervisors for system weaknesses across financial groups.
• China should prepare guidance directed at the DNFBP sectors to assist them in implementing
AML/CFT measures when they become formally designated as DNFBPs.
recommendations relevant for the assessment of effectiveness under this section are Rs.26–28, Rs.34
and 35.

C. Immediate Outcome 3 (Supervision)

Introduction
322. 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.
323. There is a large online lending sector which is subject to high-level AML/CFT obligations.
While the PBC is the designated supervisor for this sector, the sector is not yet subject to any
AML/CFT supervision.
324. Unless otherwise noted in this chapter, references to “financial institution” or “FI” include
the PI sector. Generally, the PBC treats PIs as FIs, but, as noted above, PIs are not supervised by the
sector financial regulators; their AML/CFT supervisor is PBC.
325. The financial sector supervisors have a defined AML/CFT supporting supervisory role (see
TC analysis) that is focused on the FIs’ internal controls. Financial sector supervisors cannot impose
sanctions against FIs for AML/CFT violations under the AML Law, and can only impose sanctions
against FIs on the implementation of internal controls required by sector legislation.
326. For DNFBPs, the AML Law requires the PBC to designate the DNFBP sectors that are subject
to the AML Law and AML/CFT supervision collaboratively with each sector’s supervisor. At the time
of the onsite visit, these were the MOHURD for the real estate sector, the MOJ for the lawyers sector,
the MOF for the accounting sector, and the SGE (which is supervised by the PBC) which is an SRO for
DPMs. As with the financial sector, DNFBP sector supervisors and SROs cannot impose sanctions
against FIs for AML/CFT violations under the AML Law.
327. For more than 10 years, the authorities have had ongoing discussions with DNFBP sectors
and some sector supervisors about designated AML/CFT coverage and supervision. The NRA
confirms that the DNFBPs have not yet constructed effective CFT working systems and that the
specific coverage of DNFBPs in China is not clear. China has not yet designated AML/CFT-obligated
DNFBPs, which is required in the AML Law. Detailed CFT obligation requirements for DNFBPs have
not been issued; neither are there detailed requirements specific to DNFBPs on customer
identification, due diligence, or transaction reports. Overall, there is a lack of relevant regulation and
guidance for CFT measures in DNFBPs.
328. During the onsite visit, the PBC, as authorized by the AML Law, purported to designate the
categories of DNFBPs that are subject to AML/CFT obligations in China (except for trustee services,
which are provided by trust companies regulated as FIs in China, and DPMs—see TC analysis).
Authorities could not demonstrate effective collaboration between the PBC and the DNFBP sector
supervisors as part of the required process of purported designation and have therefore not
accepted the designation as being compliant with the AML Law and thus not in effect.

329. The purported designation notice named CSPs as a DNFBP sector, despite the information
in the NRA precluding the existence of, and a risk assessment of, the CSP sector. The NRA states that
there is no CSP sector in China despite instances of the use of CSPs by illicit actors, of which China is
aware. During the onsite visit, the authorities advised the assessors that the CSP sector in China
engages in agency services such as business registration and consulting services, which according to
the authorities do not strictly conform to the FATF’s definition of CSP. The assessors do not share
this view based not only on their understanding of the FATF definition, but also on several interviews
conducted with CSPs during the onsite visit. The assessors’ view is that company formation services,
including the provision of business addresses, correspondence and administrative addresses for
legal persons, are offered by CSPs in China.
Financial Sector
330. In the financial sector, 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).
331. Each financial sector regulator has detailed rules and information-gathering requirements
that are applied to applicants, proposed shareholders, and senior management of new and existing
FIs (requirements are set out in the TCA at c.26.1). By and large, these processes are consistent with
each other. The vetting processes include gathering information on the background, work
experience, and regulatory records of natural persons, including a mandatory criminal background
check that is normally provided by MPS. As noted in the TCA, there is a minimum period of between
three to five years to be covered in criminal checks, depending on the sector. However, in practice,
the authorities screen all applications through the MPS’s criminal databases with no time limit, and
thus the authorities can obtain any applicable criminal background information as of the date of the
data request.
332. The following tables set out statistics about the fit and proper process applied by the
authorities in the financial sector between 2015 and 2018.
Table 20. Applications for FIs and DNFBPs, and Senior Management Appointments
(2015–2018)
Type of FI
Insurance Securities Online
Banks PIs
Companies Dealers 1/ Lending
Number of
Institutions 1,270 (note) 50 101 0 2
applications
with
Rejections 7 3 0 0 0
applications
Rejection
for licensing
due to
(excluding 1 0 0 0 0
criminal
branches)
background

Table 20. Applications for FIs and DNFBPs, and Senior Management Appointments
(2015–2018) (concluded)
Licenses
- 0 0 0 29
revoked
Institutions
Licenses
with existing
revoked
licenses
due to - 0 0 0 0
revoked
criminal
background
Number of institutions as
4,549 2/ 227 235 247 0
of mid-2018
Number of
73,168 2,875 691 0 258
applications
Senior
Rejections 554 61 3 0 0
management
Rejection
appointment
due to
applications 3 0 0 0 0
criminal
background
Approval
428 2 1 2 0
Existing revoked
senior Approval
management revoked
appointment due to - 0 0 0 0
revoked criminal
background
1/ The securities dealer figures exclude statistics on futures companies. During the period, there were no applications for the
establishment of futures companies and there was one license revocation (not for criminally connected reasons).
2/ Data as of the end of 2017.
Table 21. Number of Applicants in Banking Institutions
First half of
Type of Banking Institution 2015 2016 2017 Total
2018
Urban commercial banks 1 1 0 0 2
Private-owned banks 0 12 0 0 12
Foreign-funded incorporated bank 0 2 1 2 5
Branches of foreign-funded banks 15 8 5 1 29
Rural commercial banks 195 261 157 48 661
Rural banks 157 132 125 32 446
Lending companies 0 0 0 0 0
Rural mutual fund cooperatives 0 0 0 0 0
Rural credit cooperatives 0 0 0 0 0

Table 21. Number of Applicants in Banking Institutions (concluded)

Financial leasing companies 15 12 10 0 37
Finance companies of enterprise group 28 14 11 2 55
Auto financial companies 7 0 0 0 7
Currency brokerage companies 0 0 0 0 0
Consumer finance companies 6 6 4 0 16
Trust companies 0 0 0 0 0
Total 424 448 313 85 1,270
333. These statistics indicate that although the numbers of applications for new FIs that are
rejected because of criminal connections seem low, the fact that the authorities screen all
applications and scrub all names through criminal databases probably deters criminal elements from
accessing the financial sector through normal (regulated) channels. The authorities provided
information indicating that, in 2017, they cooperated with authorities (mostly in Asia) on the
provision of, or obtaining, information including background checks on directors and senior
executives. However, as noted under IO.5, systemic BO information collection in China has not been
established and this negatively impacts the effectiveness of criminal background checks.
334. In the PI sector, the PBC requires new PIs to report to it on compliance systems and
security, and report on these 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 and all processes include a minimum
three-year criminal background check (which in practice in the FI sector is applied to all criminal
records—see above). Up to July 2018, the PBC carried out licensing resource integration of
11 affiliated companies under the same holding group; the licenses of 16 PIs with serious violations
were not renewed, and the licenses of 6 were revoked. The following table provides a further
breakdown of the types of PI licensed in China.
Table 22. Types of PIs Licensed as of the End of 2017

Type of PI Number of Legal Persons
Internet Payment Providers 115
Bank Card Receipt Businesses 61
Prepaid Card issuers 158
Total 247
335. The regulations governing online lending institutions appear to focus on defining the
sector in terms of person-to-person (individuals lending to other individuals) and companies. The
banking regulator has issued general (not AML) supervisory regulations that require provincial
governments to oversee this sector’s operations, including market entry. The main focus of these
authorities’ attention seems to be ensuring that operators do not conduct unauthorized business
such as fund pooling or other illegal activity.

DNFBP Sectors
336. In the DNFBP sectors, market entry controls are administered by the sector regulators
noted above, the SGE (for DPMs), and the PBC (for trustee services). There are no entry controls in
the CSP and DPS sectors. The authorities confirmed there is no sector supervisor of CSPs and DPSs;
they are subject only to standard business registration requirements at the municipal level, similar to
most businesses in China.
337. Entry and/or membership qualification processes that include an obligation for applicants
to produce clean criminal background check data from MPS are in place in the legal, accounting,
notarial, trust services (trust company), and DPM sectors, but not in the RE, DPS, and CSP sectors.
The authorities disqualify between 20 and 30 qualified lawyers per year for criminal activity. One
member of the SGE was terminated from membership due to being suspected of illegal fund raising.
It is not clear, however, whether the legal or DPM sectors are systematically subjected to ongoing
criminality checks by the sector supervisors, and over what periods. Market entry statistics are only
available from SGE pertaining to the DPMs sector. Between 2015 and 2018, the SGE rejected
10 applications for licensing, of which 2 related to criminal issues.
338. In summary, there are a few shortcomings in the fit and proper TC framework in most of
the regulated FI subsectors (see TC analysis), mostly relating to the minimum periods of time
applicable to criminal background checks, but in practice criminal records are accessed by the
authorities in processing fit and proper applications. There are no measures applying criminal
background checks by the provincial authorities in the online lending sector. In the DNFBP sector,
the real estate, DPS, and CSP sectors are not subject to entry or ongoing criminal background
checks, and the scope of checks by sector authorities is not clear in the legal and DPM sectors.
Supervisors’ Understanding and Identification of ML/TF Risks
Financial Sector
339. The PBC imposes obligations on FIs to conduct inherent risk assessments (Measures for the
Anti-Money Laundering Supervision and Administration of Financial Institutions (For Trial
Implementation)), to update this assessment annually and provide information to the PBC. The PBC
has issued rules and guidance to FIs on the model to use to measure inherent risks and controls. The
PBC uses this information as the starting point for its own risk analysis. These measures establish a
system of rating the residual ML/TF risk levels in FIs by assessing the identified inherent ML/TF risks
and the strengths of the control measures implemented by FIs to mitigate those risks. The rating for
each FI determines the overall level of residual risk, which is used to prioritize supervisory measures.
340. Through its Guidelines for the Assessment of Money Laundering and Terrorist Financing Risks
and Categorized Management of Customers of Financial Institutions (2013), the PBC directs FIs to use
a prescribed risk assessment methodology and indicator system covering customers, their business
locations, business sectors, financial products, and services. FIs are required to assign values and
weighting factors in order to calculate risk rankings of customers. Although this guidance also

addresses ownership of customers, the negative findings of this MER in respect of BO impact the
strength of the assessment process by FIs. In addition, at the time of the onsite visit the model
guideline had not been updated. 53 The guidelines allow FIs the discretion to classify customers as
low risk if they do not fall into prescribed categories based on size thresholds and products. FIs are
required to classify clients as high risk under certain specified circumstances. The guidelines do not
apply to the online lending sector as they are not subject to PBC supervision.
341. Risk classifications by FIs are subject to review by the PBC, but the extent to which the PBC
applies directions where they believe institutions have not assessed risks accurately is not clear. The
PBC provided a number of case studies demonstrating how this process works in practice and
illustrating examples of directions to change risk assessments to take into account inherent risks
based on known cases of abuse.
342. There are 20 prescribed ML/TF risk control factors, that address the comprehensiveness of
systems, rationality of mechanisms, technical support capability, staffing, customer identification,
specific measures for high-risk customers, preservation of customer identity information and
transaction records, large-value and STRs, measures regarding high-risk businesses, AML/CFT
training and publicity, internal audit, and management.
343. The PBC conducts research on the vulnerabilities of FIs, particularly in their development of
new products and services, and use of new delivery channels. In 2017, nine research papers on new
delivery channels and six on new businesses were produced. The financial sector, in particular,
including PIs, has been developing financial products such as payment systems using internet-based
technology. This research feeds into the risk assessment model, which in turn is periodically
updated.
344. Although the PBC has not developed a comprehensive supervisory strategy to address
these trends, it deals with ML/TF threats associated with potential vulnerabilities by issuing notices
and risk warnings, notably in 2016 and 2017, on such topics as bank card fraud through self-service
machines, card-free deposits and associated TF risk, and suspicious indicators concerning cross-
border transfers. It has also issued a notice about the risks of dealing in cryptocurrencies. The
National Internet Finance Association of China issued a series of risk warnings about Fintech
products, including initial coin offerings (ICOs), cryptocurrencies, and small loans. As can be seen,
these measures generally address threats relating to the use of technology to commit predicate
offenses, rather than vulnerability to ML/TF, and thus the impact of these notices and risk warnings
on the risk assessment of FIs is not clear.
345. The PBC also receives other information on FIs and PIs from STR data provided by
CAMLMAC; criminal case convictions from the SPC; criminal investigation data provided by the MPS;
and typological cases provided by LEAs at the national and local levels. However, this process does
not address the low level of understanding of risks as identified in Chapter 2. Nevertheless, as a
result of these efforts, there has been a significant increase in the numbers of FIs designated as high
53 Subsequent to the onsite visit, the PBC updated the guideline.

risk which has implications for supervisory resources (see Risk-Based Supervision of Compliance with
AML/CFT Requirements, below).
346. The information obtained by the PBC from sector regulators on internal controls varies in
utility and content. Except for the information from the insurance sector, internal control information
from the sector supervisors is not AML/CFT-specific and essentially confirms that controls are in
place or otherwise. As noted the PBC itself assesses the overall quality of AML/CFT controls in FIs
and PIs.
347. The table below sets out statistics on the PBC’s classification of residual risk rankings for
the years indicated.
Table 23. Number of Institutions with Ratings Categorized by the PBC (2015–2017)
Sector Risk Level 2015 2016 2017
Total 4,193 4,330 4,481
Low Risk 1,104 926 630
Banking
Comprising: Medium Risk 2,371 2,591 2,951
High Risk 718 813 900
Total 375 386 391
Low Risk 108 76 65
Securities/Futures/Funds
Comprising: Medium Risk 169 240 260
High Risk 98 70 66
Total 194 203 227
Low Risk 43 38 47
Insurance
High Risk 62 41 32
Total 68 68 68
Low Risk 11 17 15
Trust Companies
High Risk 8 9 9
Total 269 266 242
Low Risk 2 36 31
PIs
High Risk 173 78 39
Total 5,099 5,253 5,409
Low Risk 1,269 1,093 789
Total
Comprising: Medium Risk 2,771 3,150 3,574
High Risk 1,059 1,010 1,046

348. The PBC risk assessment process essentially focuses on risk assessments provided by FIs,
followed by a process to determine if the FIs have correctly identified and assessed the
vulnerabilities, information from the sector regulators on their observations on the effectiveness of
FIs’ internal controls, and the PBC’s assessment of how these controls apply to the AML/CFT
requirements. The online lending sector is not subject to this process. Overall, the PBC demonstrates
an adequate understanding of risk in the financial sector.
DNFBP Sector
349. The PBC has not conducted any risk assessment of individual DNFBPs (aside from trust
companies). The only information available on sector risk is contained in the NRA, which rates the
real estate sector as having relatively high inherent risk and medium residual risk.
350. In the NRA, the DPM sector is rated as having relatively high inherent and residual risk,
thus implying the risk mitigation is essentially ineffectual. The legal, notarial, and accounting sectors
are rated as having low inherent and residual risk. The CSP and DPS sectors are not discussed in the
NRA and are unrated.
351. The DNFBP sector supervisors (the MOHURD, the MOF, and the MOJ) demonstrated a low
level of understanding of ML/TF risk. The authorities stated that the sector supervisors are actively
involved in the ML/TF risk assessment process, but no specific or detailed information was provided
to demonstrate this. During meetings with DNFBP-sector supervisors, the PBC responded to most of
the questions about the work done to date on planning for supervision in these sectors.
Risk-Based Supervision of Compliance with AML/CFT Requirements
Financial Sector
352. The AMLB, from its headquarters in Beijing and through 36 locations across China, directs
the AML/CFT supervision of FIs that are subject to the AML Law. The 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.
353. From 2015 to 2017, the head office of PBC conducted risk assessments on 24 institutions
deemed to be of national importance. As a result of this analysis, it was decided to centrally
coordinate all supervisory activity related to these 24 FIs but executed through the relevant branches
of the PBC. This central coordination 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 other FIs in this group are large insurance
companies, securities dealers, and PIs deemed to be of national importance. The supervision of all
other FIs is led by the AMLB team in the relevant PBC branch or sub-branch.
354. PBC’s AML/CFT supervisory strategy is informed by the results of the risk assessment
process described under Supervisors’ Understanding and Identification of ML/TF Risks, above, which
results in an AML/CFT supervisory rating.

355. The PBC offices are staffed according to the numbers of prefectures, provinces, or counties
for which they provide supervisory services, and this allocation does not always correspond to the
numbers of FIs in these regions. However, the PBC actively manages the assignment of AML
supervisors to the locations needing them. For example, the Shanghai branch, which is responsible
for one of the largest financial centers in the country, only has 11 staff dedicated to AML/CFT
supervision physically located in Shanghai. However, the PBC actively assigns additional resources to
Shanghai when needed (see further discussion below). Generally, the number of PBC supervisory
staff is slightly higher in the four SE provinces of China, roughly corresponding to the areas of
higher risk noted in the NRA. The proportion of staff per province is about 12 percent on average,
compared to nearly 13.5 percent in the SE region.
356. As noted above, the sector supervisors’ mandates are focused on the internal control
processes at FIs. However, the dividing line between the PBC and sector supervisory work is not
always clear in practice, with supervisors confirming to the assessors that there are often situations
where supervisory work plans overlap. This is most notable in the insurance sector (see below and
also previous section on risk assessment process). The authorities consider that, given the
importance of internal controls, it is important that sector supervisors work cooperatively with the
PBC where necessary to ensure internal controls are adequate. The assessors note that the support
of the sector supervisors in assessing the quality of internal controls is a strength of the system.
357. Starting in 2011, the CIRC began “special inspections” targeting the AML systems of
insurance companies. These inspections are not limited to internal controls but cover such elements
as customer identification obligations and not reporting LVTRs and STRs, areas that mostly fall to
the PBC to supervise in the other sectors. The supervisory program of the insurance regulator is thus
more attuned to ML/TF risks than those of the other financial-sector regulators. The banking and
securities regulators do not have a comparable approach except where the PBC requests their
assistance or input. The assessors consider that similar programs of enhanced support by the
banking and securities regulators would further enhance the quality of AM/CFT supervisory process
in the financial sector.
358. The PBC onsite process has two components: supervisory visits and onsite inspections. See
the table below for statistics on these two different measures between 2015 and 2017.
359. PBC Supervisory Visits: these are widely used and normally result in obtaining information
through questionnaires, information checking, systems inspections, and so on. The supervisory visit
is essentially a lighter touch type of supervision used at FIs with lower than the maximum level of
assessed risk, and at other FIs to address particular issues. The PBC uses information gathered to
document AML/CFT issues and inform the issuance of guidance (see Promoting by Supervisors a
Clear Understanding of AML/CFT Obligations and ML/TF Risks, below). Supervisory visits do not
normally result in written findings or remedial measures directed at individual FIs. In 2017, the PBC
conducted almost 5,700 supervisory visits to the head offices and branches of China’s 4,000+ FIs and
issued a total of 1,421 Regulatory Opinions after these visits.

360. Onsite Inspections: The PBC AMLB, through the HO and 36 branches, plan annual programs
of onsite inspections taking into account supervisory goals, ratings, risk assessments, regulatory
filings, and risk events (known instances of higher risk) during the planning process. The chief
criterion is the risk rating. The principal objects of the onsite inspections are to verify that the FI has
implemented customer identification, record-keeping, monitoring, STR filing, and TFS name
scrubbing processes.
Table 24. Statistics of Various Supervision Measures Conducted at FIs by the PBC in 2015–
2017 (Number of Institutions)
Supervision Measures 2015 2016 2017
Offsite Inquiries 304 366 500
Supervision Interviews 486 586 782
Supervisory Visits 1,193 1,060 1,912
Banking 845 779 1,495
Securities 132 113 158
Insurance 125 126 163
Comprising:
PIs 62 26 41
Other FIs including
29 16 55
Trust companies
Onsite Onsite Inspections/FIs rated High
Supervision 515/1,059 612/1,010 605/1,046
Risk by PBC
Banking 365/718 429/813 431/900
Securities 65/98 80/70 72/66
Insurance 67/62 74/41 82/32
Comprising: PIs 16/173 23/78 12/39
Other FIs including

2/8 6/9 8/9
Trust companies
361. Given the significance of ML threats arising from cross-border transfers and the NRA rating
of the banking sector as high inherent risk, the inspection statistics in the table above indicate that
the banking sector appears to be substantially under-represented in the PBC’s inspections, even
though it accounts for a significant number of inspections. As shown in this table, the ratio of
inspections to the numbers of high-risk banks has declined somewhat, from approximately
50 percent in 2015 to 47 percent in 2017. On the other hand, in the PI sector this ratio has improved
from 9 percent to 31 percent over the same period.
362. In the securities and insurance sectors, the numbers of inspections exceeded the numbers
of high-risk FIs, which suggests the PBC includes a higher proportion of medium- and low-risk
entities in the inspection programs in these sectors. Generally, it is not clear what proportion of
inspections in each sector apply to high-risk entities, but it appears there is an imbalance in these
sectors which should be addressed.

363. The PBC does not carry out onsite inspections at foreign branches or subsidiary locations
of Chinese FIs. The authorities explained that (i) these foreign locations account for less than
2 percent of all FI locations and about 12 percent of total assets; (ii) FIs are required to report to the
PBC on the AML programs at these locations in their annual reporting to the PBC; and (iii) FIs are
required to report to the PBC on “major events” at foreign locations on a timely basis. The PBC
considers this approach adequate to assess the risks emanating from foreign locations.
364. During onsite inspections the PBC looks specifically at FIs’ management of risks associated
with Fintech products, including whether new Fintech products have been subject to a risk
assessment prior to being launched, and they assess the effectiveness of this process. This is a useful
process, but it would be more beneficial if the PBC also made these risk assessments following the
offsite supervisory visits. This would allow the PBC to study the risk management practices adopted
for these products across the financial sector, would improve the quality of information available as
the PBC prioritizes FIs for supervisory activity.
DNFBP Sector
365. The PBC, accompanied by the MOHURD, the MOF, and the MOJ, have carried out a small
number (53) of supervisory visits (not inspections) to DNFBPs (as defined by the FATF standards) in
the real estate, accounting, legal, notarial, and DPS sectors from May 2017 to June 2018. A further
105 supervisory visits were made to various other firms, mostly tax firms and pawnbrokers. It is
worth noting that none of these other types of firms was included in the purported July 2018
designation of DNFBPs referred to above. The objectives of these visits were mainly to acquaint
industry participants with potential AML/CFT obligations and possible proposals for future
supervision, as part of the process of discussing future supervision with the sector supervisor.
According to the PBC, the visited DNFBPs were requested to “commence AML work.” It is not clear
how the PBC or the sector regulators were in a position to enforce AML/CFT obligations before the
purported July 2018 Notice was issued.
366. The PBC advised the assessors that some DNFBPs have “preliminarily” established AML
internal control frameworks and set up reporting procedures to process STRs and LVTRs. Again,
however, it is not clear how these internal controls and procedures could be evaluated given the
lack of enforceable measures in the sector. The competent authorities did not provide any statistics
on these control frameworks or processes, or which DNFBPs had established them. Accordingly, the
assessors conclude that there has been no AML/CFT inspection of the DNFBP sectors (aside from
trust companies and the DPM).
367. In summary, although the concept of risk-based supervision seems to be understood by

the PBC, the extent of its understanding of ML/TF risks (see conclusions in Chapter 2) negatively
impacts the PBC’s supervisory processes. The PBC’s allocation of inspection resources is entirely
aimed at the financial sector and is predominantly based on FIs’ own risk assessments and a process
that assesses the general quality of internal control measures. Moreover, the growth in numbers of
high-risk FIs is outpacing the efforts of the PBC to inspect these FIs. DNFBP supervision for AML/CFT
obligations was essentially nonexistent since measures did not apply to these sectors (aside from

trust companies and DPMs). As a result, the adequacy of the overall results of the supervisory
process in mitigating the ML/TF risks in China is questionable.
Remedial Actions and Effective, Proportionate, and Dissuasive Sanctions
368. The PBC and the sector regulators have a range of supervisory remedial measures and
financial sanctions available for the financial sector.
369. Remedial Measures: The PBC issues Supervisory Opinions following supervisory visits,
setting out identified issues and requiring the financial sector to implement within a specified time
limit. Following inspection visits, individual FIs are required to develop specific remediation plans,
implement the plans, and improve AML/CFT work in aspect of organizational structure, investment
of resources, internal control mechanisms, and system improvements. The PBC regularly reviews the
status of remediation, hears reports from the senior executives, and guides the follow-up work. If
the FI fails to comply by the deadline, more intensive measures and/or financial sanctions are
available. Remedial measures, when completed, must be reported to the supervisor. Progress (or
lack of it) is a factor in the ratings system described above and in supervisory strategy going
forward. Remedial measures applied by PBC are always accompanied by a financial penalty.
370. 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. According to the authorities,
the amount of the assessed penalty is based on the number and degree of severity of violations.
China also follows a policy of assessing additional financial penalties against members of the boards
of directors or senior management considered responsible for the violations of the FI legal entities.
371. The table below sets out statistics on the numbers of FIs and related individuals that were
subject to financial sanctions applied by the PBC in the years indicated.
Table 25. Numbers of FIs and Individuals Penalized Financially

2012 2013 2014 2015 2016 2017
Number of penalized institutions 58 102 122 117 154 255
Number of penalized individuals 32 168 147 173 483 695

Aggregate Amount of penalties applied
13.09 21.54 27.42 26.87 49.61 107.4
(RMB million yuan)
372. Banks penalized by the PBC under the AML Law represented about six percent of all banks
in China in 2017. In 2017, of the 255 FIs that were financially penalized, 157 were mostly residually
high-risk small- and medium-sized urban commercial banks, rural commercial banks, rural credit
cooperatives, and rural banks. Although these banks offer services assessed as relatively high risk by
the NRA, their smaller scale of business coupled with weaker controls makes them residually higher
risk. As a result, more issues were identified in onsite inspections, and thus the proportion of
penalties was higher. In 2017, the 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.
373. 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, or 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 found at
26 locations. As of the end of 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. This size of
penalty applied to such a large bank for extensive systemic violations at 26 offices seems minor and
not dissuasive.
374. As noted above, the sector financial supervisors cannot apply financial penalties for
violations of the AML Law but can apply sector penalties for weaknesses in internal controls.
According to available statistics, since 2015, the former CBRC has imposed 48 penalties and fined FIs
an aggregate of RMB 22.3 million for failure to implement internal control requirements. A total of
23 institutions were penalized, 6 were also ordered to sanction 25 responsible personnel of whom 8
were removed from their posts and 3 were prohibited from engaging in the banking industry for life.
The average penalty per FI was slightly less than RMB 1 million (approx. US$160,000). Again, in a
sector which features very large banks, this average size of penalty seems minor and not dissuasive.
No information is available on the relative level of ML/TF risk in these FIs.
375. The CIRC applied financial penalties to two insurance companies in 2017, but the amounts
and violations were not available. In 2016, the CSRC imposed administrative penalties on
four institutions aggregating RMB 240 million.
376. As can be seen from the table above, the overall volume of financial penalties applied by
the PBC is growing. The authorities attribute this growth to the impact of new regulatory
obligations, better targeting of inspections to higher-risk entities and better inspection
methodology leading to more issues being identified by PBC. However, the low levels of penalties
available (see TC Analysis) means that in order to have dissuasiveness keep pace with growth in risk
levels, the supervisory have to expand the scope of their work in order to find violations that will
generate a sufficiently large penalty.
377. In summary, the assessors believe that AML/CFT financial penalties available, as applied by
PBC and averaging about RMB 41 million per year (approx. US$6 million) are not effective,
dissuasive, nor proportionate given the overall size of the financial sector, the scale of the major
banks and other FIs in the financial sector, and the lack of initial responses to remedial measures.
Further, although the sector supervisors can and do apply sector financial penalties for internal
control weaknesses, these penalties are not necessarily AML/CFT-related and apply for broader
issues that may or may not have a direct link to AML/CFT compliance.
378. No AML/CFT remedial actions or sanctions have been applied to online lending
institutions.

DNFBPs
379. No AML/CFT remedial actions or sanctions have been applied to DNFBPs.
Impact of Supervisory Actions on Compliance
380. The PBC demonstrated that its risk-based approach to AML/CFT supervision is mostly
based on ratings generated by the FIs’ assessment of inherent risks and the PBC’s assessment of the
quality of internal controls applicable to implementing AML/CFT measures. The overall impact of
supervision on compliance by the financial sector seems to be moderate and declining. This
conclusion is based on the following factors: (i) the rapid growth in the number of high-risk FIs
which is outpacing increases in numbers of inspections; (ii) increasing remedial measures required
of, and financial penalties handed out to, FIs and individuals in the financial sector between 2012
and 2017; (iii) the lack of dissuasiveness of financial penalties as discussed above; (vi) the low to
moderate level of ML/TF risk understanding demonstrated by the financial sector during the onsite
visit (see Preventive Measures); and (v) the lack of AML/CFT sanctions in the DNFBP sector.
381. For example, between 2012 and 2017, the number of FIs that were sanctioned by the PBC
for violations of the AML Law grew from 83 in 2012 to 429 in 2017, over a 400 percent increase.
Over the same period, the number of onsite inspections declined from 1,173 to 1,046, a reduction of
about 11 percent. In 2012, 32 individuals in these institutions were fined, and this number grew to
695 by 2017. The aggregated amounts of annual fines grew from RMB 13 million in 2012 to
RMB 107 million in 2017.
382. Sector Supervisors: Except for the insurance supervisor, the sector supervisors have a low to
moderate impact on AML/CFT compliance, due to their supporting role that is limited to verifying
the existence of general internal controls and their inability to apply financial sanctions for AML/CFT
violations. Their supervisory role, whilst important to support PBC’s supervisory process, is mainly
oriented to prudential supervision. The insurance supervisor carries out its own assessment of
internal controls relevant to ML/TF in insurance companies. The overall impact on PBC’s actions is
thus uneven. As noted above, sector supervisors cannot apply financial penalties for AML/CFT
deficiencies, and remedial measures applied were negligible and not directly related to supporting
AML/CFT controls.
383. Despite the increasing use of financial penalties, the overall levels of compliance behavior
by FIs have not changed significantly and in some respects has worsened. For example, there has
been steady growth in the number of sanctions for issues relating to BO, growing from 57 in 2015 to
119 in 2017. The authorities attribute most of this increase to noncompliance issues relating to the
identification of beneficial owners, introduced under Regulation 235 in 2017.
384. 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.

385. The following table sets out statistics on deficiencies identified by PBC related to
weaknesses in management of ML/TF risks associated with Fintech products in AML inspections
from 2015 to 2018. As can be seen there has been a steady decline in the number of issues,
suggesting that the impact of PBC’s measures in the financial sector relating to Fintech products has
achieved positive results.
Table 26. Weaknesses Identified by PBC in PI Sector

Year 2015 2016 2017 2018(1H)
Internal control in relation to Fintech business 39 50 37 11
Anonymous accounts or accounts in obviously fictitious names 0 1 1 2
Transactions with customers whose identities are yet to be clarified 4 7 4 3
First identification of customer 93 118 115 37
Beneficial owner 28 25 22 10
Expiration of ID 64 94 96 40
Re-identification of customer 29 44 36 12
Intensified measures for customer identification issues 7 11 7 4
Large transaction reporting 38 49 45 21
Suspicious transaction reporting 58 79 57 26
Customer information and transaction record-keeping 56 55 48 22
386. Online lending sector: PBC and the financial sector regulators have no impact on the online
lending sector as 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 the PBC’s AML/CFT
supervisory program in 2015, notwithstanding that the AML Law does not apply to online lenders.
Despite this, however, no inspections in this sector have been conducted by PBC (see above, Table
on Statistics of Various Supervision Measures Conducted at FIs by the PBC).
DNFBPs
387. PBC and sector regulators/SROs had little to no impact on compliance by DNFBPs. The
authorities asserted to the assessors that in practice, the PBC collaborated with sector regulators to
conduct AML/CFT supervision on DNFBPs in the real estate, DPM, and accountant sectors through
issuing various notices. These notices simply highlighted high-level expectations but did not apply
the AML Law to these sectors. As noted above, by June 2018 the PBC had carried out supervisory
visits (which do not result in remedial measures being required—see discussion under financial
sector above) at 53 DNFBPs and had conducted risk assessments of 11 institutions. Various enquiries
and training sessions were also provided. It is clear to the assessors that these actions did not
constitute the kind of supervisory activity defined by the FATF under R.28.
388. It is not clear why the AML Law requires the “collaboration” of DNFBP sector regulators in
AML/CFT supervision by the PBC. What little information is available suggests that the PBC has done
a very small amount of work in the DNFBP sector such as some visits and a few risk assessments in
various areas of China to gain an understanding of ML/TF risks.

Promoting a Clear Understanding of AML/CFT Obligations and ML/TF Risks
389. The PBC conducts a guidance publishing strategy that is designed to bring to FIs’ attention
ML/TF risks and potential control weaknesses. The authorities believe that guidance improved the
ability of FIs to identify risk and raised AML/CFT awareness among senior executives and staff.
However, the assessors noted a low to moderate level of understanding of ML/TF risk in the financial
sector (see IO.4 discussion). As noted above, the RA Guideline was issued in 2013 but had not been
updated by the time of the onsite visit. Further, although there is guidance on CDD measures, it
mostly addresses customer identification issues and information linking suspicious activity to
predicate offenses generating illicit proceeds. This type of guidance may be effective at improving
the ability of FIs to satisfy basic obligations and file useful STRs but does not appear to be aimed at
more complex or sophisticated improvements needed in internal controls and CDD obligations,
especially in larger FIs.
390. Important PBC guidance is issued by PBC Head Office (HO), including that relating to
customer identification and STRs. In addition, Supervisory Opinions are considered guidance and are
published as such. PBC guidance strategy is, to a considerable extent, executed by branches (the
guidance is normally linked to local issues and risks) after reporting the proposed guidance to PBC
HO for review and approval. The authorities have confirmed that this process prevents PBC branches
from issuing potentially conflicting guidance.
391. Sector supervisors also issue guidance, mostly on internal controls. Although these are
helpful and address specific internal controls supporting compliance with AML/CFT obligations, they
do not address compliance issues under the AML/CFT law; however, the authorities confirmed that
the sector supervisors do consult with the PBC before issuing such guidance to ensure that there is
no conflict with regulations.
392. Official Replies: The PBC regularly issues what amount to interpretation bulletins to FIs that
request assistance in understanding their obligations. More than 80 of these official replies had been
issued at the time of the onsite assessment.
393. Risk Warnings: The PBC regularly holds briefings for FIs and sector regulators, issues
analysis reports on ML/TF typologies, the types of crimes that are mainly involved in STRs, ML
trends, promotes the regulated institutions’ understanding of current risks, guides institutions to
strengthen AML management for the provision of products/services. As of the end of 2017, the PBC
had issued a total of 33 risk warnings.
394. Training: The PBC regularly provides training seminars and information sessions for FIs and
DNFBPs. In 2017, for example, the PBC held over 2,700 such sessions across China, attended by over
200,000 people.
395. Other Tools: The PBC uses a variety of other tools to disseminate AML/CFT information,
such as feedback during the supervisory process, circulars on targeted self-assessments, feedback
from CAMLMAC on filings, etc.

396. In summary, 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). The general level of knowledge of ML/TF risks is moderate to low in the
banking sector; on the other hand, institutions have a generally good general knowledge of their
obligations, although not of their risks.
397. In the DNFBP sector, there has been some high-level guidance by PBC and rulemaking by
sector regulators, but given that the DNFBP sector (except for trust companies and DPMs) was not
subject to AML/CFT obligations (see the discussion concerning the purported designation of
DNFBPs, above), the assessors consider this activity to be generally ineffectual.
398. The assessors, therefore, conclude that the overall impact of the supervisors’ activities on
the sectors’ understanding of risk and obligations is moderate in the financial sector and low in the
DNFBP sector.
LEGAL PERSONS AND ARRANGEMENTS

A. Key Findings
• Basic (or 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 it seems relatively
easy to circumvent the registration rules (for example, through straw persons).
• BO information of legal entities (domestic or foreign) is not (publicly) available in China.

Authorities make use of available basic information, CDD information collected by FIs, and law
enforcement powers to obtain such information. Each of these sources poses shortcomings and
significant challenges, and the combination of measures at the current stage falls fundamentally
short of what an effective system for obtaining accurate, adequate and current BO information
in a timely manner would look like. Basic legal ownership or shareholder information may, in
practice in some cases, be the same as the BO information, but the concepts are fundamentally
different, and authorities should not rely on basic legal information as an alternative measure to
identify the BO. That said, authorities have already initiated plans and measures that may
improve effectiveness in the future.
• There is no granular understanding of the ML/TF risks of each type of legal person, and the risk
classification that has been produced for the purposes of the NRA focuses on control measures
related to technical compliance. Some of the findings of this risk assessment are also not
supported by the risk scoping for this assessment, are inconsistent with other government
policies (such as the national anti-corruption drive) and are inconsistent with case examples

provided to the assessors (which highlight incomplete basic information and lack of BO
information as the main vulnerability).
• The Trust Law provides for the creation of domestic civil trusts. No measures have been taken to
mitigate the misuse of domestic trusts, although the lack of a regulatory framework for civil
trusts is an impediment to its use and as such can be considered a mitigating measure in itself.
Foreign legal arrangements (i.e., foreign trusts) operate in China, such as the legal or beneficial
owner of a Chinese legal company. Authorities have been able to identify foreign trusts that
operate in China.
• Short of requiring all BO information to be registered directly with, for example, SAMR (which
would be the relatively most straightforward solution), authorities must continue to take other
measures to ensure that adequate, accurate and current BO information is obtained in a timely
manner. This includes continuing to require FIs to collect and verify BO information, and
improve compliance with these requirements. The PBCs proposed BO register for information
collected by FIs could also assist in achieving effectiveness in this regard. Authorities should no
longer treat basic legal or shareholder information as an alternative to BO information.
• Authorities need to improve the accuracy of basic information available in the public registers,
as collected by SAMR, among other reasons to better prevent against front companies. This
should include stricter verification and enforcement of registration requirements. This should
also include widening the authorities’ focus by taking legal actions against legal persons when
breaches are detected (in addition to the focus on the natural persons involved with the abuse).
• Authorities need to improve their understanding of the risks of legal persons by undertaking a
more granular risk assessment for each type of legal person, rely less on existing control
measures, and that takes into account a broader range of existing risks that may impact legal
persons.
• Authorities should take additional measures to prevent the misuse of legal persons, including an
increased focus on complex schemes to abuse legal persons and hide BO during financial
investigations (without losing the current focus on abuse through front companies).
• Authorities need to take further measures to abolish, dematerialize, or register bearer shares.
• Authorities should consider reviewing the current legal basis for the creation of domestic trusts,
in view of the uncertainty that it creates.
recommendations relevant for the assessment of effectiveness under this section are R.24 and 25.

C. Immediate Outcome 5 (Legal Persons and Arrangements)
Overview of the Types of Legal Persons and Arrangements
Legal Persons
400. Company law is subject to continuous development since the policy of economic opening-
up started in 1978, and the changes are still ongoing. As is set out in Chapter 1, the Civil Law is
somewhat open ended in this regard, as it defines for-profit legal persons to “…include limited
liability companies, joint stock limited companies, and other enterprise legal persons” without
indicating what these other for-profit legal persons are. Some types of for-profit legal persons may
have different names in daily use or in regulations. For example, LLCs and JSLCs are commonly
referred to as companies.
Legal Arrangements
401. The Trust Law recognizes three types of trust: civil trusts, charitable trusts, and business
trusts. As is explained in Chapter 1, only civil trusts meet the definition of legal arrangements. There
are three types of civil trusts: wealth, educational, and testamentary. Although civil trusts can be set
up according to the law, civil trusts are not regulated by the CBIRC and the lack of regulatory
framework is likely an impediment to their use. In fact, according to the authorities, civil trusts do
not exist in practice because of the lack of additional regulations and registration requirements,
although this could not be confirmed. Civil trusts also do not require the involvement of a TCSP to
be set up (although they could be involved). The unregulated nature of civil trusts impacts the
assessment of the effectiveness of this immediate outcome in some areas, although the overall
impact is minor.
402. Foreign legal arrangements (foreign trusts) operate in China, for example as the legal or
beneficial owner of a Chinese legal entity. The authorities provided case examples, whereby Chinese
natural and legal persons would be the legal or beneficial owner of companies (in China and abroad)
through foreign trusts. The fact that such structures were detected by banks and law enforcement is
positive.
Public Availability of Information on the Creation and Types of Legal Persons and
Arrangements
Legal Persons
403. The types of legal persons have been set out above and in Chapter 1. There are several
steps to set up a legal person that are generally similar for most of the relevant types of legal
entities. The first step is to receive approval for a name for the future legal person. The second step
is an application to create the legal person to the registration authority. The third step is to receive a
business license and be formally registered. For-profit legal persons that will be engaged in
commercial activities need to undertake a few additional steps, including registering with the social

security and tax departments. As part of this process, some of the basic information provided during
the setting-up process needs to be resubmitted to these authorities. There are some additional
steps to be taken for legal persons with foreign ownership.
404. In recent years, SAMR has modernized and decentralized its part of the registration
process, by providing facilities for online registration. Other authorities that can be involved in the
registration process include the MPS, the PBC, the tax authority, and the social security
administration. Authorities stated that there are no regional differences regarding the requirements
for any type of legal person or market entity. Authorities indicated that official websites of
authorities such as the State Council, SAMR, and the MCA have promulgated laws and regulations
that specify the detailed procedures for setting-up each type of legal person, and these laws are
posted online.
Legal Arrangements
405. As outlined above, the law provides for the existence of civil trusts, but there is no further
regulatory framework.
Identification, Assessment and Understanding of ML/TF Risks and Vulnerabilities of Legal

Entities
406. The authorities’ overall understanding of ML/TF risks and vulnerabilities of legal persons is
set out in the NRA and in more detail in an annex to the NRA. The focus of the NRA is on the rules
and control measures that are in place for each type of entity, and there is little information on
threats and vulnerabilities. Without such information, the risk classification that is included is difficult
to understand. This especially concerns the classification of state-owned companies as low risk. This
is inconsistent with the many known corruption cases that originate from state-owned companies,
and with the priority that the government is giving to cracking down on such corruption. The same
applies to other types of state-linked entities that are considered low risk. Authorities explained the
classification of state-owned companies as low risk due to the fact that these are initially not set up
with an aim to be abused for crime, which is a possibility for other types of legal persons. Assessors
note that this does not take into account that existing state-owned companies are being misused
for crime and ML, which is a major risk.
407. However, competent authorities and private sector representatives that the assessment
team met with had a consistent view of the main vulnerability that China faces, which is the misuse
of legal entities through setting up front companies (in the NRA also referred to as shell companies)
to commit fraud and other crimes. The authorities also identified the unavailability of BO
information and lack of complete basic information as important vulnerabilities. Authorities note
that BO is a very recent concept in China, and that only FIs are required to collect such information.
The NRA also notes that most banks do not carry out checks of ownership, in the absence of
regulatory requirements.

408. Authorities provided a large number of case examples of misuse of legal persons. Some
cases were more complicated, including with foreign ownership structures. The majority of cases
concern rather straightforward use of front companies, set up or acquired specifically to commit
crimes. More often than not, these cases seem to involve a registered contact person who appears
to be a straw person, which is in line with the observation that basic information is not always
available or accurate (see below on enforcement). The detection of such cases happens as part of
law enforcement action at the investigative stage. Regional law enforcement authorities that met
with the assessment team explained that they are able to locate the beneficiary of these front
companies through following the money trail from the company, which from examples provided
seemed to be the immediate recipient of the funds. This type of abuse does not seem to require
more complicated structures with beneficial owners that are further removed from the abused
company.
409. Law enforcement did not appreciate the need for having access to BO information, even
for chains of BO with offshore links. It may be that law enforcement does not search for such cases
or does not further investigate financial trails beyond the beneficiary. However, considering that
registered basic information is not necessarily accurate or complete and that BO information is only
available through FIs (if at all), criminals and terrorists in China may not need to make as much use
of complicated structures to hide and channel their illicit assets. 54
Mitigating Measures to Prevent the Misuse of Legal Persons and Arrangements
Legal Persons
410. Few mitigating measures to prevent the misuse of legal persons have been taken; the most
important existing measure being the introduction of BO requirements for banks and other
reporting entities, which is an area of weakness for the FIs as described in the NRA. That said,
despite the recent CDD BO measures taken following the completion of the NRA, authorities have
stated that this is a priority, and assessors are hopeful that PBC’s current efforts will increase the
effectiveness of mitigation in the future. Other than these CDD BO measures, authorities pointed at
strengthening of some regulatory registration requirements that may also assist competent
authorities to prevent abuse of legal persons. This includes rules for foreign companies and for legal
persons operating in some free trade zones. None of these supporting measures; however, directly
address the main risks and vulnerabilities as highlighted in the NRA, and none of these measures
improve availability and accuracy of basic information and/or BO information.
411. Also, measures for bearer shares, nominee shareholders, and directors are incomplete,
which could also lead to misuse of legal persons (and arrangements, see below). Although
authorities note that bearer shares are not in use currently in China, both the IMF (Financial Sector
Assessment Report 2017) and the Global Forum (Peer Reviews) have provided recommendations in
this regard, which the assessment team agrees with.
54 See also on IO.11 for front companies in relation to the financing of proliferation.

412. For the longer term, authorities are in the process of building a BO database at the PBC
that will be fed with information from banks and other reporting entities. This is a welcome
development. For the purpose of usefulness, hopefully authorities will be able to ensure that the BO
information collected by private parties and fed into the register is accurate and up-to-date. As is
described in the NRA, banks themselves currently struggle to collect and record accurate BO
information. In addition, although authorities are of the view that 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. Separately, case examples provided by authorities
indicate that the front companies abused for criminal activities generally did not have difficulties in
getting access to financial services, although authorities also provided case examples where financial
services were not provided due to a lack of BO information (for various reasons). 55
Legal Arrangements
413. No specific mitigating measures have been taken in relation to civil trusts—although the
lack of specific regulations may be a mitigating measure in itself as it discourages 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 the identification of a trust.
Timely Access to Adequate, Accurate and Current Basic and Beneficial Ownership
Information on Legal Persons
414. China aims to use a combination of mechanisms to gain access to basic and BO
information. However, there are important shortcomings with each mechanism.
415. The first mechanism is to use basic registered information to find the legal owner or
shareholder of a legal entity. This mechanism is only useful to identify the BO in cases where the
legal owner or shareholder and the BO are the same, but the registered information itself will not
indicate if the registered legal owner or shareholders are indeed the BO. That said, basic registered
information can be a starting point to identify BO information, and accessing this information poses
no problems whatsoever. Information is publicly available through the National Enterprise Credit
Information Publicly System (NECIPS), and through commercial parties. However, the registered
basic information is limited to the information that is required to be collected by SAMR, and the
accuracy depends on verification at the registration stage and when information is changing.
Authorities provided good examples of the use of the system, but a review of the publicly accessible
registers by the assessment team also indicated the information can be limited to the name of the
company and the name and address of the contact person for the legal person. The number of
breaches and the relative ease to set up front companies also provide an indication that the
effective implementation of this system requires improvements.
416. The second mechanism that authorities use is BO information available elsewhere,
including through CDD measures. As noted above, while a potentially good mitigation measure, the
55 See also on IO.11 for front companies in relation to the financing of proliferation.

implementation of these CDD measures is too recent to be considered effective at this stage (as
noted as well in the NRA). The third mechanism is through the use of law enforcement powers,
either to gain access to the information held by the legal person (but note that legal persons are not
required to hold such BO information) and/or their representative (who is also not required to hold
such BO information). As has been elaborated in other assessment reports, the use of law
enforcement powers poses unique challenges to effective implementation that can be a
fundamental barrier to achieve effective compliance. Not limited to the fact that law enforcement
will have to find the BO information not knowing beforehand if it exists and where it is available.
This also negatively impacts the timeliness of access to the BO information.
Timely Access to Adequate, Accurate and Current Basic and Beneficial Ownership
Information on Legal Arrangements
417. No adequate, accurate, and current basic and BO information has been shown to exist for
legal arrangements (civil trusts), mitigated by the potentially limited existence of such domestic civil
trust. 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 for BO information
collected by FIs for legal persons.
Effectiveness, Proportionality and Dissuasiveness of Sanctions
Legal Persons
418. Assessors are not convinced that the implementation of sanctions that are imposed is
effective, proportionate, and dissuasive. Although authorities have a range of sanctions at their
disposal, as described, the range and impact of these sanctions could improve, in line with the risks
that China faces. Authorities provided limited data on breaches of requirements for legal persons
and sanctions imposed on legal entities by the SAMR. These sanctions include measures such as
limiting access to government contracts for all types of violations, including for basic registration
violations, but do not cover BO requirements (as there are not requirements that one could breach
in this regard), and do not include monetary sanctions The figures show that for 2017, although
more than 9 million companies are listed for breach of requirements, only 28 legal persons had been
terminated because of false registrations. In comparison, of the nine million listed legal entities,
about seven million were listed for not submitting annual reports, and more than one million
because the legal person could not be contacted through the listed contact person, not even by the
authorities. As far as risks of abuse of legal entities is concerned, one would expect that the lack of
filing of an annual report and the lack of a contact person would be major red flags for the
authorities to further pursue—especially in light of front companies as a major vulnerability.
However, authorities have not demonstrated that they indeed follow up on such cases. Also, a listing
for breach of requirements does not necessarily lead to a sanction of the legal person.
419. Since 2015, 40 competent authorities coordinate at the policy level to address misuse of
legal entities, each with a focus on compliance in their respective area. As a result, 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 such, but not for breaching
BO information.
420. Overall, it appears that the rate of detection of misuse of legal persons is low. Authorities
have indicated their priority is to pursue criminal charges against the natural persons in charge of
legal entities. This can be explained by some of the provisions in the Criminal Law, which include
sanctions for management and staff of legal entities for the wrongdoing of these legal entities. The
sanctions for natural persons are also higher than the comparatively low monetary sanctions
available to sanction legal persons.
Legal Arrangements
421. No information is available on sanctions regarding domestic civil trusts, a deficiency that is
mitigated by the potentially limited existence of such domestic civil trusts. Likewise for foreign legal
arrangements operating in China.
INTERNATIONAL COOPERATION
A. Key Findings
• China has a largely compliant legal framework for international cooperation but uses it to a
limited extent.
• Due to a complicated decision-making structure, it sometime takes a long time to respond to

MLA and extradition requests, taking up to five weeks to obtain a clearance to execute the
request. At the same time, 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. However, China uses these channels very
rarely in relation to ML/TF investigations.
• China is not seeking a sufficient number of MLA/extraditions related to transnational ML/TF

cases, as would be expected based on 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 its foreign counterparts
but rarely seeks information from abroad.
• Supervisory authorities cooperate internationally, but not specifically in relation to ML/TF.

• The general inability to exchange BO information (because it is not easily obtainable) is an

impediment to effective information exchange.
• China should increase the exchange of information in ML/TF cases and the number of
spontaneous disseminations and requests sent to foreign counterparts.
• China should ensure that it can cooperate in a faster and more efficient manner. Procedures
aimed at decreasing the time required to execute incoming and outgoing requests for
MLA/extradition/cooperation should be developed, and possibilities to act on the request while
the decision is being taken, should be explored.
• China should consider allocating more resources to assist in the timely execution of MLA
incoming requests and provide systematic training for personnel of all ministries and
departments dealing with MLA and international cooperation.
• China should align its MLA requests with geographic ML/TF risks.
• China should ensure that it can provide adequate and timely BO information.
C. Immediate Outcome 2 (International Cooperation)
423. As recognized by the authorities in the NRA, illicit proceeds are often transferred overseas,
for example through the use of bank cards, underground banks, cross-border transportation of cash,
and splitting of foreign exchange purchases (see also Chapter 1 and IO.1). The international context
increases the importance of international cooperation as a risk mitigation measure. The coverage of
these risks in the NRA and the results of the interviews with authorities during the onsite indicate
that authorities understand these risks.
Providing Constructive and Timely MLA and Extradition
424. China has a legal and procedural framework for international cooperation and assistance,
but it has complicated procedures. The MOJ is the leading central authority for accepting, reviewing,
and transferring MLA requests. China has provided MLA in a timely manner in some cases, but due
to often-complicated decision-making structures regarding the provision of the MLA, providing
assistance in practice often takes a long time. Feedback on international cooperation with China
received from the global network was varied. There was some positive feedback and good examples
of cooperation, but a number of countries expressed concern with respect to and delays and lack of
responses by China for which no valid explanations were provided

425. China does not have one central authority dealing with MLA requests. This is due, in part,
to the absence of an MLA law and the decentralized nature of the system. While the MOJ is the
leading agency, the MPS and GPP are also central authorities under certain treaties and UN
conventions. China categorizes MLA into two groups based on whether there has been a treaty on
criminal legal assistance or not. In China, there are authorities receiving requests but sending them
for execution to other authorities, as well as authorities receiving and executing requests, and the
execution can be at the central level or done by local branches.
426. China has established a multi-channel method of carrying out international cooperation:
• the MOJ is one of the authorities for the MLA requests under the Palermo Convention and
when it is mentioned as such in agreements and treaties signed by China;
• the MPS is the other authority under the Palermo Convention and in a number of bilateral
treaties and agreements;
• the MFA is the channel for the Vienna Convention, and extradition requests and MLA in the
absence of an agreement; and
• the SPP is mentioned as the central authority in the Merida Convention and in some
agreements.
427. In practice, each central authority uses an official mechanism where all incoming requests
for legal assistance in criminal matters are reviewed to determine if they meet the conditions for
legal assistance. If this is confirmed, the request is transferred to the relevant competent authority
for execution. This process of filtering each request is rather complicated and takes up to five weeks,
which may cause unnecessary inconveniencies for the requesting party. Although, in urgent cases,
the requests can be reviewed for compliance with requirements and transferred for execution within
a matter of days.
428. China can refuse to execute requests on certain grounds that are not unreasonable. If the
requests have insufficient information, China communicates with the country on amending the
requests. China has not refused a request for legal assistance due to fiscal or confidentiality issues.
429. Different ministries keep their own statistics, and there are no easily available general data
for MLA for the whole country. For ML cases, only the MPS provided the number of requests. Where
the MPS or other authorities receive requests through the MOJ or MFA, the data are included into
the statistics of both ministries. That creates some double counting and can lead to distortions in
the data. For example, in 2012–2016, the MPS counted receiving 60 MLA requests involving ML, but
this includes those that were received through the MOJ and recorded as well by MOJ. The requests
received through the MFA might also be included in the MOJ figures. In practice, however, all the
ministries have a good picture of the international cooperation in their field of responsibility. The
MOJ presented separate figures for ML- and TF-related MLA requests.

Table 27. MLA Requests Received by the MOJ of China

Number Involving
Year Number of MLA Number Involving TF
Terrorism
2014 208 1 1
2015 272 0 0
2016 301 1 0
430. Similar statistics were presented for other ministries involved in MLA. In general, the figures
for MLA received show that more than half of all requests are received by China through the MOJ.
Table 28. MLA Requests Received by Authorities of China

2012 2013 2014 2015 2016 Total %
MOJ 183 264 208 272 301 1,228 53%
MFA 63 61 85 93 90 392 17%
SPP 58 67 75 72 92 364 16%
MPS - - - - - 339 14%
431. China, considering that different ministries (including local authorities) can execute MLA
requests from abroad, developed general and agency-specific provisions, notices, and guidance on
how to handle judicial legal assistance. It is a positive measure because many requests are executed
at the provincial level, and those branches have a need for additional guidance when they receive
those requests from the central offices for execution.
432. China provides a range of assistance to MLA requests relating to the provision of
documents, witness statements, and asset recovery, including the identification, tracing, and freezing
of proceeds from foreign predicate offenses. The 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. Challenges in relation to the confiscation
of assets were noted by a few countries in the global network responding to the survey on
international cooperation.
433. The table below shows the type of action foreign countries request from China (through
the MFA), 19 of them (around 5 percent) involved ML, and one was related to TF offenses.
Table 29. Types of Information Requested by Countries through the MFA

Recognition
Investigation and
Delivery of Seizure,
and Enforcement Other Total
Year Judicial Appropriation,
Gathering of a Foreign Cases Cases
Documents Freezing
Evidence Legal
Judgment
2012–
306 39 1 44 2 392
2016
434. And the procedure for extradition is different from the procedure for MLA requests. After
the MFA receives the request, the SPC examines whether the request is in conformity with the

provisions of the Extradition Law and extradition treaties. In practice, the SPC has delegated the
power of examination to the Higher People’s Court.
Table 30. Foreign Extradition Requests Received

Classification 2012 2013 2014 2015 2016 2017 Total
Number of extradition requests for all types
6 9 6 5 2 6 34
of crimes
Number of extradition requests involving ML 0 1 0 0 0 0 1
Number of extradition requests involving TF 0 0 0 0 0 0 0
435. The above table shows that the majority of extradition requests relate to general crimes
and not to ML. No requests dealt with TF. Of the 34 extradition requests received, only one was
related directly to ML, while 17 related to predicate offenses (i.e., drug trafficking, gambling,
corruption, illegal fundraising, and fraud). China acceded to only four extradition requests (i.e., about
12 percent of the incoming requests), but the explanation provided for refusal or inability to execute
the other requests appear reasonable. 56 In cases in which required information is not provided,
China follows-up with the requesting country.
436. When a request for extraction 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. China has not provided information on
the number of cases when these proceedings were initiated in practice.
437. The following example demonstrates how the extradition system works in practice in China.
The process is too lengthy and can take several years. Although it should be noted that on several
occasions the extradition process was completed within one year.
Box 11. Extradition of a Suspect Y to Japan

In June 2014, Japan requested China to extradite and detain Y, a Brazilian criminal suspect. Japan
subsequently submitted a formal extradition request in July 2014. The MFA, after examination, requested
supplementary materials. After Japan provided the materials, the SPC reviewed the case and decided that
the case met the conditions for extradition as stipulated under the Extradition Law. Japan accused Y of
forgery and use of printed personal documents for defrauding. In May 2016, the State Council decided to
grant extradition. The MFA notified Japan on June 2, 2016.
In June 2016, Japan submitted new evidence, requesting China to agree to additional crimes that Japan
charged Y with, after the extradition was decided (robbery and homicide). The Supreme Court reported its
decision to the State Council, and China agreed to this request and notified Japan of the decision on
January 9, 2017. On January 25, 2017, China extradited Y to Japan. This case is useful to understand the
lengthy extradition procedure, even if the case does not involve ML/TF
56Three requests were rejected because of legal provisions, while 25 requests could not be executed for practical
reasons (e.g., 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.).

Seeking Timely Legal Assistance to Pursue Domestic ML, associated predicates and TF
Cases with Transnational Elements
438. China does not make frequent use of the official MLA mechanisms apart from extradition
issues. But it uses other possibilities to achieve the needed results, which was demonstrated to the
assessment team. These cases are different from extradition cases. The authorities used the
expression “the person was convinced (or persuaded) to come back to China and to repay the
damage” in relation to the operations they conduct with other countries (see the box below). No ML
cases were involved in these operations.
Box 12. Special Operation to Combat Cross-Border ML Crimes

To further combat corruption and economic crimes, China has launched various special operations. For
example, the Central Commission for Discipline Inspection carried out Special Operation “Skynet,” the SPP
carried out special operations related to international fugitive repatriation and asset recovery on corruption-
related crimes, and the MPS launched Special Operation “Fox Hunting.” In 2014–2016, 2,566 individuals who
had previously fled China were recaptured from 90 countries and total asset of RMB 8.6 billion (approx.
US$1.3 billion) were recovered. In 2015, Interpol China National Central Bureau 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.
439. The statistics on seeking MLA had been presented only by the MOJ. From the figures for
MLA requests related to ML, it is clear that China mainly pursues predicate offenses and considers
ML as a continuation of the predicate offense, so ideally China should use the MLA for ML more
often.
Table 31. MLA Requests Sent by the MOJ of China Abroad

First Half
Year 2012 2013 2014 2015 2016 2017 Total
2018
Number of cases 18 17 27 23 38 24 8 155
Including ML 2 3 0 1 1 7 0 14
Predicate offenses to ML 10 10 18 13 24 16 4 95
Related to FT 0 0 0 0 0 0 0 0
440. When there are no treaties or agreements between China and another country, the MLA
requests are sent through the MFA via diplomatic channels. From 2012 to 2016, China sent about
20 MLA requests through diplomatic channels. The overall number of MLA requests is low in
comparison with the crime statistics.

Table 32. MLA Requests Sent by the MFA of China Abroad

First Half
Year 2012 2013 2014 2015 2016 2017 Total
2018
Number of cases 5 1 5 2 4 1 5 23
Including ML 0 0 0 0 0 0 0 0
Predicate offenses to ML 4 1 5 1 4 1 5 21
Related to FT 0 0 0 0 0 0 0 0
Table 33. Offenses for Which China Requested Extradition (2012 to the First Half of 2018)
Crime 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

441. China makes extradition requests in accordance with the Extradition Law and bilateral
extradition treaties. To request an extradition, the relevant local departments submit a written
statement with relevant documents and materials as well as certified translations through its own
central body (i.e., the SPC, the SPP, the MPS, the MNS, or the MOJ). After approval of the request,
the MFA initiates the extradition request to a foreign country. China provided overall figures for
requesting extradition. In total, 103 requests were sent to 34 countries since 2012. These requests
refer to predicate offenses. The table above shows that the crimes China requests extradition for, do
not match its risk areas, and only two percent of the requests are related to ML.
442. China actively pursues fugitive criminals by trying to obtain extradition from other
countries. It does not stop at sending extradition requests but organizes visits to the relevant
countries, uses INTERPOL channels, joint operations, and other means.
443. Overall, analysis of the information and data presented by the country shows that China is
seeking MLA/extradition related to transnational ML/TF cases to a lesser extent than would be
expected based on China’s risk. The majority of cooperation it seeks is related to predicate offenses.
Seeking and Providing Other Forms of International Cooperation for AML/CFT Purposes
444. The Chinese authorities regularly seek other forms of international cooperation to
exchange financial intelligence, law enforcement, supervisory, and other information with foreign
counterparts, including for AML/CFT purposes. This exchange of information operates at an
operational level and has led to some tangible results.
The Financial Intelligence Unit (CAMLMAC, AMLB, PBC Branches)
445. CAMLMAC is responsible for receiving, analyzing, and transferring financial intelligence,
signing bilateral MOUs on AML/CFT intelligence exchanges and cooperation or similar documents
(agreements) with counterparts of other countries. CAMLMAC exchanges information with foreign
counterparts, even though it is not an Egmont Group member. It has signed 52 MOUs with foreign
FIUs. That deficiency is partially addressed by signing the MOUs with FIUs with which the exchange
of information is primarily needed. This exchange of information is mostly based on the requests
from abroad and, to a much lesser extent, on the requests from China to other FIUs (due to a small
number of ML/TF investigations). The below tables clearly show that difference. The Chinese
authorities explain that most information is available within the country, but the team considers that
could be true for just a small number of types of predicate crimes but not for ML and most proceeds
producing crimes.
Table 34. Requests Sent Abroad by CAMLMAC

Category 2012 2013 2014 2015 2016 Total
Number of requests for information 7 6 9 4 8 34
Number of AML requests 7 6 9 4 8 34
Number of TF requests 0 0 0 0 0 0

Table 35. Number of Requests by CAMLMAC to Foreign FIUs by Jurisdiction

Jurisdiction 2012 2013 2014 2015 2016 Total
Hong Kong, China 5 6 6 3 3 23
Singapore 1 0 0 1 1 3
United States 0 0 0 0 3 3
Macau, China 1 0 0 0 0 1
Tajikistan 0 0 1 0 0 1
Uzbekistan 0 0 1 0 0 1
Nepal 0 0 1 0 0 1
Canada 0 0 0 0 1 1
Total 7 6 9 4 8 34
446. As figures in the tables show, the number of requests is very low in the light of the size of
the country and its economy, and more importantly, the number of STRs received and the volume of
financial analysis. Moreover, comparison with the number of requests for financial information from
other FIUs shows that China sends approximately 1 request to 30 or 40 requests received. That
demonstrates that the channel of obtaining financial information from other FIUs is practically not
used, even though transnational financial flows are very large in volume and the risk of laundering
proceeds from domestic predicate crimes abroad is high. It appears that the FIU is not using actively
the possibilities provided by 52 MOUs signed by China. International cooperation feedback from
other jurisdictions indicated mixed experiences. Whereas the SARs and some FIUs from Asia-Pacific
countries indicated satisfaction regarding the quality of cooperation with China, some other FIUs
indicated that cooperation was formalistic and that responses were not always given and, in some
cases, where they were given, they lacked substance.
447. Two-thirds of the outgoing requests are to SARs of China (Hong Kong, China, and
Macau, China). This is not consistent with the geography of cases investigated and pursued by LEAs,
including those involving predicate offenses with large criminal proceeds.
Box 13. Case Involving Both the FIU and Law Enforcement Cooperation
This case involved three countries’ FIUs and two countries’ LEAs.
Q, former director of a branch of a city office, was placed on file by the Anti-Corruption Department of the
Procuratorate on suspicion of embezzlement and misappropriation of public funds. He fled abroad in 2011.
He was placed on the Red Notice by Interpol in November 2011.
In May 2015, Singapore FIU shared intelligence with the CAMLAC which stated that Q held multiple bank
accounts, investment accounts, home loan accounts and credit card accounts at a Bank of Singapore and
was a BO of a company and a fund in the British Virgin Islands. Based on the information shared by
Singapore, CAMLMAC analyzed over 700 accounts and over 270,000 large-value and suspicious transaction
records and identified the money flows of Q’s criminal proceeds. It was found out that Q’s account funds
were closely related to the accounts of Y and W who were suspected of operating underground banks. The
fund-flow transaction chart indicated characteristics of operating underground banks. The CAMLMAC
disseminated the analysis results and spontaneous dissemination information from the foreign FIU to the
LEAs.

Box 13. Case Involving Both the FIU and Law Enforcement Cooperation (concluded)
The LEAs discovered that Q had applied for and obtained a house mortgage with a bank abroad. In
May 2018, LEAs filed an international investigation with foreign FIU through the CAMLMAC, and obtained
information on the address, owners and pledge of the houses Q purchased using the house mortgage.
Since Q and his ex-wife Z were under investigation of the U.S. LEAs, the Chinese LEAs provided intelligence
and evidence to support the U.S. LEAs’ investigation. U.S. prosecutors filed formal charges against Q and his
ex-wife, Z, for ML and immigration fraud. The prosecutors have confirmed with the evidence provided by
China’s LEAs that most of the properties to be seized were purchased with money embezzled by Q. Z will
face imprisonment up to five years.
Law Enforcement Authorities
448. LEAs seek informal international cooperation in a wide range of cases, as a rule related to
predicate offenses, and most of all in corruption cases. In addition to the usual MLA channels, LEAs
use INTERPOL, liaison officers, and joint operations as avenues for international cooperation,
especially when seeking the return of funds or fugitive criminals to the country. However, the
instances when these mechanisms have been used in relation to ML/TF are quite limited. Any
execution of foreign requests at the level of provinces happens in accordance with instructions from
the central authorities when they send a request to a provincial branch.
Table 36. Requests Sent by China via Police Cooperation

Year 2012 2013 2014 2015 2016 2017 Total
Number of cases 156 180 424 330 257 159 1,506
Including ML 14 13 30 16 23 31 127
Related to TF 0 1 0 0 0 0 1
449. The exchange of information through Interpol is many times more intensive than MLA. On
average, between 2012 and 2017, nine percent of those requests have involved ML. At the same
time, the number of requests sent by China is around 15 percent of those received from foreign

countries through Interpol, which also signals that China does not make sufficient use of informal
cooperation channels.
450. The MPS established close cooperation relationships with 113 countries, established
129 bilateral and multilateral cooperation mechanisms, 96 liaison hotlines, sent 72 police liaison
officers to 35 countries, and signed nearly 400 cooperation documents with the police departments
of more than 70 countries. The MPS generally collects information directly through these channels
and police liaison officers, which seems to be efficient and quick.
451. Police representatives demonstrated that the requests they are sending abroad are in line
with the risks defined in the NRA; however, it does not fully match the risks as viewed by the
assessment team (see Chapter 1). Authorities were also unable to demonstrate a focus on ML or TF.
452. Most of the Chinese police requests relate to predicate offenses, the MPS does not focus
on ML or TF in international cooperation. The MSS is dealing with terrorism issues, but authorities
were unable to provide any information on TF to prove effectiveness, citing confidentiality of data.
Customs, Tax and Supervisory Authorities
453. Customs, Tax, and Supervisory authorities actively engage in international cooperation. For
example, in 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. The
CBRC carries out regular consultations with foreign regulatory authorities. Exchange of information
has taken place on establishment of banks and reviewing the qualifications of senior executives.
From 2012 to 2016, the CSRC sent out 51 requests for foreign regulatory information. However,
these authorities did not engage with ML or TF-related cases or exchange of information with
foreign counterparts for those purposes.
Table 37. CSRC Requesting Regulatory Information

2012 2013 2014 2015 2016 Total
Number sent
1 6 11 18 15 51
abroad
Providing Other Forms of International Cooperation for AML/CFT Purposes
Financial Intelligence Unit (CAMLMAC, AMLB, PBC Branches)
454. For financial intelligence requests received from overseas, CAMLMAC will assess the
urgency of the requests. Consideration is given to whether the request may be linked to other cases
under investigation or cases involving terrorism. In 2016, it took an average of six to eight working
days to respond to requests marked as urgent. Nonurgent requests are answered within two months
on average.

Table 38. Number of Financial Intelligence Requests Received by CAMLMAC

Category 2012 2013 2014 2015 2016 Total
Requests for All Types of Financial
187 202 175 313 367 1,244
Intelligence Information
Requests for AML Information 186 200 173 309 361 1,229
Requests for CFT Information 1 2 2 4 6 15
Table 39. Financial Intelligence Provided by CAMLMAC to Other Jurisdictions (Top 10

Countries)
Jurisdiction 2012 2013 2014 2015 2016 Total
Macau, China 95 61 49 47 126 378
Singapore 3 26 16 17 23 85
Belgium 27 17 12 9 12 77
Japan 19 11 10 14 18 72
France 12 7 12 23 16 70
Hong Kong, China 10 8 8 18 19 63
Russia 4 8 6 12 14 44
Republic of Korea 2 1 4 21 16 44
United States 0 10 0 0 23 23
Turkmenistan 3 3 0 2 0 8
Others 7 9 15 1 45 77
Total 182 151 132 164 312 941
455. The two tables above demonstrate that the number of responses is significantly lower than
the number of requests received by China. That is an issue of concern for the effectiveness of the
international exchange of information, although the Chinese authorities explain that much of the
needed information can be obtained inside the country, which diminishes the need for requesting
other countries. That explanation needs to be reviewed by the authorities. Moreover, the feedback
from some countries on their experience in the exchange of information mentions that Chinese FIU
only provides information already available in its database (which limits the quantity and quality of
the data provided).
Law Enforcement Agencies
456. The below table shows the overall situation with the MPS assisting foreign police
investigations in recent years. Of these, the United States, Canada, and Australia submit average 230,
100, and 80 investigation requests respectively per year.
Table 40. Requests Received by China via Police Cooperation

Year 2012 2013 2014 2015 2016 2017 Total
Number of cases 2,887 2,817 2,814 1,523 2,790 1,115 13,946
Including ML 378 244 506 276 126 297 1,827
Related to FT 2 2 4 3 3 4 18
457. In general, the police in China cooperate through different channels, not only through
answering to requests, but they pay much attention to operational contacts and joint events and

investigations. However, the figures shown above relate to all cases of cooperation, not just ML or
TF, which China has not provided.
Customs, Tax and Supervisory Authorities
458. In 2017, the Anti-Smuggling Bureau of the GAC processed 225 requests including
administrative mutual assistance, case investigation, and criminal legal assistance for overseas law
enforcement authorities, completed 40 criminal compulsory measures reports. There were
434 occasions from 2012 to 2016, in which regulatory information was provided to foreign
countries. Regarding the follow-up measures of requests, only one request was rejected in 2016, and
the acceptance rate was 99.8 percent. However, none of the cooperation concerned AML/CFT.
Table 41. Requests Received on Tax-Related Information

2013 2014 2015 2016 Total
Number sent
219 188 179 190 776
abroad
Table 42. CSRC Providing Regulatory Information

2012 2013 2014 2015 2016 Total
Number
53 76 92 111 102 434
received
International Exchange of Basic and Beneficial Ownership Information of Legal Persons

and Arrangements
459. 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.
460. 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.
461. China is rated as having a moderate level of effectiveness for IO.2

ANNEX I. Technical Compliance Annex

This annex provides a detailed analysis of the level of compliance with the FATF 40
Recommendations in their numerological order. It does not include descriptive text on the country
situation or risks, and it is limited to the analysis of technical criteria for each Recommendation (R.).
It should be read in conjunction with the Mutual Evaluation Report.
Recommendation 1—Assessing Risks and Applying a Risk-Based Approach
This is a new Recommendation which was not assessed in the Third Round MER.
Criterion 1.1—(Mostly met) China completed and published its first NRA entitled China National
Money Laundering and Terrorist Financing Risk Assessment Report (2017) in June 2018.
The NRA was developed using data and information from 18 major members of the AMLJMC, 1 as
well as the results of an assessment questionnaire offered to 10 self-regulatory bodies (SRBs). In
addition, the working group had access to 700,000 judgement documents from the period 2013–
2015 related to ML and major POC, generating predicate offenses from which a random sampling of
approximately 50,000 were selected to create a database for ML/TF threat analysis.
China’s NRA also includes a chapter on TF based mainly based on qualitative analysis. The analysis
collates information from departments involved in countering terrorism, mainly MSS, MPS, and the
PBC, identifying sources and channels of TF, and identifying the TF threats faced by China. The
analysis addresses China’s organizational structures, regulatory and law enforcement CFT work, and
analyzes the vulnerabilities.
Prior to the NRA and since 2002, China has conducted a series of threat, vulnerability, and risk
assessments for various portions of their financial sectors (see write-up for IO.1).
Notable gaps in China’s assessment of risk relate to the very recent designation of DNFBPs and the
lack of oversight for DNFBPs in terms of AML/CFT obligations, no assessment of risk by DNFBPs of
their products nor clients has been made.
Criterion 1.2—(Met) The AMLJMC consists of 24 members, including the PBC, financial regulatory
authorities, LEAs, the judiciary, and foreign affairs departments. During the seventh working meeting
of the AMLJMC in 2014, the PBC was appointed to lead and form a working group to develop
China’s NRA. The NRA was a product of a working group formed in 2016 under the leadership of the
PBC which included representatives from each agency member of the AMLJMC; SRBs, including the
Internet Finance Association of China, the All China Lawyers Association, the Chinese Institute of
Certified Public Accountants (CICPA), and the China Notary Association, as well as AML-regulated
institutions from the banking, securities, and insurance sectors as well as non-banking PIs.
1 It was established in 2002, with the responsibility for assessing the national ML/TF risk, developing national
AML/CFT strategies, guiding principles, and policies.

Criterion 1.3—(Met) In August 2017, the General Office of the State Council issued 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) (also known as
China’s AML/CFT/ATE strategy by 2020). The document states that: “…the risk assessment
mechanism and monitoring and analysis system shall be optimized constantly, and the risk
prevention system shall be improved, aiming at controlling the risk of ML, TF, and tax evasion
efficiently.” In addition to the NRA, since 2012, China has produced an annual AML/CFT National
Threat Assessment.
Criterion 1.4—(Met) Electronic copies of the NRA were sent to government departments and the
major financial institutions. Smaller FIs and other regulated entities are provided copies through
their local PBC branches. The NRA was also distributed to industry association bodies where it is
available to DNFBPs. This distribution method has also been used to distribute the Annual National
Threat Assessments with a summary version posted on the PBC website.
Risk Mitigation
Criterion 1.5—(Met) The document, National Risk Assessment Report of Money Laundering and
Terrorist Financing of China 2017, contains an action plan for prioritizing AML/CFT initiatives. The
action plans reference targeting resources into geographical areas identified with the highest risk of
ML and TF; prioritizing the development of ML/TF guidance in key risk areas; and enhancing laws,
systems, and information sharing as to address vulnerabilities in their system impacting their risk.
Criterion 1.6—(Met) China does not exempt FIs nor DNFBPs from any of the activities outlined in the
40 Recommendations.
Criterion 1.7—(Met) China has issued several notices requiring financial institutions to take certain
actions or avoid certain activity in relation to identified high risks. China also issued similar notices
for real estate agents and dealers in precious metals and stones (DPMS).
The PBC requires financial institutions to ensure that specific information is incorporated into their
risk assessments, to allocate their AML resources based on the risk assessment results, and to
exercise enhanced measures on areas with high ML risks.
Criterion 1.8—(Met) Art. IV.1 of The Guidelines for the Assessment of Money Laundering and Terrorist
Financing Risks and Categorized Management of Clients of Financial Institutions requires financial
institutions to perform ML/TF risk assessment and adopt risk control mechanisms, measures, and
procedures, and to allocate AML resources based on the risk assessment results. A simplified AML
mechanism can be adopted for areas with lower risk. FIs are permitted to adopt simplified CDD and
other risk control measures for low-risk customers. Simplified measures can be taken, except for
customers matching a number of high-risk scenarios.
Criterion 1.9—(Mostly met) Since 2015, the PBC requires financial institutions to conduct ML/TF risk
assessments and classify customers based on risk levels. The PBC conducts inspections of financial

institutions to ensure implementation of their risk assessment obligations. “The specific measures for
supervision and administration on the designated nonfinancial businesses and professions shall be
formulated by the administrative department of anti-money laundering of the State Council” (Arts. 8
and 35 of the AML Law of the People’s Republic of China (Order of the President No. 56)). The
authorities issued a notice in July 2018 to give effect to this designation, but the assessment team
does not consider that the notice meets the requirements set out on Art. 35 of the AML Law (see
discussion under R.22). There is currently no effective oversight or monitoring has occurred to
ensure that DNFBPs are implementing their obligations under R.1.
For FIs and DNFBPs: Risk Assessment
Criterion 1.10—(Mostly met) According to the Guidelines for the Assessment of Money Laundering
and Terrorism Financing Risks and Categorized Management of Clients of Financial Institutions,
financial institutions are required to “comprehensively assess the risk status of customers and their
locations, businesses, industries (occupations) and other aspects to scientifically and rationally
determine the risk level of each customer.” FIs should submit a self-assessment to the PBC in a
timely manner, and review the assessments depending on the risk-levels of customers (Art. 37 of
Measures for the Anti-Money Laundering Supervision and Administration of Financial Institutions (for
Trial Implementation) (PBC No. [2014] 344)). FIs are required to perform timely risk assessments for
new products, new businesses, and new customers, and adjust their ML risk control measures based
on the changes in customers’ risk status. The customer risk assessment should consider geographic
area, business, and industry, but overall it is a customer risk assessment. The PI must submit this risk
assessment to the PBC (Measures for the Administration of Anti-Money Laundering and Combatting
the Financing of Terrorism for Payment Institutions PBC Document 2012 (54)).
Trust companies, considered as FIs in China, and PIs are subject to the same requirements above.
DNFBPs have not been designated under the AML Law and therefore are not subject to similar
AML/CFT risk assessment obligations.
Criterion 1.11—(Partly met) According to the Guidelines for the Assessment of Money Laundering and
Terrorism Financing Risks and Categorized Management of Clients of Financial Institutions, FIs are
required to establish a standardized policy, including controls and procedures, on risk management
of ML/TF, which is required to be approved by the board of directors. PIs are not subject to a
general requirement to have policies, controls and procedures approved by senior management to
enable them to manage and mitigate identified risks.
Art. 37 of the Measures for the Anti-Money Laundering Supervision and Administration of Financial
Institutions (for Trial Implementation) require FIs to establish a risk assessment mechanism, in
accordance with the risk-based approach to conduct regular analysis on their internal and external
risk of ML/TF and assess the effectiveness of their risk prevention and control mechanisms, so as to
identify areas with vulnerabilities and weaknesses and take targeted risk mitigation measures.

FIs are also required to improve the procedures of the risk assessment, designate suitable
departments and personnel to be responsible for the establishment and monitoring of the risk
assessment procedures, and organize relevant departments to participate in the risk assessment.
As mentioned under c.1.7 above, FIs are required to allocate their AML resources based on the risk
assessment results and to exercise enhanced measures on areas with high ML/TF risk.
Trust companies are considered FIs in China; therefore, they are subject to the same obligations
above.
DNFBPs have not been designated under the AML Law and therefore are not subject to similar
Criterion 1.12—(Met) As mentioned under c.1.8 above, if FIs identify some businesses as low risk,
consistent with the NRA, simplified measures can be taken. Simplified measures are not permitted
whenever there is a suspicion of ML/TF, and the FIs are required to take enhanced measures,
including re-identification of customers and STRs.
Weighting and Conclusion
While China only completed its first NRA in June 2018, it has been conducting threat, vulnerability,
and risk assessments since 2012 on a variety of topics specific to AML/CFT. There are however gaps
arising from the fact that DNFBPs have not been designated under the AML Law and are therefore
are not subject to AML/CFT supervision including supervisory risk assessments. FIs are permitted,
with PBC approval, to adopt simplified CDD and other risk control measures for low-risk customers.
No effective oversight or monitoring has occurred to ensure that DNFBPs are implementing their
obligations under Recommendation 1.
Recommendation 1 is rated largely compliant.
Recommendation 2—National Cooperation and Coordination
In the Third Round, China was rated largely compliant on National Coordination (formerly R.31). The
primary shortcoming identified was with respect to the level of operational cooperation between
law enforcement and prosecutorial authorities. It was felt that the level of cooperation needed
improvement.
Criterion 2.1—(Met) In 2002, China established the AMLJMC which is responsible for assessing the
national ML/TF risk, developing national AML strategies, guiding principles, and policies.
The AMLJMC is responsible for conducting the ML/TF NRA on a regular basis. This includes the
formulation and regular update of AML/CFT strategies and policies based on the risks identified in
the risk assessment. The AMLJMC is also responsible for identifying priorities, delegating tasks to
appropriate entities, and monitoring progress on national initiatives. Since the NRA has only been

recently concluded, it is not possible to determine the extent to which national policies are informed
by identified risks of this latest exercise.
Criterion 2.2—(Met) China has designated the PBC as the State Council’s AML competent authority.
This responsibility falls to the AMLB which is a unit within the PBC. It is responsible for organizing
and coordinating the country’s AML work, including the establishment and refinement of AML/CFT
policies.
Criterion 2.3—(Met) The AMLJMC currently has 23 members (including the PBC), 2 financial
regulatory authorities, LEAs, judiciary and foreign affairs departments, and other industry competent
authorities. Together, they are responsible for assessing the national ML/TF risk, developing national
AML strategies, guiding principles and policies. The work of the AMLJMC is regulated by the
Mechanism of Anti-Money Laundering Joint-Ministerial Conference (2007 Amendment).
The AMLJMC has established a number of working groups, including policymaking, regulation, law
enforcement, international, and data groups, which strengthen the relevant departments’
cooperation and coordination in policy making and at the operational levels.
The AMLJMC enables AML competent authorities such as PBC, LEAs, regulatory authorities, and
other relevant authorities to cooperate, and where appropriate, coordinate domestically concerning
the development and implementation of AML/CFT policies and activities.
Criterion 2.4—(Met) In 2004, China established the “Non-proliferation Export Control Emergency
Coordination Mechanism.” The MoFA is responsible for leading the non-proliferation work, and
coordinating 19 members, including the PBC, the MPS, the Ministry of Commerce, and the National
Development and Reform Commission, to combat PF.
The MoFA is currently requesting the NPC to develop a national non-proliferation law.
Recommendation 2 is rated compliant.
Recommendation 3—Money Laundering Offense
In its Third Round MER, China was rated partially compliant for Rs.1 and 2 (ML offense). The main
shortcomings were a lack of effectiveness, lack of self-laundering, partial lack of criminal liability for
legal persons, and other technical shortcomings with the Vienna and Palermo Conventions.
Criterion 3.1—(Mostly met) The required elements from the Palermo and Vienna Conventions have
partly been covered in the Criminal Law. Missing are the following elements, for both Conventions:
(i) Art. 191 Criminal Law (CL) does not cover the “conversion” or “transfer” of proceeds; however, this
2 This includes the AMLB and the CAMLMAC which are units within the PBC.

was addressed in Supreme Court interpretation in Notice 2009:15, Art. 1(2); but (ii) Arts. 191 and 312
CL do not cover “possession.” All other elements are covered by Arts. 191 and 312 CL.
Criterion 3.2—(Mostly met) China follows the all-crimes approach (Art. 312 CL), however provinces
and autonomous regions can also place a value range to determine if the behavior is criminal or
otherwise. This means laundering of funds under RMB 3 000 (approx. US$489) is not criminalized,
but this could extend to a value of RMB 10,000 (approx. US$1,467) subject to the discretions of a
province.
Subject to the threshold, Art. 312 covers all 21 categories of predicate offenses. However, some of
these predicate offenses are too narrow. 3 Art. 191 CL covers seven predicate offenses (drugs,
organized crime, terrorism, smuggling, corruption and bribery, financial management disruption,
and financial fraud), while Art. 349 CL covers only drug-related offenses. Art. 312 CL is also the
predicate offense of receiving stolen goods.
Criterion 3.3—(Not applicable) This criterion is not applicable, China follows an all-crime approach in
Art. 312 PC.
Criterion 3.4—(Met) Art. 191 CL covers “any proceeds from designated offenses and the proceeds
generated therefrom.” Art. 312 covers “criminal income and the proceeds generated thereof.”
Art. 349 covers “pecuniary or other gains,” but not indirect proceeds. There is no provision in law
that defines “proceeds” or “income”; however, these terms are defined in SPC’s guidance. There
does not seem to be a threshold for the value.
Criterion 3.5—(Met) There is no evidential requirement that a conviction for the predicate offense is
needed to prove that the property is the POC. The burden of proof of the predicate offense depends
on what basis the prosecution is initiated: the all-crimes coverage of Art. 312 CL does not require
the proof of a precise and identified predicate criminality, whereas Art. 191 CL (which follows a list
approach) requires establishing the link to one of the types of listed offenses (without requiring
proof that the proceeds are connected to a specific predicate offense). This has also been confirmed
by SPC Interpretations.
Criterion 3.6—(Met) The Criminal Law covers all conduct by Chinese citizens inside and outside the
territory, covers offenses against China committed by foreigners abroad, and includes conduct
specified in international treaties (Arts. 7–9 PC). While this does not completely cover all possible
situations, there is also no limitation in Chinese law that would limit the reach of the CL in this
regard. This is confirmed in jurisprudence (Quanzhou Cia Jianli case).
3
Participation in organized criminal group and racketeering: Arts. 26 and 294 CL define organized group, but racketeering is not
explicitly covered. Trafficking in human beings and migrant smuggling: Arts. 240–242 CL only covers trafficking of women and
children (not men), and migrant smuggling is not covered. Illegal border crossings are criminalized, but only target the victim of
human beings and migrant smuggling. Piracy: Art. 122 CL only covers hijacking of a ship (or car), but no other acts of robbery and
criminal violence are covered.

Criterion 3.7—(Not met) Self-laundering is not criminalized in China. ML is understood to be a

nonpunishable subsequent action of the predicate offense, and the sanction for the laundering of
proceeds of predicates would be absorbed by the sentence for the predicate offense (which requires
a predicate in China. Foreign predicates that are not criminalized in China are not covered). This is
not a fundamental principle of law, as proposals to criminalize self-laundering have been
considered. 4 Although the articles refer to “anyone,” their scope is limited to assisting (Arts. 191 and
349) and receiving (Art. 312) in relation to criminal acts.
Criterion 3.8—(Met) Knowledge is required only for Arts. 191 and 312 CL, but not for Art. 349 CL.
SPCs Interpretation Notice 2009-15 clearly establishes in Art. 1 that knowledge can be inferred from
objective factual circumstances in line with mens rea requirement of the ML offense as defined in
the Vienna and Palermo Conventions. (Notice of the Supreme People's Court on Issuing the
Interpretation of the Supreme People's Court on Several Issues concerning the Specific Application of
Law in the Trial of Money Laundering and Other Criminal Cases (Interpretation of the Supreme
People's Court No. [2009] 15)). The authorities indicate that intent can be inferred from objective
circumstances.
Criterion 3.9—(Mostly met) The penalties and fines for ML are unchanged since the previous
assessment, with up to five years’ imprisonment for Art. 191 CL, in serious cases raised to between
5 and 10 years. For Art. 312 CL, the penalty is up to three years’ imprisonment, or three to seven
years in serious cases. For Art. 349 CL, the penalty is up to three years’ imprisonment, or three to ten
years in serious cases. The fines for Art. 191 range from 5 percent to 20 percent of the amounts
laundered (in addition to confiscation of the illicit proceeds), the fines for Arts. 312 and 349 depends
on a determination of circumstances (Art. 52 CL). The prison sanctions are proportionate compared
to other financial crimes, but low compared to the penalties for some of the main predicate offenses
that the third-party ML criminalization aims to deter
Criterion 3.10—(Partly met) Arts. 191 and 312 CL provide that fines can be imposed where entities
commit these crimes, without prejudice to the criminal liability of natural persons. The law does not
indicate the level of the fines (determined based on circumstances, Art. 52), which makes it unclear if
the sanctions are proportionate and dissuasive. Legal entities are not criminally liable under
Art. 349 CL. Civil or administrative parallel proceedings are not precluded; however, any fines already
paid under civil or administrative proceedings will be offset in the criminal case
Criterion 3.11—(Met) Ancillary offenses to all offenses, including ML, are specified in the general
section of the CL. The CL criminalizes preparation (Art. 22); attempt (Art. 23); discontinuation
(Art. 24); joint offenders (Art. 25); principle crime leader, ring leader, and criminal organization
(Art. 26); accomplice, aiding, and abetting (Art. 27); coercion (Art. 28); and instigation (Art. 29).
4 Including by the Commission of Legislative Affairs of the Standing Committee of the National People’s Congress
(the NPC Standing Committee), the Supreme People’s Court (SPC), the Supreme People’s Procuratorate (SPP), the
Ministry of Public Security (MPS), the Ministry of Foreign Affairs (MFA), the Ministry of Justice (MOJ), the Ministry of
Supervision (MOS), the PBC, the Office of Legislative Affairs of the State Council, the General Administration of
Customs (GAC), and the National Bureau of Corruption Prevention (NBCP).

Arts. 22 and 25 CL combined cover the “association or conspiracy” to commit a crime. “Counselling”
is covered respectively by Arts. 25, 27, and 295 CL (giving instructions how to commit a crime).
Many elements of the ML criminalization are met or mostly met, although assessing technical
compliance against three separate but partially overlapping articles is challenging. The existence of
thresholds and lack of self-laundering are an important deficiency.
Recommendation 3 is rated partially compliant.
Recommendation 4—Confiscation and Provisional Measures
China was rated largely compliant for the former R.3 in the 2007 MER. The report confirmed that the
legal framework was adequate and consistent with international standards; however, the absence of
equivalent-value confiscation provisions was an identified technical deficiency.
Criterion 4.1—(Met) Arts. 64 and 191 CL provide the legal framework for the confiscation of all
property being the proceeds of ML, or the proceeds of any other crime. This would include property
which has been acquired directly or indirectly; and proceeds which have been converted into
another form post acquisition. Art. 64 CL extends to instrumentalities used or intended to be used,
in the commission of any criminal activity offense. Arts. 120 and 120 A CL provide that, upon
conviction, all property that is the proceeds of, or is intended to be used, or has been used to
commit a terror-related crime, can be confiscated. Property of corresponding value is achieved
through the imposition of a mandatory confiscation which is calculated to reflect the value of illicit
gain (Art. 2, Regulations on Application of Property Penalty). Having imposed the mandatory
confiscation, the court then directs confiscation of property to satisfy the value of the illicit gain.
Property that can be confiscated includes any property owned by the defendant (Art. 64 CL). Finally,
confiscation in the absence of a conviction can occur when it is proven that property has been
derived from specified crime types (Art. 280 CL), 5 when the suspect has died, or it can be proven
that the suspect has absconded and cannot be located.
Criterion 4.2—(Met) Competent authorities (People’s Court, Procuratorate, public security agencies,
national security agencies, and Customs) have all or some of the following legal power to identify,
trace, and evaluate property that could be, or is subject to, confiscation, and to seize such property
as required (Art. 142 CPL). Persons can also be required to provide evidence to the Procuratorate
and/or a public security agency to assist in the locating and seizing of property (Arts. 122–123 CPL).
Such evidence would extend to the production of documents for the purpose of proving ownership
or effective control of property (Art. 135 CPL). When circumstances require, experts can be engaged
5 The specified crimes are defined at Art. 1, Provisions of the Supreme People's Court and the Supreme People's
Procuratorate on Several Issues concerning the Application of the Confiscation Procedures for Illegal Proceeds in a Case
Where a Criminal Suspect or Defendant Escapes, Hides or Dies (Interpretation of the Supreme People's Court No.
[2017] 1

to assist with the identification, assessment and valuation of property that may be subject to
confiscation (Art. 144 CPL).
During the course of a criminal investigation, public security agencies can seize property, including
real estate, vehicles, along with any legal documents and instruments that prove ownership or
rights. 6 Approval for such seizures is authorized by a person in charge of the public security agency
at or above county level or city level if the case is consider large and complex. Having been
approved, a written seizure decision is prepared, 7 and an authorization is provided to an
investigator. Appropriate ministries are advised, such as the MOHURD, and they are required to
provide necessary assistance to bring the authorization into effect. The authorization remains in
place for two years, but can be subject to renewal for 12-month periods, if required. 8 With
noncriminal cases, the People’s Court can issue a freezing order 9 over specified property upon
application by any party. Generally, such orders can be obtained ex parte (without prior notice) when
circumstances require.
The SPC (Enforcing the Property Portion of a Criminal Judgement No. [2014] 13) provides an ability
for the court to examine, and, when required, void arrangements to recover property under certain
circumstances. These circumstances would extend to arrangements where property has been
transferred or dealt with in any way, for the intended purpose of defeating a confiscation process.
For investigation measures, see R.31.
Criterion 4.3—(Met) The rights of bona fide third parties are covered in China’s law where it is
identified that a third party has an interest in any property that could be subject to confiscation, the
public security agency and the Procuratorate must advise that party of their litigation rights, and the
People’s Court is required to notify the party, so they can participate in the proceedings as required
(Art. 12, Regulation on the Disposition of Property Related to Criminal Proceedings [2015] 7). Third
parties can oppose confiscation, seek to review the decision of the Procuratorate, and instigate an
appeal of the court’s decision as per procedural law (Art. 115 CPL).
Only property that is personally owned (legally or beneficial interest) can be subject to forfeiture
(Art. 59 CL). The offenders and their dependents are entitled to access reasonable living expenses
from frozen, seized, or confiscated property (Art. 59 CL); and in circumstances where it is established
that an offender has incurred a legitimate genuine debt in good faith, such debts can be met from
confiscated property at the request of the creditor (Art. 60 CL).
6 Notice of the Provisions of the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public
Security on Issuing Provision on Applicable Using Sealing and Freezing on Handling Criminal Cases by Public Security
Agencies (September 1, 2013) Ministry of Public Security Document [2013] 30) Art. 5.
7 Ibid., Art. 6.
8 Ibid., Art. 7.
9 Provisions of the Supreme People’s Court for the Peoples Court to Seal up Distrain and Freeze Properties in Civil
Enforcement (2008 Amendment) Art. 1.

Criterion 4.4—(Met) The People’s Court directs that each of the authorities who seize, impound, or
freeze property must implement measures to manage and preserve property, pending the outcome
of the associated judicial proceedings (Arts. 100, 139 CPL). Management must be conducted
independently of the case officers and the department who are responsible for the related criminal
matter. Funds seized must be held in dedicated accounts, and all details of the property seized must
be recorded on a centralized register. In the event that property is not managed in accordance to
the regulations or is dealt with in a way that reduces value and causes loss, the state is required to
compensate any affected party, and, in turn, those expenses can be recovered from the individuals
who mismanaged and violated the regulations. Upon confiscation, property is disposed of through a
transparent process through which funds are first dispersed to victims and innocent parties, and the
balance is deposited with the Central Treasury (Regulation on the Disposition of Property Related to
Criminal Proceedings [2015] 7).
Recommendation 5—Terrorist Financing Offense
In the Third Round MER, China was rated partially compliant with SR.II (criminalization of TF). The
main shortcoming was the incomplete criminalization of the sole collection of funds, the lack of
definition or list of terrorist activities, and a too narrow definition of funds.
Criterion 5.1—(partly met) TF is criminalized in Art. 120A CL, supplemented by the Notice of the
Supreme People's Court on Issuing the Interpretation of the Supreme People's Court on Several Issues
concerning the Specific Application of Law in the Trial of Money Laundering and Other Criminal Cases
(Interpretation of the Supreme People's Court No. [2009] 15) (Supreme Court Notice 2009/15). The
text of the criminalization is very general and lacks the level of detail of the TF Convention, which
makes it somewhat difficult to assess the requirements. With respect to the terrorist-related offenses
mentioned in the Annex of the TF Convention, there are three conventions where not all required
conduct has been criminalized as terrorist conduct. 10
Criterion 5.2—(Mostly met) The TF offense in China covers any person who unlawfully and
intentionally provides financial support to a terrorist organization, or terrorist, or conducts terrorist
activities (Art. 120A CL). The term “financing” as used in Art. 120A refers to the collection or
10 Situations that are not yet fully transferred to the national legislation: Convention for the Suppression of Unlawful
Acts against the Safety of Civil Aviation (1971): “Any person who unlawfully and intentionally: e) knowingly
communicate any false information which endangers the safety of an aircraft in flight”; Convention on the Physical
Protection of Nuclear Material (1980): “making a demand for nuclear material by threat or use of force or by any other
form of intimidation; or Attempting or threatening to use nuclear material to commit any of the offense described in
the Convention for the purpose of compelling a natural or legal person, international organization or State to do or
to refrain from doing any act; and Convention for the Suppression of Unlawful Acts against the Safety of Maritime
Navigation (1988), Art. 3f) And Protocol for the Suppression of Unlawful Acts against the Safety of Fixed Platforms
located on the Continental Shelf (1988): “Knowingly communicating false information which endangers the safe
navigation of a ship.”

provision of funds or assets of any type to a terrorist organization or an individual who conducts or
plans terrorist activities and includes both direct and indirect financing (Supreme Court Notice
2009/15, Art. 5). This Supreme Court Notice also defines the term “funds.” Art. 120A only covers
financing of terrorist organizations, and although Notice 2009/15 broadens this to an individual
terrorist, this requires a direct link to the Counter Terrorism Law. Art. 120A itself seems to cover only
direct assistance and not the willful collection of funds.
Criterion 5.2 bis—(Met) Art. 120A of the CL covers the financing of the travel of individuals who
travel to a state other than their states of residence or nationality for the purpose of the
perpetration, planning, preparation of, or participation in terrorist acts or the providing or receiving
of terrorist training.
Criterion 5.3—(Met) Chinese law is silent on the source of TF (legitimate or illegitimate), but
authorities have stated that the term “financing” covers funds from any origin, licit or illicit.
Criterion 5.4—(Met) Art. 120A CL does not seem to require that the funds or other assets were
actually used to carry out or attempt a terrorist act or are linked to a terrorist act.
Criterion 5.5—(Met) Although there is no specific provision in the law stating that the intent and
knowledge required to prove the offense can be inferred from objective factual circumstance, the
concept was codified in jurisprudence by the Supreme Court (2014/34, Section 3, Art. 2). The same
interpretation was stated in Opinions of SPC, SPP, MPS, and the Ministry of Justice on Certain Issues
concerning the Application of Law in Dealing with Criminal Cases Involving Terrorism and Extremism
[2018].
Criterion 5.6—(Met) The penalty for TF is a fixed-term imprisonment of not more than five years,
open-ended criminal detention (one to six months’ detention), or open-ended public surveillance
(three months to two years’ detention), or open-ended deprivation of political rights (one to five
years’ detention, or life imprisonment, or capital punishment), in addition to a fine (determined by
the circumstances without a prescribed maximum, as per Art. 52 CL). If the circumstances are more
“serious” (something which is not further specified), the penalty is raised to a fixed-term
imprisonment of not less than five years, in addition to a fine, also determined by circumstances
without prescribed maximum [or forfeiture of property]. This is sufficiently dissuasive and
proportionate (Art. 120A, CL).
Criterion 5.7—(Met) Legal persons are criminally liable for TF and can be convicted and fined. The
fines are not determined by law, but by circumstances by judges without a prescribed maximum.
However, a minimum amount of no less than RMB 1,000 (approx. US$146) is set (Art. 52 CL). It is not
clear if these are dissuasive and proportionate.
Criterion 5.8—(Met) Ancillary offenses to all offenses, including TF, are specified in the general
section of the CL. The CL criminalizes preparation (Art. 22); attempt (Art. 23); discontinuation
(Art. 24); joint offenders (Art. 25); principle crime leader, ring leader, and criminal organization
(Art. 26); accomplice (Art. 27); coercion (Art. 28); and instigation (Art. 29). Arts. 22 and 25 PC

combined cover the “association or conspiracy” to commit a crime. “Counselling” is covered

respectively by Arts. 25, 27, and 295 CL (giving instructions how to commit a crime).
Such regulation applies to TF and all terrorist offenses as stated in Arts. 120 A to 120 F (120-1 to
120-6) of the Criminal Law, where provisions on some special forms of terrorist activities are
established.
Criterion 5.9—(Met) TF offenses are established as predicate offenses for ML. Terrorist activity
offense is a category of crime, which includes TF offense (Criminal Law, Arts. 120A, 191, and 312 and
Arts. 3-4 of the CTL).
Criterion 5.10—(Met) TF offenses are pursued in China regardless of whether the person or offender
is in Chinese territory or in a different country in which the terrorist or terrorist organization is
located and regardless where the terrorist act occurred or was planned to occur.
The wording of the TF offense is very general and lacks the level of detail of the TF Convention,
which makes it somewhat difficult to assess the requirements. Nevertheless, not all required conduct
listed in three Conventions Annexed to the TF Conventions has been criminalized as terrorist
conduct. Article 120A of the CL seems to cover only direct assistance and not the willful collection of
funds.
Recommendation 6—Targeted Financial Sanctions Related to Terrorism and Terrorist

Financing
In the Third Round report, China was rated noncompliant for SR.III. With the issuing of R.6, FATF
strengthened and clarified the required measures, and updated the framework in line with the latest
UNSCRs.
Criterion 6.1—(Not met) For designations under UNSCRs 1267/1989 and 1988:
c.6.1a.—(Met) The competent authority for proposing designations of persons or entities to the
relevant UNSC Sanctions Committees is the MFA.
c.6.1b.—(Not met) Based on the CTL, the public security department, national security department,
and the foreign affairs department provincial counterterrorism leading bodies can file applications
with the national counterterrorism leading body for the determination of terrorist organizations and
individuals if required. Courts can also designate terrorists as part of the sentencing in criminal legal
procedures. However, there is legal basis that govern for the domestic designation to be used as a
basis for a proposal to the UNSC. Designations must meet the definition of “terrorist activities” in
the same law, but these criteria do not match the detail of INR6 paragraphs 13(a)(b). There is also no
reference to designations by the UNSC under the relevant resolutions. (CTL, Arts. 3, 12, 13 and 16)

c.6.1c.—(Not met) There are no legal provisions on the evidentiary standard required for submitting
designations to the UNSC, nor are there practical examples that would demonstrate the applicable
evidentiary standard.
c.6.1d.—(Not met) There are no legal provisions that require the use of the standard UN forms for
listing. Alternatively, no examples of the use of such forms have been provided.
c.6.1e.—(Not met) There are no legal provisions that require providing as much information as
possible with a designation proposal. Alternatively, there is no information available to demonstrate
that this has been done in practice under the existing CT Law legal framework.
Criterion 6.2—(Not met) In relation to designations under UNSCRs 1373:
c.6.2.a (Partly met) and c.6.2.b.—(Partly met) For receiving requests from other countries, the MFA is
the designated authority in line with regular MLA provisions (see R.37). For domestic designations
the same procedures and issues apply as for criterion 6.1.b. Designation criteria do not match the
detail of INR6 paragraphs 13(c); however, the lack of a link to the UNSC does not affect this criterion.
(CTL, Arts. 3, 12, 13, and 16)
c.6.2c.—(Not met) No practical example or other (legal) information is available regarding the
promptness of the consideration of the foreign request or of the domestic proposal
c.6.2d.—(Not met) Beyond what is covered under c.6.2.b, there are no legal provisions on the
evidentiary standard required for designations upon foreign request or domestic proposal.
c.6.2e.—(Not met) There is no requirement in law to provide as much identifying information when
submitting requests to other countries. Authorities indicate that in practice this is the policy that is
followed, but no example was provided.
Criterion 6.3—(Partly met) Legal authority and procedures:
c.6.3a.—(Partly met) The CTL (Arts. 43 and 47) gives powers the National Leading Group for
Combating Terrorism as the entity with nationwide competence for the coordination of terrorist
intelligence and all legal authorities. However, there are no specific criteria for designation
established under the relevant UNSCRs.
c.6.3b.—(Not met) There are no legal provisions or mechanisms that ensure that authorities operate
ex parte against entities designated by the UNSCR or against entities to be proposed to the UN, or
against entities designated upon a foreign request or a domestic proposal.
Criterion 6.4—(Not met) (UNSCR 1267 only) There are no specific legal requirements regarding the
legal basis for designation and freezing without delay (except: see c.6.5.b), nor have authorities been
able to establish that this is done in practice.

Criterion 6.5—(Not met)
c.6.5a.—(Partly met) There is no requirement for all natural and legal persons within the country to
freeze without delay and without prior notice, the funds or other assets of designated persons (i.e., a
prohibition). For FIs and designated DNFBPs, the CTL requires freezing in domestic designations (Art.
14) and the PBC has issued Notice 2017/187 which requires the immediate (same day) freezing of
assets of designated terrorists after instruction by PBC, but authorities did not establish that such
legal orders are issued each time after the issuing of a UNSCR or of an amendment to the list of
designated entities.
c.6.5b.—(Partly met) There is no legal requirement to freeze assets that extends to all assets of a
designated person or entity. For FIs and designated DNFBPs there is the Administrative Measures for
the Freezing of Assets Relating to Terrorist Activities, which comprehensively defines assets.
(Administrative Measures for the Freezing of Assets Relating to Terrorist Activities, Order of the PBC,
the Ministry of Public Security, and the Ministry of State Security No. [2014] 1, Arts. 5 and 11.)
c.6.5c.—(Not met) There are no provisions in law that would constitute a “prohibition” as required by
R.6.
c.6.5d.—(Partly met) Not all UNSCRs and UNSC designations are communicated to the financial
sector and DNFBPs immediately upon taking such actions. However, the PBC maintains a website
with links to UNSCRs (and FATF warnings) and circulates UNSCRs, but this is not systematically done
and does not cover every UNSCR and amendment to the list. CDD requirements (see R.10) require
banks to use software that include sanctions lists.
c.6.5e.—(Mostly met) The CTL (Art. 14) and PBC Notice 2017/187 (Arts. 1 and 2) require reporting of
freezing actions by reporting entities to the PBC, but there is a scope issue regarding DNFBPs.
c.6.5f.—(Not met) Persons that receive assets from designated entities in good faith acquire property
rights, as provided for by the Property Law (Arts. 4 and 106). It is not clear if such transfers of
property titles require UN authorization, as required by the UN (see c.6.7). There are no other
provisions to protect bona fide third parties (such as of parties to existing contracts with designated
entities)
Criterion 6.6—(Partly met)
c.6.6a.–d. (6.6.a (Not met); 6.6.b (Met); 6.6.c (Met); 6.6.d (Not met)—Art. 15 of the CTL provides the
basis and procedure for appeal against a designation as terrorist under the CTL. The article indicates
that a decision on the designation will be taken upon appeal, and that such decision is final and will
lead to unfreezing of assets if the designation is revoked. This is compliant with UNSCR 1373 (c.6.6.b
and 6.6.b), but not with UNSCR 1267/1989 and UNSCR 1988 (c.6.6.a and 6.6.d). Notice 2017/187 in
Art. 5 provides that reporting entities should inform designated entities of the possibility to appeal
designation.

c.6.6e.—(Not met) The MFA is said to have issued a notice on the implementation of the UNSCRs
2082 and 2083 which is said to state that if an individual or entity requests to be de-listed, the MFA
shall inform the relevant individual or entity to submit a request to the United Nations Office of the
Ombudsperson. However, these Notices were not provided.
c.6.6f.—(Partly met) Publicly known procedures to handle so called false positives are in place, but
only apply to those sectors that are designated under the AML Law (Administrative Measures for the
Freezing of Assets Relating to Terrorist Activities, Order of the PBC, the Ministry of Public Security, and
the Ministry of State Security no. 2014, Art. 10-5 and PBC Notice 2017/187, Arts. 3 and 4).
c.6.6g.—(Not met) De-listing and unfreezing communications suffer from the same deficiencies as
designation/freezing communications (see c.6.5.d), and there is no guidance on how to handle such
events.
Criterion 6.7—(Partly met) The Administrative Measures for the Freezing of Assets Relating to Terrorist
Activities (Art. 12) and PBC Notice 2017/187 (Art. 5) provide a legal basis and procedure to request
and grant access to frozen funds. This is sufficient for compliance with UNSCR 1373. However, the
legal references are insufficiently specific for compliance with the specific requirements in UNSCRs
1267/1989 and 1988. UNSCR 1452. No information is available regarding the requirement to notify
the UNSC of any intended exemption.
There are no legal provisions that prohibit legal persons and entities from making funds available to
designated entities (i.e., a prohibition). The freezing requirements in the CTL and in Notice 187/2017
are incomplete in scope and only apply to FIs and designated DNFBPs, and the legal provisions do
not allow for freezing without delay and without prior notice The framework in general lacks some
of the details that R.6 requires, such as designation criteria set by the UNSCRs and other details that
should be in place, which also impact on compliance. Because of the limitations in scope, not all
types of assets are covered. However, the provisions of the CTL contain designation and freezing
provisions that despite the above deficiencies allow for R.6 to be partially compliant.
Recommendation 7—Targeted Financial Sanctions Related to Proliferation
This is a new Recommendation.
Criterion 7.1—(Not met) There is no general legal basis for designations of UN-listed persons or
entities. There is also no legal basis for freezing of assets and for a prohibition, except for a freezing
requirement for reporting entities mentioned under c.7.2.a; but these measures do not allow for
implementation without delay.
Criterion 7.2—(Not met) The competent authority for the relevant UNSCRs is the MFA.

c.7.2a.—(Partly met) There is no requirement for all natural and legal persons within the country to
freeze without delay and without prior notice, the funds or other assets of designated persons (i.e. a
prohibition). For FIs and designated DNFBPs, the PBC has issued Notice 2017/187 which requires the
immediate (same-day) freezing of assets of designated persons and entities upon instruction of the
PBC. The authorities did not establish that such legal orders are issued after issuing of a UNSCR or
amendment to the list of designated entities.
c.7.2b.—(Partly met) There is no legal requirement to freeze assets that extends to all assets of a
designated person or entity. For FIs and designated DNFBPs, the PBC has issued Notice 2017/187,
which includes a definition that seems to cover all assets.
c.7.2c.—(Not met) There are no provisions in law that would constitute a “prohibition” as required by
R.7.
c.7.2d.—(Partly met) Not all UNSCRs and UNSC designations are communicated to the financial
sector and DNFBPs immediately upon taking such actions. However, the PBC maintains a website
with links to UNSCRs (and FATF warnings) and circulates UNSCRs, but this is not systematically done
and does not cover every UNSCR and amendment to the list. CDD requirements (see R.10) require
banks to use software that include sanctions lists.
c.7.2e.—(Mostly met) PBC Notice 2017/187 (Arts. 1 and 2) requires reporting of freezing actions by
FIs and DNFBPs to the PBC. The only shortcoming in this regard relates to the scope of the financial
institutions and DNFBPs that are covered under the AML Law.
c.7.2f.—(Not met) Persons that receive assets from designated entities in good faith acquire property
rights, as provided for by the Property Law (Arts. 4 and 106). It is not clear if such transfers of
property titles require UN authorization, as required by the UN. There are no other provisions to
protect bona fide third parties (such as of parties to existing contracts with designated entities)
Criterion 7.3—(Partly met) PBC Notice 2017/187 (Art. 8) designates the PBC and other financial
regulatory authorities to monitor compliance with R.7. The shortcoming in this regard relates to the
scope of the sectors that are covered under the AML Law and the range of available sanctions.
Authorities report only being able to issue warnings, and fines ranging from RMB 50,000 to
RMB 2 million (approx. US$7,338 to $293,521) (PBC Law, Art. 46). See analysis of sanctions for
reporting entities R.35.
c.7.4a.–b.—(7.4.a (Partly met); (7.4.b (Partly met) PBC Notice 2017/187 in Art. 5 contains a provision
that reporting entities shall inform their customers of the possibility to ask for humanitarian
exemptions and for review of the designation by the UN. However, regarding the Focal Point
(UNSCR 1730), this legal reference is insufficiently specific. The same shortcoming applies regarding
the exemptions under UNSCR 1718 and 1737, which are also not specified in law. Finally, both
provisions only assist customers of reporting entities, whereas the review and exemption should be

available for all designated entities and applies in very concrete cases (see paragraphs 10 and 11 of
INR7). Finally, there is no legal provision or a procedure to ensure compliance with the notification
provision of UNSCR 1737 (or any information that such provisions have in practice been complied
with).
c.7.4c.—(Not met) Publicly known procedures to handle so called false positives are in place, but only
apply to those sectors that are designated under the AML Law (PBC Notice 2017/187, Arts. 3 and 4)
c.7.4d.—(Not met) De-listing and unfreezing communications suffer from the same deficiencies as
designation/freezing communications (see c.7.2.d), and there is no guidance on how to handle such
events
Criterion 7.5—(Not met) The MFA is said to have issued notices on implementation of UNSCRs 1718
and 2231 and included specific provisions to cover c.7.5.a and c.7.5.b, and the language is said to
track the language of the criterion. However, said Notices were not provided.
There are no legal provisions that prohibit legal persons and entities from making funds available to
designated entities (i.e., a prohibition). The freezing requirements in Notice 187/2017 are incomplete
in scope and only apply to FIs and designated DNFBPs, and the legal provisions do not allow for
freezing without delay and without prior notice. The framework in general lacks some of the details
that R.6 requires, such as designation criteria set by the UNSCRs and other details that should be in
place, which also impact on compliance mechanism. Because of the limitations in scope, not all
types of assets are covered.
Recommendation 7 is rated non-compliant.
Recommendation 8—Nonprofit Organizations
In the Third Round, China was rated largely compliant on SR.VIII (now R.8). The primary
shortcomings identified were a lack of outreach specific to the risk of TF abuse and a supervision
and monitoring regime that did not specifically address potential vulnerabilities to terrorist activities
or discovering and preventing possible terrorist threats of misuse of the sector by terrorist
financiers. Since the Third Round, R.8 has been significantly amended.
China’s universe of NPOs consists of 799,500 social organizations comprised of social groups
(368,000), foundations (6,500), and social services institutions (private nonenterprise units) (425,000)
as well as 1,227 separately regulated overseas nongovernment organizations. The MCA has the
responsibility for the registration and oversight of social organizations while the MPS has the
responsibility for the registration and oversight of overseas nongovernment organizations. These
organizations employed a total of 7.637 million people and total contributions and donations for the
year amounted to RMB 78.7 billion (approx. US$11.5 billion). The Charity Law of the People’s
Republic of China came into effect in 2016 and China started the process of registering social
organizations as charities. As of June 2018, China had registered 4,194 organizations, the majority

(3,265) of which are foundations. Only 992 of the organizations registered as charities to date are
permitted to raise funds directly from the public.
c.8.1a—(Partly met) According to China, their NRA process used information from supervisors, tax,
intelligence, law enforcement, and civil affairs departments to identify the types of NPOs based on
their activities or characteristics, that are likely to be at risk of TF abuse. The information presented
in the NRA however only covers the inherent risk faced by social organizations and does not
attempt to identify a subset of NPOs that fall within the FATF definition of an NPO nor how they
identified the features and types of NPOs which by virtue of their activities or characteristics, are
likely to be at risk of TF abuse.
c.8.1b—(Not met) While China identified foundations and overseas NPOs as being at higher risk of
TF abuse, no information was provided to identify the nature of threats posed by terrorist entities to
these types of NPOs nor how they are specifically vulnerable to terrorist actors.
c.8.1c—(Partially met) While China has examined its broader NPO sector and taken steps through
provisions in the Charity Law to ensure transparency of the sector, it has not demonstrated that it
has reviewed the adequacy of measures, including laws and regulations, that relate to the subset of
the NPO sector that may be abused for TF support in order to be able to take proportionate and
effective actions to address the risks identified.
c.8.1d—(Met) The PBC and the MCA jointly issued the Measures for the Administration of Anti-
Money Laundering and Combating the Financing of Terrorism of Social Organizations, which
stipulates that the PBC and its branches and civil affairs departments assess the ML/TF risks of social
organizations periodically.
Criterion 8.2—(Partly met) The observations below concern all NPOs, not those that are at risk for TF.
The general lack of targeted measures to mitigate TF risks is a shortcoming in itself.
c.8.2a—(Met) China's Charity Law and the Law on the Administration of Activities of Overseas Non-
Governmental Organizations within the Territory of China, along with their relevant regulations,
outline the policies promoting accountability, integrity, and public confidence in the administration
and management of China’s NPOs and overseas NPOs. The focus of the laws and regulations are on
internal governance, fund management, information disclosure, and supervision.
c.8.2b—(Not met) The Measures for the Administration of Anti-Money Laundering and Combating the
Financing of Terrorism of Social Organizations stipulates that NPOs should take countering TF
measures and that the PBC, in conjunction with civil affairs departments, should undertake public
educational and training programs to remind NPOs of the risk of TF, and communicate with NPOs to
raise awareness of TF risks and appropriate anti-terrorism financing measures. No information;
however, was provided with respect to how outreach is conducted nor how China raises awareness
of the donor community about the potential vulnerabilities of NPOs to TF abuse and TF risks. While

there are websites such as ones operated by the China Social Organization and Charities in China
which disclose information on NPOs and related policies, no information specifically related to the
vulnerabilities of NPOs to TF abuse and TF risks is offered.
c.8.2c—(Not met) Art. 22 of the Measures for the Administration of Anti-Money Laundering and
Combating the Financing of Terrorism of Social Organizations stipulates that PBC and the civil affairs
departments should jointly issue guidance documents about the internal control system of NPOs’
work, cooperation agreements with foreign organizations and other practices. However, no
information was provided regarding the development and refinement of best practices to address
TF risks and vulnerabilities.
c.8.2d—(Met) Art. 7 of the Measures for the Administration of Anti-Money Laundering and Combating
the Financing of Terrorism of Social Organizations stipulates that NPOs should conduct financial
transactions through legal financial channels or in a legal manner. Art. 22 of the Law on the
Administration of Activities of Overseas Non‐Governmental Organizations within the Territory of
China outlines similar requirements.
Criterion 8.3—(Not met) All NPOs are subject to annual inspections by civil affairs departments.
These inspections however do not include components related specifically to monitoring for TF
abuse. The Measures for the Administration of Anti-Money Laundering and Combating the Financing
of Terrorism of Social Organizations provides the PBC with the authority to carry out supervision and
inspection on NPOs regarding fulfilling their AML/CFT obligations. To date no such supervision has
taken place and it is unclear as to why China would impose AML/CFT obligations on NPOs. The
Recommendations do not require this.
c.8.4a—(Not met) The PBC is responsible for the national AML and anti-TF supervision of NPOs. Civil
affairs departments are to cooperate with the PBC by supervising NPOs in their AML and anti-TF
work. However, no information was provided to indicate that any risk-based supervision is being
conducted in respect of TF risks. There have been no specific evaluation criteria developed for the
risk of TF abuse and no risk-based strategy developed to prioritize examinations in this regard.
c.8.4b—(Met) The PBC and civil affairs departments have a range of sanctions available to them for
violations of laws and regulations related to the operations of NPOs. The PBC can sanction NPOs
with fines ranging from RMB 50,000 (approximately US$7,339) for directors, to a fine of five times
the amount of illicit proceeds for the NPO. Sanctions under the Charity Law include warnings,
confiscation, orders to rectify, and fines up to RMB 200,000 (approx. US$29,352). The public security
agencies equally can impose sanctions according to different illegal activities of the overseas NPOs,
including: banning or ordering to stop the illegal acts; confiscation of illegal property and illegal
income; revoking or temporarily banning the registration and certificates; and giving a warning to
the directly responsible personnel, and in serious cases, 10–15 days detention. China implements a
bipartite punishment system, where sanctions can be imposed on both the NPO and persons acting
on behalf of an NPO. Given the range of sanctions available and the bipartite punishment system

available to Chinese authorities, these sanctions would be considered effective proportionate and
dissuasive.
Criterion 8.5—(Mostly met)
c.8.5a—(Met) Art. 17 of the Measures for the Administration of Anti-Money Laundering and
Combating the Financing of Terrorism of Social Organizations indicates that where the PBC or civil
affairs departments have reasonable grounds to suspect an NPO is involved in ML and/or its
predicate offenses or TF activities, they should immediately report their findings to the public
security agencies and inform each other. Relevant departments investigate NPOs violating laws and
regulations and report to civil affairs departments in a timely manner. All relevant government
departments have access to information derived from the annual inspection of NPOs conducted by
the MCA.
c.8.5b—(Partly met) The PBC has the jurisdiction to conduct investigations on NPOs and suspicious
transactions where there are reasonable grounds to suspect ML or TF activities. However, it is
unclear if there is sufficient investigative expertise and capabilities to examine NPOs suspected of
either being exploited by, or actively supporting, terrorist activity, or terrorist organizations.
c.8.5c—(Met) Art. 13 of the Charity Law of the People's Republic of China (Order of the President
No.43) states that “A charitable organization shall, on an annual basis, submit annual work reports
and financial accounting reports to the civil affairs department registering it. The reports shall cover
the information on fundraising and acceptance of donations in a year, the management and use of
charity property, the implementation of charity projects and the salaries and welfare of employees of
the charitable organization.” Art. 18 of the Measures for the Administration of Anti-Money Laundering
and Combating the Financing of Terrorism of Social Organizations indicates that the PBC will share
the registration, management, financial, project, funds transaction, and other relevant information of
NPOs obtained in accordance with the relevant laws and regulations with the civil affairs
departments. This information is also available to relevant authorities conducting investigations,
should other entities be involved in the investigation.
c.8.5d—(Met) Art. 17 of the Measures for the Administration of Anti-Money Laundering and
Combating the Financing of Terrorism of Social Organizations indicates that where the PBC and civil
affair authorities have reasonable grounds to suspect that social organizations are involved in
criminal activities such as ML and TF, they shall report to public security and notify each other.
Criterion 8.6—(Met) Art. 20 of the Measures for the Administration of Anti-Money Laundering and
Combating the Financing of Terrorism of Social Organizations indicates that relevant information
obtained from NPOs by the PBC and civil affairs departments can be used for international
cooperation.
Depending on the source of the requests and the nature of information or assistance requested,
China will respond to international requests through appropriate authorities and procedures.
Requests are handled as follows: (i) judicial MLA is provided through the MOJ or the SPP according

to relevant agreements; (ii) police cooperation is provided through the MPS; (iii) financial
intelligence exchange is provided by CAMLMAC; and (iv) other international cooperation requests
may be channeled through the MFA. Each department has established its own procedures for
receiving, assessing, and responding to these types of requests.
Through the various laws that pertain to social organizations and overseas nongovernmental
organizations, China is able to ensure a decent level of transparency, and accountability, integrity,
and public confidence in its broader NPO sector. The 2016 Charity Law of the People’s Republic of
China with strengthen this situation. China however has not attempted to identify the subset of
organizations within its broader NPO sector in an effort to identify those organizations that meet
the FATF definition of an NPO and are therefore at risk of TF abuse. China does not have a risk-
based monitoring mechanism to address the risk of TF within this sector and has not demonstrated
that it conducts outreach specific to the risk of TF abuse.
General Information on Preventive Measures of the Financial Sector
Regulations applicable for FIs do not cover PIs. The latter entities have their own AML/CFT
regulations. General information is provided in the following Recommendations.
Recommendation 9—Financial Institution Secrecy Laws
In its previous MER, China was rated compliant with the former R.4.
Criterion 9.1—(Met) While the Law of the People’s Republic of China on Commercial Banks and the
Securities Law include provisions that require customer information to be kept confidentially, several
laws and regulations provide supervisors and LEAs wide ranging powers to override these provisions
and gain access to such information. These include the Law of the People’s Republic of China on
Commercial Banks (Arts. 61 and 62), the Securities Law of the People’s Republic of China (Arts. 148,
180, and 183), the Insurance Law of the People’s Republic of China (Art. 150), the Criminal Procedure
Law (Art. 52), and Measures for the Administration of AML/CFT of Payment Institutions (Arts. 45 and
46). The Law of the People’s Republic of China on the People’s Bank of China (Art. 35) provides for the
establishment of a mechanism for the sharing of information among financial sector supervisors and
the AML Law provides that customs and other government agencies which undertake AML functions
shall report any suspicious transactions to the investigative authorities. FIs are required to provide
supplementary information to the CAMLMAC when requested to do so (Art. 28, Measures for the
Administration of Financial Institutions’ Reporting of Large Value Transactions and Suspicious
Transactions). The AML Law (Art. 28) also provides for the sharing of information with foreign
governments. FIs are required to provide customer and transaction information to intermediary and
beneficiary institutions (Art. 10 of Administrative Measures for Customer Identification and
Documentation of Customers Identity Information and Transaction Records by Financial Institution

2007 (2). Art. 1 (1) of the Notice of the Peoples Bank of China on Strengthening the Anti Money
Laundering in Cross Border Remittances PBC Documents No 2012 (199). There are no legal provisions
which address the sharing of information within financial groups, but such institutions can share
information in accordance with the laws and regulations discussed above.
Recommendation 10—Customer Due Diligence
In its Third Round MER, China was rated partially compliant with the former R.5 on CDD (see 3.2.3).
Main shortcomings were the lack of CDD obligations for beneficial owners, lack of enhanced and
ongoing due diligence obligations, lack of specific requirements for the identification of legal
persons (except for banks), lack of obligation to determine whether the customer is acting on behalf
of another person, undetermined threshold for the implementation of CDD for occasional
transactions, and the lack of effectiveness. The CDD recommendation has been strengthened with
the revision of FATF standards in 2012.
Due diligence measures for FIs providing safety deposit box services, are limited to the “good
knowledge about the actual user of the safety deposit box.” (Art. 9 of Administrative Measures for
Customers Identification and Documentation of Customers Identity Information and Transaction
Records by Financial Institutions).
Criterion 10.1—(Met) FIs, including PIs, are prohibited from “establishing anonymous or
pseudonymous accounts” (Art. 16 of AML Law).
c.10.2a–c—(Mostly met) FIs should, when establishing any business relationship with a client or
providing occasional transactions above a designated threshold, require the client to “show its/his
authentic and effective identity certificate or any other identity certification document and make
relevant verification and registration” (Art. 16 of AML Law). Art. 7 of Administrative Measures for
Customers Identification and Documentation of Customers Identity and Transaction Records by
Financial Institutions (Order of the PBC, CSRC, and CIRC No. [2007] 2) sets a threshold of RMB 10,000
or foreign currency with equivalent value of US$1,000 11 for a single sum of occasional transactions
(such as cash remittance, cash exchange, negotiable instrument cashing) and requires institutions to
get information about the natural person(s) who ultimately controls a customer and/or the natural
person on whose behalf a transaction is being conducted.
PIs should complete the identity verification of the customer and its beneficial owner before
establishing a business relationship or conducting occasional transactions above the designated
11 Which falls below the applicable designated threshold of (USD/EUR 15,000) for occasional transactions in the FATF
standards.

threshold (Art. I.1 of General Office of the People’s Bank of China Notice on Further Strengthening
Work on Anti-Money Laundering and Combating the Financing of Terrorism (PBC GAD〔2018〕130)).
However, PIs are not required to undertake CDD measures when carrying out occasional
transactions in several operations that appear to be linked for a total exceeding the equivalent of
USD/EUR 15,000.
c.10.2d–e—(Met) When there is a suspicion of ML/TF, FIs, including PIs, should “re-identify the
client.” The re-identification is also required when the institution has doubts about the veracity or
adequacy of previously obtained customer identification data (Art. 22 of Administrative Measures for
Financial Institutions (Order of the PBC, CSRC, and CIRC No. [2007] 2)).
Criterion 10.3—(Met) FIs, including PIs, should identify and verify the identity of customers using
reliable, independent source documents, data or information. These measures apply to all customers
whether permanent and occasional, and to customers that are natural or legal persons or legal
arrangements (Art. 3 of AML Law; Art. I.1 of General Office of the People’s Bank of China Notice on
Further Strengthening Work on Anti-Money Laundering and Combating the Financing of Terrorism
(PBC GAD〔2018〕130)).
Criterion 10.4—(Mostly met) FIs should identify and verify the identity of any person purporting to
act on behalf of the customer, and shall “confirm, in a reasonable method, the existence of the
agency relationship if any” (Art. 16 of AML Law; Art. 20 of Administrative Measures for Customers
Identification and Documentation of Customers Identity and Transaction Records by Financial
Institutions (Order of the PBC, CSRC, and CIRC No. [2007] 2)). Prepaid card institutions are required
to verify, when a proxy buys a prepaid card on behalf of others, the existence of the proxy
relationship through a reasonable manner and identify and verify the identity of the proxy. No such
requirements for other types of PIs exist (Art. 15 of Measures for the Administration of Anti-Money
Laundering and Combating the Financing of Terrorism of Payment Institutions (PBC Document
No. [2012] 54).
Criterion 10.5—(Partly met) FIs, including PIs, should identify the “natural person(s) who ultimately
controls a customer and/or the natural person on whose behalf a transaction is being conducted.”
“Regulated institutions” should “identify the beneficial owner of the non-natural person clients and
trace down to the natural person who ultimately controls or owns the benefit.” The concept of
“control” in the definition of beneficial owner is qualified as it referring to a natural person who
controls more than 25 percent of a company’s shares, parts or the like. They should also verify
information of the beneficial owner of “non-natural-persons” through inquiring and asking these
persons’ clients to provide evidentiary materials, searching public information, authorizing relevant
agencies to do an investigation. Banking FIs submit the recorded information of the beneficial owner
to a relevant PBC database. “Regulated institutions” can query all information of the “non-natural-
person” clients’ beneficial owners. “Regulated institutions” should also register the name, address,
identification document or identification document type, number, and expiration date of the
beneficial owner of the client (Art. 3 of Administrative Measures for Customers Identification and
Documentation of Customers Identity and Transaction Records by Financial Institutions (Order of the

PBC, CSRC, and CIRC No. [2007] 2); Art. 1.3–4 1.8–9 of Notice of the PBC on Strengthening Customer
Identification Mechanism in AML (PBC Document No. [2017] 235); Art. 10 of Measures for the
Administration of Anti-Money Laundering and Combating the Financing of Terrorism of Payment
Institutions (PBC Document No. [2012] 54)). Art. 3.1 of stipulates that the ultimate control over the
legal person or arrangement is not limited to directly or indirectly owning more than 25 percent of
the company's equity or voting rights. Natural person who directly or indirectly owns more than 25
percent of the company's equity or voting rights is the basis approach for determining the
company's beneficial owners. However, these obligations do not explicitly require FIs to identify the
natural person who ultimately owns a customer that is a legal person or a legal arrangement.
Art. 1.7 of Notice of the PBC on Strengthening Customer Identification Mechanism in AML (PBC
Document No. [2017] 235) excludes categories12 of “non-natural-person” clients from the
implementation of due diligence towards beneficial owners. This exclusion is not justified for these
categories, except for authorities of the state.
Criterion 10.6—(Met) FIs, including PIs, are required to obtain information on the purpose and
intended nature of the customer's establishment and maintenance of the business relationship
(Art. I.1 of General Office of the People’s Bank of China Notice on Further Strengthening Work on Anti-
Money Laundering and Combating the Financing of Terrorism (PBC GAD〔2018〕130)).
Criterion 10.7—(Mostly met) “Regulated institutions” should conduct ongoing customer

identification measures on the business relationship; review in detail the recorded customer data
and transactions occurred during the existence of the business relationship; update customer
identification documents, data ,information, and materials in a timely manner to ensure that the
transactions being conducted are consistent with the regulated institution’s knowledge of the
customer; and their business and risk profile, including, where necessary, the source of funds. For
higher-risk categories of customers, regulated institutions should increase the frequency and
intensity of the on-going monitoring (Art. I.1 of General Office of the People’s Bank of China Notice
on Further Strengthening Work on Anti-Money Laundering and Combating the Financing of Terrorism
(PBC GAD〔2018〕130)). Art. 9 of Provisions on AML through Financial Institutions (Order of the PBC
No. [2006] 1) further requires FIs to update in a timely fashion the “customer's identity information if
it is changed.” However, there is no explicit requirement for PIs to ensure that documents, data, or
information collected under the CDD process is kept up-to-date and relevant.
Criterion 10.8—(Mostly met) “Regulated institutions” should take reasonable measures to

understand the nature of “non-natural-person” clients’ business and the structure of the ownership
of shares or right of control. “Regulated institutions” are also required to understand “non-natural-
person” clients’ ownership of shares or right of control. In this process, they must collect,
understand, and preserve registration certificates, proof of existence, the partnership agreement, the
trust agreement, memorandum and articles of association, and registration information of
12Agencies of the party at all levels, authorities of the state, administrative agencies, judicial agencies, military
agencies, agencies of the People's Political Consultative Conference, People's Liberation Army, armed police forces,
and public institutions managed by the Civil Servant Law.

shareholders or members of the board (including the board of directors, senior management and
list of shareholders, number of shareholdings of each shareholders and ownership types (including
related voting type)) (Arts. 1.1 and 1.8 of Notice of the PBC on Strengthening Customer Identification
Mechanism in AML (PBC Document No. [2017] 235). However, the requirement to implement these
measures seems to be unduly limited to taking reasonable measures.
Criterion 10.9—(Mostly met) Regulated institutions should understand, obtain, and properly retain
the following information and materials on non-natural-person clients: ownership of shares or right
of control (mainly includes registration certificates, proof of existence, the partnership agreement,
the trust agreement, memorandum, and articles of association), registration information of
shareholders or members of the board (mainly includes the board of directors, senior management
and list of shareholders, number of shareholdings of each shareholders and ownership types
(including related voting type etc.). FIs are also required, among other information, to register the
address; scope of business; the name, number, and valid term of the license, certificate, or document
which may prove that the client is lawfully established or lawfully carries out the business operation
or social activities; the names of the legal representative, person in charge and authorized working
persons, the types, numbers, and valid terms of their identity certification documents.” For PIs, the
verification of identity of “corporate customers” should occur through similar information (Art. 1.8 of
Notice of the People's Bank of China on Strengthening Customer Identification Mechanism in Anti-
Money Laundering (PBC Document No. [2017] 235); Arts. 7 and 33 of Administrative Measures for
Financial Institutions (Order of the PBC, CSRC, and CIRC No. [2007] 2); Art. 51 of Measures for the
Institutions (PBC Document No. [2012] 54)). However, the collection of information on place of
business does not apply to legal arrangements.
Criterion 10.10—(Met) Regulated institutions should identify the beneficial owner of non-natural-
person clients, and should carry out in-depth analysis on each layer to identify the natural person
who has ultimate control or ultimate BO; natural persons controlling the legal person through
human resources, finance, etc.; senior management of the company (Art. 1.3 of Notice of the PBC on
Strengthening Customer Identification Mechanism in AML (PBC Document No. [2017] 235)).
Criterion 10.11—(Met) Art. 1 of Notice of the PBC on Strengthening Customer Identification

Mechanism in AML (PBC Document No. [2017] 235) specifies the measures required from “regulated
institutions” to identify and apply reasonable measures to verify the identity of beneficial owners for
customers that are non-natural-persons (covers legal persons and arrangements). Foreign and civil
trusts in China are legal arrangements. There are three trust types: civil, business or public (Art. 3 of
Trust Law of People’s Republic of China). The trustee can be a natural or legal person, such as FIs
referred to as Trust companies (i.e., Trust service providers) (Art. 2 of Measures for the Administration
of Trust Companies (Order of the China Banking Regulatory Commission No. [2007] 2). The
beneficiary can be the settlor and can also be the trustee, provided that it is not the sole beneficiary.
One of the circumstances under which a trust is considered void is when the beneficiary or the
scope of beneficiaries cannot be identified (Arts. 11 and 43 of Trust Law of People’s Republic of

China). “The beneficial owner of a trust is defined as the settlor, trustee, beneficiary, and other
natural persons who ultimately control the trust effectively” (Art. 1.3.c of Notice of the PBC on
Strengthening Customer Identification Mechanism in AML (PBC Document No. [2017] 235)). In China,
the concept of “protector” does not exist in the trust law. However, charitable trusts have a
"supervisor" that is responsible for supervision over the conduct of the trustee and protecting the
rights and interests of the settlor and the beneficiary in accordance with the law (Art. 49 of the
Charity Law), but cannot be considered as owning or controlling the trust.
Criterion 10.12—(Partly met) In the case of personal insurance, the insurance contract should include
the name and domicile of the beneficiary. If the contractual beneficiary is not the client, the FI shall
make verification and registration of the identity certificate or any other identity certification
document of the beneficiary as well. A life insurance contract under which the insurance premium of
a single insured is equal or above the value of US$2,000 and is paid in cash, or an insurance contract
under which the insurance premium is equal or" above the value of US$20,000 and is paid by way of
account transfer, the insurance company should, when concluding the insurance contract, check the
valid identity certification document of the designated beneficiary and register basic identity
information. At the pay out, if the amount is equal or above the value of US$1,000, the insurance
company should apply the same measures (Art. 18 of Insurance Law; Art. 16 of AML Law; Arts. 12
and 14 of Administrative Measures for Customers Identification and Documentation of Customers
Identity and Transaction Records by Financial Institutions (Order of the PBC, CSRC, and CIRC
No. [2007] 2)). However, for life and other investment-related insurance policies where a beneficiary
is designated by characteristics or by class or by other means, insurance institutions are not required
to obtain sufficient information on the beneficiary to be able to establish the identity at the time of
the payout. Moreover, measures of verification of the identity of the beneficiary should apply
without regard to any premium thresholds 13 or limited to specific types of payments.
Criterion 10.13—(Mostly met) “Regulated institutions” should include the beneficiary of a life
insurance and investment-related property insurance policy as a relevant risk factor in determining
whether enhanced CDD measures are applicable. If determining that a policy beneficiary who is a
non-natural person presents a higher risk, the regulated institution shall adopt enhanced customer
identification measures including reasonable measures to identify and verify the identity of the
beneficial owner of the beneficiary, at the time of payout (Art. I.1 of General Office of the People’s
Bank of China Notice on Further Strengthening Work on Anti-Money Laundering and Combating the
Financing of Terrorism (PBC GAD〔201〕130)). However, FIs are not required to take enhanced
measures, beyond enhanced customer-identification measures, if it determines that a beneficiary
who is a legal person or a legal arrangement presents a higher risk.
Criterion 10.14—(Met) FIs, including PIs, are required to verify the identity of the customer when
establishing a business relationship (Art. 16 of AML Law) Art. I.1 of General Office of the People’s
13 Unless the regulatory authority assessed that ML/TF risks for policies with premiums falling below these thresholds
are low, and that exceptions should apply.

Financing of Terrorism (PBC GAD〔2018〕130) stipulates that “regulated institutions” should

complete the identity verification of the customer and its beneficial owner before establishing a
business relationship or conducting occasional transactions above the designated threshold, and are
permitted to complete the verification as soon as reasonably practicable following the establishment
of the relationship, where the ML/TF risks are effectively managed and where this is essential not to
interrupt the normal conduct of business. “Regulated institutions” should establish corresponding
risk management mechanisms and procedures to implement effective risk management measures
with respect to the conditions under which a customer may utilize the business relationship prior to
verification, such as limiting the number of transactions, type or amount of transactions, and
strengthening transaction monitoring.
Criterion 10.15—(Mostly met) Regulated institutions are required to establish corresponding risk
management mechanisms and procedures to implement effective risk management measures with
respect to the conditions under which a customer may utilize the business relationship prior to
verification, such as limiting the number of transactions, types or amount of transactions, and
strengthening transaction monitoring (Art. I.1 of Notice of the General Office of the People’s Bank of
China on Further Strengthening Anti-Money Laundering and Countering Terrorism Financing (PBC
GAD [2018]No. 130)). However, financial institutions may allow low-risk customers only to utilize the
business relationship prior to verification, provided that risks are controllable (Art. IV.II.1 of Notice of
the PBC on Issuing the Guidelines for the Assessment of ML/TF Risks and Categorized Management of
Customers of Financial Institutions (PBC Document No. [2013] 2)). Given that Art. I.1 of (PBC
Document No. [2013] 2) stipulates that its implementation is not mandatory, the requirements
governing the situation where low-risk customers are allowed to utilize the business relationship
prior to verification are not clear.
Criterion 10.16—(Mostly met) FIs are required to supplement or update CDD information of existing
customers (Art. II.1 of Notice of the PBC on Further Strengthening the AML Work of Financial
Institutions (PBC Document No. [2008] 391)) and are expected to enhance the updating of records
when risks are high. However, it is not provided that updating should be performed on the basis of
materiality or at appropriate times.
PIs are required to complete CDD information of existing customers within two years (General
provisions of Measures for the Administration of Anti-Money Laundering and Combating the Financing
of Terrorism of Payment Institutions (PBC Document No. [2012] 54). The implementation of CDD for
existing relationships of PIs is not required on the basis of materiality and risk, and at appropriate
times.
Criterion 10.17—(Mostly met) Art. II.1 of General Office of the People’s Bank of China Notice on
(PBC GAD〔2018〕130) stipulates that, in situations where the ML/TF risk is higher, “regulated
institutions” should take appropriate customer identification and transaction monitoring measures
commensurate to the risks. The article also provides for a series of enhanced measures that can be
taken by institutions commensurately to risk. However, Art. I.1 of (PBC Document No. [2013] 2)
stipulates that its implementation is not mandatory, therefore, it is not clear whether or not it is

mandatory for financial institutions to apply enhanced measures in situations where ML/TF risks are
high.
Criterion 10.18—(Met) FIs should scientifically allocate AML resources according to the risk
assessment results and adopt simplified AML measures in areas with lower ML risks. For customers
with significantly lower risks that can be effectively controlled, an FI may, at its discretion, decide to
directly assign the lowest risk level to them (without assessment), provided that some
circumstances 14 do not apply, including that the customer is involved in any report on suspicious
transactions. (Art. I.1.1, II.IV.1 of Notice of the PBC on Issuing the Guidelines for the Assessment of
ML/TF Risks and Categorized Management of Customers of Financial Institutions (PBC Document
No. [2013] 2) However, Art. I.1 of (PBC Document No. [2013] 2) stipulates that its implementation is
not mandatory. Where a ML/TF suspicion arises, “regulated institutions” should terminate the
identification of clients and submit STRs, if there is a risk of tipping off, when performing the CDD
process. There are no provisions permitting PIs to apply simplified CDD (Art. 3.2 of Notice of the PBC
on Strengthening Customer Identification Mechanism in AML (PBC Document No. [2017] 235)).
Criterion 10.19—(Met) If “regulated institutions” are unable to comply with relevant customer
identification work or after an assessment that the circumstances exceed the risk management
capabilities of the institution, it shall not establish or maintain business relationships with the
customer and shall consider submitting an STR in relation to the customer (Art. I.1 of General Office
of the People’s Bank of China Notice on Further Strengthening Work on Anti-Money Laundering and
Combating the Financing of Terrorism (PBC GAD〔2018〕130)).
Criterion 10.20—(Met) Where a ML/TF suspicion arises, “regulated institutions” should terminate the
identification of clients and submit STRs, if there is a risk of tipping off (Art. 3.2 of Notice of the PBC
on Strengthening Customer Identification Mechanism in AML (PBC Document No. [2017] 235)).
The most significant deficiencies relate to (i) the lack of explicit requirement to identify the beneficial
owners by way of ownership, the exclusion of some categories of customers from the requirements
to identify BO; (ii) shortcomings in CDD requirements for beneficiaries of life insurance policies, and
(iii) the lack of requirement to adopt risk management procedures by online PIs when applying
simplified measures for payments below the equivalent value of US$1,000.
Recommendation 11—Record-keeping
In its Third Round MER, China was rated largely compliant with the Recommendation on record-
keeping (see 3.5.3). The main shortcoming was the lack of requirement for institutions to retain
14 These circumstances also include five specific higher risk scenarios.

business correspondence and similar documents.
Criterion 11.1—(Met) FIs, including PIs, should establish a preservation system for their transaction
records. Upon conclusion of any transaction, the relevant client's identity materials or client's
transaction information should be kept for at least five years (Art. 19 of AML Law).
Criterion 11.2—(Met) FIs, including PIs, are required to maintain customer identity materials for five
years after the end of the business relationship. The client identity materials which an FI ought to
preserve include the various records and materials on the client's identity information. The
transaction records should include the data information, business vouchers, and account books on
each sum of transaction, as well as the contracts, business vouchers, documents, business letters,
and other materials. FIs shall preserve work records reflecting transaction analysis and internal
handling for at least five years from the date of generation thereof (Art. 19 of AML Law; Art. 27 of
Administrative Measures for Customers Identification and Documentation of Customers Identity and
Transaction Records by Financial Institutions (Order of the PBC, CSRC, and CIRC No. [2007] 2); Art. 22
of Measures for the Administration of Financial Institutions' Reporting of Large-Value Transactions and
Suspicious Transactions (Order of the People's Bank of China No. [2016] 3)).
Although Arts. 27–28, 36 of Measures for the Administration of AML/CTF of Payment Institutions (PBC
Document No. [2012] 54) provide for similar requirements for PIs.
Criterion 11.3—(Met) FIs are required to keep transaction records “so as to facilitate AML
investigation, supervision, and administration” and in a manner “to reflect the true facts of the
transaction.” PIs are required to keep transaction records in a manner to ensure they can completely
and accurately reproduce each transaction (Arts. 27, 28 of Administrative Measures for Customers
Identification and Documentation of Customers Identity and Transaction Records by Financial
Institutions (Order of the PBC, CSRC, and CIRC No. [2007] 2); Art. 28 of Measures for the
Administration of AML/CTF of Payment Institutions (PBC Document No. [2012] 54)).
Criterion 11.4—(Met) “Regulated institutions” should have programs to ensure that all customer
identity information and transaction records are available swiftly, conveniently and accurately to
domestic competent authorities including regulatory authorities and LEAs upon appropriate
authority (Art. V of General Office of the People’s Bank of China Notice on Further Strengthening Work
on Anti-Money Laundering and Combating the Financing of Terrorism (PBC GAD〔2018〕130))
FIs are not required to ensure that all CDD information and transaction records are available swiftly
to domestic competent authorities upon appropriate authority.

Recommendation 12—Politically Exposed Persons
In its Third Round MER, China was rated noncompliant with the Recommendation on PEPs (see
3.2.3). There were no requirements in relation to foreign PEPs. The 2012 Recommendations have
been extended to domestic PEPs and international organizations.
Criterion 12.1—(Partly met) For foreign PEPs, “regulated institutions” should, in addition to the
normal client identification measures: (i) put in place a risk management system to determine
whether clients are foreign PEPs; (ii) prior to establishing (or maintaining existing) business
relationships, obtain approval or authorization from senior management; (iii) further understand the
source of funds of clients; and (iv) increase the frequency and intensity of transaction monitoring
during business relationship extension. If the beneficial owner of the “non-natural person” client is
the PEP, the “regulated institutions” should take the corresponding measures to strengthen the
identification of the “non-natural person” client. If a customer, a natural person who actually
controls a customer, or the actual beneficial owner of a transaction is a foreigner who currently or
formerly performs any important public functions, such as head of state, head of government, senior
political dignitary, important senior governmental, judicial or military official, top executive of state-
owned enterprise or key political party member, is a family member of the aforesaid foreigner, or is
a person otherwise closely related to the aforesaid foreigner, an FI shall perform the obligation of
due diligence according to the customer identification requirements for “foreign politically exposed
persons.” (Arts. 2.1, 2.4 of Notice of the PBC on Strengthening Customer Identification Mechanism in
AML (PBC Document No. [2017] 235); Art I.4 of Notice of the People's Bank of China on Further
Strengthening the Anti-Money Laundering Work of Financial Institutions (PBC Document No. [2008]
391)). However, there are no requirements for the use of risk management systems to determine
whether a beneficial owner is a PEP. In addition, it is not mandatory for FIs to take reasonable
measures to establish the source of wealth of PEPs or conduct ongoing monitoring on business
relationships with foreign PEPs. FIs have the discretion to: (i) further investigate a customer and its
actual controller or actual beneficial owner; (ii) gather further information on the business
operations and sources of assets of a customer; and (iii) conduct enhanced ongoing due diligence
measures (Arts. 2.4.2, 4.1 of Notice of the PBC on Issuing the Guidelines for the Assessment of ML/TF
Risks and Categorized Management of Customers of Financial Institutions (PBC Document No. [2013]
2)). However, Art. I.1 of (PBC Document No. [2013] 2) stipulates that its implementation is not
mandatory.
Criterion 12.2—(Partly met) For senior management of international organizations, “regulated

institutions” should adopt same measures as those prescribed for foreign PEPs under the Notice of
the PBC on Strengthening Customer Identification Mechanism in AML (PBC Document No. [2017] 235),
when encountering higher risk in providing services (Art. 2.2 of Notice of the PBC on Strengthening
Customer Identification Mechanism in AML (PBC Document No. [2017] 235)). However, financial
institutions are not required to implement specific due diligence requirements for domestic PEPs.
Criterion 12.3—(Partly met) FIs are required to perform the obligation of due diligence according to
the customer identification requirements for “foreign politically exposed persons” to family
members of foreign PEPs and persons otherwise closely related to them (Art. 2.4 of Notice of the

PBC on Further Strengthening the AML Work of Financial Institutions (PBC Document No. [2008] 391)).
Specific natural persons such as foreign PEPs and senior executives of international organizations
including foreign PEPs, senior management personnel of international organizations, as well as close
relatives including parents, spouses, children, etc., as well as other natural persons who have a
relationship of generating and sharing common interests through work and life that the regulated
institutions know or should know (Art. 4.2 of Notice of Further Strengthening Work on the
Identification of Beneficiary Owners (PBC Document No. [2018] 164)). However, these requirements
do not apply for domestic PEPs.
Criterion 12.4—(Partly met) Generally, where risk level is high, insurance institutions are required,
before the payout, to obtain the approval of senior management, strengthen the review of the
insurance business relationship, and to consider submitting an STR on the basis of reasonable doubt
if it fails to complete these measures (Art. 3.1. of Notice of the PBC on Strengthening Customer
Identification Mechanism in AML (PBC Document No. [2017] 235)). However, 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.
The most significant deficiencies relate to the lack of (i) requirements to perform CDD measures in
relation to foreign PEPs, (ii) requirements in relation to domestic PEPs, and (iii) requirements to
identify PEPs in relation to life insurance policies.
Recommendation 13—Correspondent Banking
In its Third Round MER, China was rated partially compliant with the former R.7 on correspondent
banking (see 3.2.3). Main shortcomings were the lack of requirement: (i) for banks to gather
sufficient information about a respondent institution to understand fully the nature of the
respondent’s business and to determine the reputation of the institution and the adequacy and
quality of supervision and controls; and (ii) to document the respective AML/CFT responsibilities
within correspondent relationships.
Only banks can arrange settlement of both domestic and overseas accounts. PIs are not permitted
to provide correspondent banking services (Measures for the Administration of Payment Services of
Non-Financial Institutions (Order of the People's Bank of China No. [2010] 2)).
Criterion 13.1—(Mostly met) FIs are required, when establishing an agent-bank (correspondent)
relationship or any other similar business relationship with an overseas FI, to obtain approval from
the board of directors or other senior management staff, and to collect relevant information on the
overseas FI's business, reputation, internal controls, the supervision it is subject to, as well as the
soundness and effectiveness of its AML/CFT measures, and specify, in writing, the duties of itself and
the overseas FI in respect of client identity identification or client materials and transaction

recording. (Art. 6 of Administrative Measures for Customers Identification and Documentation of

Customers Identity and Transaction Records by Financial Institutions (Order of the PBC, CSRC, and
CIRC No. [2007] 2)). FIs are not explicitly required to verify whether the respondent institution has
been subject to a ML/TF investigation or regulatory action.
Criterion 13.2—(Not applicable) China does not permit “payable-through accounts.” China’s financial
market is supervised through an approval-based approach. In other words, FIs, including PIs, are
only allowed to provide services that have been explicitly approved by law or in writing from the
financial regulators. 15
Criterion 13.3—(Mostly met) No FI may open a correspondent account for a foreign FI which does
not conduct substantial operational and management activities in its place of registration or is not
under sound supervision or develop any other business relationship with a foreign FI that might
endanger its own reputation. A shell bank is defined as a foreign FI which does not conduct
substantial operational and management activities in its place of registration or is not under sound
supervision. FIs are prohibited to establish or develop any business relationship with a shell bank
which might endanger its own reputation (Art. I of Notice of the People’s Bank of China on
Strengthening the Anti-Money Laundering Work of Financial Institutions in their Cross-border Business
Cooperation (PBC Document No. [2012] 201). FIs are not clearly required to satisfy themselves that
respondent financial institutions do not permit their accounts to be used by shell banks, although
Art. 3 (6) of Notice of the People's Bank of China on Strengthening Customer Identification Mechanism
in Anti-Money Laundering (PBC Document No. [2017] 235) referred banking financial institutions to
the FATF, Wolfsberg Group requirements 16 on correspondent bank relationship, and required to
“strictly fulfil the identification obligation of correspondent bank.” No such requirements are in place
for PIs.
Main deficiencies relate to (i) the gathering of information on possible ML/TF investigation or
regulatory action against a respondent institution and (ii) not permitting accounts of respondent
financial institutions to be used by shell banks.
Recommendation 14—Money or Value Transfer Services
In the Third Round, China was rated largely compliant with the former R.17, due mostly to
inadequate sanctions, and sanctions not focusing on structural weaknesses.
15 China’s Mutual Evaluation Report, June 2007, para. 356.

16 The Wolfsberg’s Correspondent Bank Due Diligence Questionnaire includes questions on whether the respondent
institution is dealing with shell banks.

Criterion 14.1—(Met) In China, commercial banks are permitted to engage in the business of MVTS
under their banking licenses. Nonbanking FIs must obtain a Payment Business Permit following an
approval process by the PBC (Measures for the Administration of Payment Services of Non-Financial
Institutions, Art. 3). This measure is not applicable to natural persons. Involvement of natural persons
in remittance activity is a criminal offense (Art. 255, Criminal Law).
Criterion 14.2—(Met) It is a criminal offense to engage in fund payment and settlement business
without the approval of the relevant competent departments of the State (Art. 225(3) of the Criminal
Law). Violations are punishable with a fixed term of imprisonment or criminal detention not
exceeding five years, and the criminal may, in addition or exclusively, be sentenced to a fine not less
than 100 percent and not more than 500 percent of the criminal’s illegal income. Where the
circumstances are “particularly serious,” the imprisonment and the fine sentences apply, or the
confiscation of property (Art. 225 of the Criminal Law). Entities and individuals “have the right” to
report the violations of laws and regulations on payment and settlement (Arts. 2 and 3 of Measures
for Rewarding the Reporting of Violations of Laws and Regulations on Payment and Settlement (PBC
Announcement No. [2016] 7)). Rewards that meet specified report criteria range between RMB 200–
2,000 (approx. US$29–$293) for general violations, and RMB 500–10,000 (approx. US$74–$1,467) for
more serious violations.
Underground banking, (including unauthorized remittance services) is a prevalent illicit activity in

China. The authorities have devoted considerable resources to cracking down on this activity (see
discussion in Chapter 1).
Criterion 14.3—(Met) Licensed nonbanking FIs are monitored for compliance with AML/CFT
obligations by the PBC (Anti-Money Laundering Law of the People’s Republic of China (Order of the
President No. 56).
Criterion 14.4—(Met) PIs are prohibited from outsourcing the operation of their payment business to
agents (Measures for the Administration of Payment Services of Non-Financial Institutions—Order of
the PBC No. 2010 2) (Doc 83), Art. 17. Chinese law restricts the MVTS license to the licensed firm.
While banks can use agents, any entity providing such services on behalf of a bank is required to be
licensed. (See14.1) Exceptionally, however, banks may act as agents for Western Union and other
similar international remitters (Notice of the China Banking Regulatory Commission on Regulating the
Relevant Issues Concerning the Establishment of Agency Remittance Relationship on International
Remittances by Financial Institutions); however, the AML Law’s preventative measures apply to these
transactions.
Criterion 14.5—(Not met) While PIs are prohibited from using agents, banks can have agents for the
purpose of providing MVTS services. While these agents must be licensed institutions, there is no
express provision that requires banks to include these institutions in their AML/CFT programs and
monitor them for compliance with such programs.

Arrangements are in place to ensure that MVTS providers are licensed and monitored for AML/CFT
compliance. Banks are not explicitly required to include agents in their AML/CFT programs and
monitor them for compliance with such programs.
Recommendation 15—New Technologies
In its previous MER, China was rated largely compliant with the former R.8. The main deficiency
identified was the absence of requirements related to non-face-to-face business in the insurance
sector.
Criterion 15.1—(Partly met) China’s NRA analyzes the ML/TF risk of products and services offered by
various types of FIs. It examines risks associated with some newer products/services such as prepaid
cards, online lending services (e.g., peer-to-peer loans).
FIs are required to analyze risks of their financial business and marketing channels, especially before
launching any financing business, marketing channel, or new technology. Art. 2, Chapter 5 of The
Notice of the PBC on Issuing Guidelines for the Assessment of ML/TF Risk and Categorized
Management of Customers of Financial Institutions. The Notice provides that PIs “may conduct
relevant work by referring to these Guidelines” and the authorities have indicated that PIs have been
sanctioned for violation of these provisions; however, there is no explicit requirement for PIs to
identify and assess the ML/TF risks that may arise in relation to the development of new products
and new business practices.
Criterion 15.2 (Partly met)—FIs are required to analyze risks arising from its financial business and
marketing channels, especially before launching any financing business, marketing channel or new
technology. They are also required to develop appropriate measures to adequately mange risks
identified (Chapter 5, Art. 2 of The Notice of the PBC on Issuing Guidelines for the Assessment of
ML/TF Risk and Categorized Management of Customers of Financial Institutions. See comment on PIs
in 5.1).
While FIs are required to identify and assess risk in relation to the development of new products and
take appropriate measures to mitigate such risks, PIs, which offer many innovative products, are not
subject to such obligations.

Recommendation 16—Wire Transfers
In its previous MER, China was rated largely compliant with the former SR.VII. The main deficiency
identified was that customer verification was only required for payments in excess of the equivalent
of US$6,300. The FATF standards in this area have since expanded to include requirements related to
beneficiary information.
Criterion 16.1—(Mostly met) FIs providing cross-border remittance services, including wire transfers,
must obtain the originator’s name or alias, account number and address. FIs must also obtain the
beneficiary’s name or alias and account number. Where an account number cannot be obtained for
either the originator or the beneficiary, the institution must use a unique transaction reference
number that allows the transaction to be traced. Notice on Further Strengthening Work on Anti-
Money Laundering and Combatting the Financing of Terrorism [PBC–GAD] (2018) 130). In the case of
cross-border transfers of RMB 10,000 or a foreign currency transfer equivalent to US$1,000,
institutions must verify the originator information. (Art. 1 (1) of the Notice of the People’s Bank of
China on Strengthening AML in Cross Border Remittances (PBC Document 2012 (199)). As RMB 10,000
is equivalent to approximately US$1,467, 17 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.
Criterion 16.2—(Not applicable) There are no specific requirements for batch transfers. Such transfers
must therefore comply with the provisions described under c.16.1.
Criterion 16.3— (Mostly met) It is a requirement that the information set out under 16.1 accompany
all wire transfers (Notice on Further Strengthening Work on Anti-Money Laundering and Combatting
the Financing of Terrorism [PBC–GAD] (2018) 130). For cross border transfer under
RMB 10,00/US$1,467 such information would not be verified.
Criterion 16.4—(Partly met) In the case of cross-border transfers of RMB 10,000 or a foreign currency
transfer equivalent to US$1,000, institutions must verify the originator information. (Art. 1 (1) of the
Notice of the People’s Bank of China on Strengthening AML in Cross Border Remittances (PBC
Document 2012 (199)). As RMB 10,000 is equivalent to approximately US$1,467, 18 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. These provisions do not
include an obligation to verify beneficiary information. Where there is suspicion of ML or other
illegal activity, regulated institutions are required to verify the identity of the originator but not the
beneficiary. Art. II (1) of the Notice on Further Strengthening Work on Anti-Money Laundering and
Combatting the Financing of Terrorism [PBC–GAD] (2018) 130, equivalent of US$1,000, there is,
therefore, no requirement for an FI to verify their customer’s information.
17 Based on RMB/USD exchange of 6.8138 as at July 27, 2018 the last day of the onsite.
18 Based on RMB/USD exchange rate of 6.8138 as at July 27, 2018, the last day of the onsite.

Criterion 16.5—(Partly met) The legal requirements applicable to domestic wires transfers relate to
information that should be included on the “remittance certificate.” Art. 171 of Measures for Payment
and Settlement PBC Document (1997) 393, provides that a “remittance certificate” issued by a bank
must include the amount of the transfer, the name and account number of the originator, and the
beneficiary. The bank must reject a remittance certificate that does not include this information.
There is no requirement for the information to be verified. In addition, this requirement is applicable
to banks and not to other institutions that provide domestic wire transfer services. There is no
provision that would allow this information to be made available to the beneficiary financial
institution or appropriate authority through other means. PIs are required to ensure that all
transactions include the name and account number of the originator and beneficiary and the
beneficiary’s identification number. There is no requirement for the information to be verified. There
is no provision that would allow this information to be made available to the beneficiary financial
institution or appropriate authority through other means.
Criterion 16.6—(Not applicable) There is no provision that would allow information that should
accompany a wire transfer to be sent separately from the transfer.
Criterion 16.7—(Met) The provisions of Art. 19 of the AML Law which require identification
information to be maintained for a period of five years after the end of the business relationship and
transaction records to be maintained for five years after the date of the transaction, apply to the
information collected on the originator and beneficiary, in the case of wire transfers.
Criterion 16.8—(Partly met) Ordering institutions are prohibited from executing a transfer if it does
not comply with the requirements of the 16.1 to 16.7. Art. II (4) (4) Notice on Further Strengthening
Work on Anti-Money Laundering and Combatting the Financing of Terrorism [PBC–GAD] (2018). As
there is no requirement to verify originator information for cross-border transfers less than
RMB 10,000, ordering institutions are not prohibited from executing transfers that do not meet the
requirements of R.16.1–16.7 in this regard.
Criterion 16.9—(Met) Intermediary institutions are required to ensure that all originators and
beneficiary information accompany wire transfers and are retained with it (Notice on Further
Strengthening Work on Anti-Money Laundering and Combatting the Financing of Terrorism [PBC–
GAD] (2018) 130)).
Criterion 16.10—(Met) The provisions of Art. 19 of the AML Law which require identification
information to be maintained for a period of five years after the end of the business relationship,
and transaction records to be maintained for five years after the date of the transaction, apply to the
information collected on the originator and beneficiary, in the case of wire transfers and are
applicable to all FIs, including intermediary institutions. In circumstances in which originator or
beneficiary information does not accompany the wire transfer, the intermediary institution is
required to retain the information received from other institutions.
Criterion 16.11—(Met) On receiving funds from abroad, regulated institutions are required to take
reasonable measures identify cross-border wire transfers that lack required originator and

beneficiary information (Notice on Further Strengthening Work on Anti-Money Laundering and

Combatting the Financing of Terrorism [PBC–GAD] (2018) 130)).
Criterion 16.12—(Met) Regulated institutions that are intermediary institutions are required to take
reasonable measures to identify cross-border transfers that lack required originator and beneficiary
information and have risk-based policies and procedures to determine if it should execute, reject, or
suspend the transfer and to take follow-up action. Art. II (2) Notice on Further Strengthening Work on
Anti-Money Laundering and Combatting the Financing of Terrorism [PBC–GAD] (2018)130).
Criterion 16.13—(Met) Regulated institutions that are beneficiary institutions are required to take
reasonable measure which may include real-time or post-event monitoring to identify cross-border
transfers that lack required originator and beneficiary information. Art. II (3) Notice on Further
GAD] (2018).
Criterion 16.14—(Partly met) In the case of cross-border transfers of RMB 10,000 or a foreign
currency transfer equivalent to US$1,000, beneficiary institutions must verify the beneficiary
information (Art. 1 (2) of the Notice of the People’s Bank of China on Strengthening AML in Cross
Border Remittances (PBC Document 2012 (199)). PIs are not allowed to make cross-border wire
transfers. As RMB 10,000 is equivalent to approximately US$1,467, there is no obligation to verify
beneficiary information related to cross-border transfers denominated in yuan that are below this
threshold. Art. 19 of the AML Law requires FIs to maintain information in accordance with R.11.
Criterion 16.15—(Met) Where cross-border transfers lack required originator and beneficiary
information regulated institutions that are beneficiary institutions are required to have risk-based
policies and procedures to determine if it should execute, reject or suspend the transfer and to take
follow-up action (Art. II (3) Notice on Further Strengthening Work on Anti-Money Laundering and
Combatting the Financing of Terrorism [PBC–GAD] (2018)130).
Criterion 16.16—(Mostly met) This criterion is not applicable to PIs as they are not permitted to use
agents. However, banks can use agents. FIs are required to ensure that their overseas branches and
subsidiaries implement group requirements (see analysis of c.18.3). The deficiencies discussed with
regard to R.16 would apply to FIs overseas branches, subsidiaries, and agents.
Criterion 16.17—(Partly met) Where a regulated institution that controls both the ordering and the
beneficiary side of a wire transfer it is required to review l information from both the ordering and
beneficiary sides in determining if an STR should be filed. This requirement does not cover the filing
of STRs in any country affected by the suspicious wire transfer (Art. II (4) (3) Notice on Further
GAD] (2018)130).
Criterion 16.18—(Partly met) FIs, including those providing wire transfer services, are required to
take the relevant measures stipulated in notices received from the MFA concerning the
implementation of the resolutions of the UNSC. Such measures include freezing accounts and

suspending transactions (The Notice of the People’s Bank of China on Implementing Relevant
Resolutions of the UN Security Council (PBC document (2017)187)) (see related deficiencies discussed
under c.6.5).
China has generally sound requirement related to wire transfers. The threshold of RMB equivalent of
US$1,467 for verifying the identify of originators and beneficiaries, deficiencies in requirements for
an institution that cover both side of a transfer, and weaknesses with respect to targeted financial
sanctions are notable weaknesses in the arrangements.
Recommendation 17—Reliance on Third Parties
In its Third Round MER, China was rated partially compliant with the former R.9 on reliance on third
parties. Main shortcomings were the lack of: (i) requirement to obtain core customer identification
data from the third-party; (ii) requirement to ascertain the status of the third party with respect to
regulation and supervision for AML purposes; and (iii) conditions in relation to reliance on third
parties emanating from countries with inadequate AML regimes.
Criterion 17.1—(Partly met) Chinese laws allow FIs to rely on third parties for performing CDD
measures (Art. 17 of AML Law). If “regulated institutions” rely on third-party institutions to perform
customer identification, they shall take following measures: (i) satisfy itself that the third party is
regulated, and supervised or monitored for, and has measures in place for compliance with,
customer identification and record-keeping requirements in line with AML laws, administrative
regulations, and the requirements of this notice; (ii) obtain immediately the necessary information of
customer identification from the third-party institution; and (iii) take steps to satisfy themselves that
copies or photocopies of customer identification documents and other related materials from the
third party upon request without delay. The regulated institution should assume the responsibility of
the third-party institution for failure to fulfil customer identification obligations (Art. I.2 of General
Office of the People’s Bank of China Notice on Further Strengthening Work on Anti-Money Laundering
and Combating the Financing of Terrorism (PBC–GAD (2018) 130)). However, the provisions do not
stipulate what are necessary information that should be obtained immediately from the third-party.
Criterion 17.2—(Met) When determining in which countries the third party that meets the conditions
can be based, “regulated institutions” should assess the risk level of country or geographic risk.
“Regulated institutions” are prohibited from relying on third parties located in the high-risk
countries or regions to carry out customer identification (Art. I.2 of General Office of the People’s
Financing of Terrorism (PBC–GAD (2018) 130)).
Criterion 17.3—(Not applicable) China does not have specific requirements for FIs that rely on a third
party that is part of the same financial group.

The only shortcoming is the lack of specific requirement in relation to necessary information that
should be obtained from a third party.
Recommendation 18—Internal Controls and Foreign Branches and Subsidiaries
In its Third Round MER, China was rated partially compliant with the former R.15 internal controls,
and noncompliant with the former R.22 on foreign branches and subsidiaries. Main shortcomings
with respect to the former R.15 were the internal control environment is not set up to address TF
risk, and the lack of requirements on (i) communicating policies and procedures to employees;
(ii) screening provisions when hiring employees; (iii) maintaining an adequately resourced and
independent audit function; (iv) ensuring timely access to information by compliance officers; (v) CFT
training for employees; and (vi) designating an AML/CFT officer at the management level. With
respect to the former R 22 there were no requirements to: (i) apply the higher standard by foreign
branches and subsidiaries of Chinese-funded financial institutions where the AML/CFT requirements
of China and the host country differ; and (ii) inform the home-country supervisor when a foreign
branch or subsidiary is unable to observe appropriate AML/CFT measures.
Criterion 18.1—(Partly met) FIs should establish (i) an AML/CFT internal control system, and the
principal thereof shall be responsible for its effective implementation and (ii) a specialized AML unit
or designate an internal department to take charge of AML/CFT (Art. 15 of the AML Law). FIs shall
specify persons in the senior management panels to be responsible for the compliance
management of AML work to ensure that the AML/CFT compliance managers and relevant AML/CFT
personnel in all business lines (Art. I.1 of Notice of the People's Bank of China on Further
Strengthening the Anti-Money Laundering Work of Financial Institutions (PBC Document No. [2008]
391)). FIs should “take targeted measures” in light of the risk assessment system to address
vulnerabilities of its AML/CFT preventive system (Art. 37 of Measures for the AML Supervision and
Administration of Financial Institutions (for Trial Implementation) (PBC Document No. [2014] 344)). FIs
should: (i) apply “necessary professional ethics, qualifications, experience, professional quality and
other personal quality standards” when hiring staff; (ii) implement a “long-term” AML/CFT training
mechanism; and (iii) regularly carry out AML/CFT internal audits (Arts. 3, 5, 7 of Notice of the PBC on
Strengthening the Management of AML Obligations of Financial Employees and Related Internal
Control of AML (PBC Document No. [2012] 178). Moreover, the internal audit function should be
independent (Art. 13 of Guidelines on Internal Audit for Banking Financial institutions). However, the
obligations on establishing internal controls do not explicitly require: having regard to the ML/TF
risks and the size of the business.
PIs are required to establish AML/CFT internal control system including: (i) the setup specialized
units, or designate internal units, responsible for AML/CFT; and (ii) internal audit, training, and
advocacy measures on AML/CFT (Arts. 5 and 6 of Measures for the Administration of Anti-Money
Laundering and Combating the Financing of Terrorism of Payment Institutions (PBC Document No.

[2012] 54). However, PIs are not explicitly required to have an ongoing training program and an
independent audit function. In addition, PIs are not required to appoint a compliance officer at the
management level and apply screening procedures to ensure high standards when hiring
employees.
Criterion 18.2—(Partly met) FIs should (i) establish unified ML/TF risk management policies within
the entire group and require each of its overseas branches and subsidiaries to implement it;
(ii) designate senior managers to take charge of the AML work of overseas branches; (iii) designate a
specific department beyond business lines to bear ML compliance management responsibilities of
overseas branches; and (iv) conduct an audit on the AML/CFT work of overseas branches on a
regular basis and timely rectify the problem, if any (Art. V, VI of Notice of the PBC on Strengthening
the AML Work of Financial Institutions in their Cross-border Business Cooperation (PBC Document
No. [2012] 201)). For AML/CFT purposes, the group should establish an internal information sharing
system and procedures and clarify the information security and confidentiality requirements. The
group compliance department, audit department, and AML departments may require branches and
subsidiary institutions to provide client, accounts, and transaction information, and other relevant
information (Art. 3.5 of Notice of the PBC on Strengthening Customer Identification Mechanism in
AML (PBC Document No. [2017] 235)). However, financial institutions 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.
Payment companies are generally required to adopt confidentiality measures in AML/CFT work, but
are also not required to implement group-wide programs against ML/TF (Art. 5 of Measures for the
Institutions (PBC Document No. [2012] 54).
Criterion 18.3—(Mostly met) FIs should (i) require each of their overseas branches and subsidiaries to
implement group requirements within the scope permitted by the laws of the host country; and (ii)
supervise and administer the implementation. If the host country has stricter requirements, the said
provisions shall prevail. If the measures required by China are stricter than the relevant provisions of
the host country, but the laws there prohibit or restrict the overseas branch or subsidiary from
implementing the group requirements, the financial institution shall report it to the PBC (Art. 5 of
Administrative Measures for Customers Identification and Documentation of Customers Identity and
Transaction Records by Financial Institutions (Order of the PBC, CSRC, and CIRC No. [2007] 2)). PIs
have similar obligations (Arts. 5 and 7 of Measures for the Administration of Anti-Money Laundering
and Combating the Financing of Terrorism of Payment Institutions (PBC Document No. [2012] 54).
However, 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.
Main deficiencies are in relation to (i) having regard to ML/TF risks and the size of the business when
implementing an AML/CFT program; (ii) AML/CFT programs by PIs; (iii) group-wide programs

against ML/TF, including group-wide screening procedures when hiring employees and an ongoing
employee training program; and (iv) additional measures to manage the ML/TF risks if the host
country does not permit the proper implementation of AML/CFT measures consistent with China’s
requirements. The latter two deficiencies are important due to the risk exposure of foreign branches
and majority owned subsidiaries (see Chapter 1).
Recommendation 19—Higher-Risk Countries
In the Third Round, China was rated noncompliant with these requirements, mainly as there was no
requirement to give special attention to business relationships and transactions with persons
(natural or legal) from or in countries that did not, or insufficiently, apply the
FATF Recommendations. In addition, China did not have a mechanism to implement counter-
measures against countries that did not sufficiently apply the FATF standards. R.19 strengthens the
requirements to be met by countries and FIs with respect to higher-risk countries.
Criterion 19.1—(Met) FIs, including PIs, are required to apply enhanced customer identification
measures and on-going transaction monitoring proportionate to the risk to customers from
countries or jurisdictions that are identified as high-risk areas by the FATF (Notice on Further
Strengthening Work on Anti-Money Laundering and Combating the Financing of Terrorism (PBC–GAD
(2018) 130) Art. II(2)).
Criterion 19.2—(Met)
China is able to apply countermeasures proportionate to the risks (i) in response to a call from the
FATF and (ii) independent of any call by the FATF. Section 8 of the AML Act, provides the PBC with
the power to issue legally enforceable AML regulations to FIs. On that basis, the PBC has issued the
above-mentioned (Notice of the General Office of the People’s Bank of China on Further
Strengthening Work on Anti-Money Laundering and Combating the Financing of Terrorism (PBC–GAD
(2018) No. 130). In addition, in July 2018, the PBC also issued its updated Money Laundering Risk
Warning, which contains relevant (non-enforceable) guidance for FIs on the application of possible
countermeasures. While the provisions in the AML Law do not explicitly refer to counter-measures,
they are sufficiently broadly drafted to permit the PBC to impose counter-measures.
Criterion 19.3—(Met) Starting from March 2008, the PBC posted links on its own public website to
the FATF’s Public Statement on the FATF’s website. Since early July 2018, the PBC also added links
on its public website to the FATF’s Compliance Document and to Mutual Evaluation Reports of
Members of the Global Network. The above-mentioned PBC Notice specifically points FIs to various
calls by the FATF and FSRBs regarding high-risk and non-cooperative jurisdictions. In addition, this
Notice requires regulated institutions to establish a working mechanism in view of obtaining in a
timely manner all relevant publications by the FATF and the Global Network more broadly. Finally,
the most recent version of the Money Laundering Risk Warning provides FIs with the necessary
guidance in this regard.

Recommendation 20—Reporting of Suspicious Transactions
In the Third Round, China was rated partially compliant with these requirements. The main
weaknesses identified concerned, in particular, the absence of an obligation to report suspicious
transactions for the securities and insurance sectors, and the absence of an explicit obligation to
report suspicions of TF. In addition, there was no obligation to report attempted transactions, and
the relevant rules did not define the basis upon which suspicion should be founded.
Criterion 20.1—(Mostly met) The Chinese AML/CFT regime distinguishes three types of suspicious
transactions: (i) ordinary suspicious transactions; (ii) key 19 suspicious transactions; and
(iii) transactions related to lists of terrorist organizations and terrorists.
Ordinary suspicious transactions—FIs, including PIs, are required to file an STR in a timely manner
when they suspect, or have reasonable grounds to suspect, that a client, the funds, or any other
asset of a client, or the transaction conducted or to be conducted by a client is connected with ML,
TF, or any other criminal activity (AML Law, Art. 20, and Measures for the Administration of Financial
Institutions' Reporting of Large-Value Transactions and Suspicious Transactions, Art. 11). Art. 15 of the
Measures for the Administration of Financial Institutions' Reporting of Large-Value Transactions and
Suspicious Transactions clarifies that FIs, including PIs, shall submit the STR in an electronic form
promptly. The minor deficiency regarding the scope of predicate offenses for ML, as identified in the
analysis of R.3 above, has a spill over on the reporting obligation.
However, a conflicting requirement for PIs is contained in Art. 36 of the Measures for the
Administration of Anti-Money Laundering and Combatting the Financing of Terrorism for Payment
Institutions PBC Document 2012 (54), which has not been repealed. This provision reads as follows
“Where payment institutions have reasonable cause to determine that a transaction may be linked
to ML, TF, or any other criminal activity, it must file a report with CAMLMAC within ten business
days.” The requirement to “have reasonable cause to determine” is a higher threshold than suspicion
and the period of 10 days to file the report does not qualify as promptly.
Key suspicious transactions—When an FI determines that a transaction is key suspicious, it is

required to submit the STR in electronic or written format to the local branch of the PBC where it is
located. It is also required to report this information to CAMLMAC at the same time (Measures for
the Administration of Financial Institutions' Reporting of Large-Value Transactions and Suspicious
Transactions, Art. 17).
With regard to lists of terrorist organizations and terrorists issued by the government of China, the
UN, and any other lists as determined by the PBC–FIs, including PIs, are required to conduct real-
19(i) The transaction is evidently suspected of ML, TF, or any other criminal activity. (ii) The transaction seriously
compromises national security or affects social stability. (iii) Any other serious circumstance or emergency.

time monitoring of, and submit any matches with their clients promptly to, the local branch of the
PBC where it is located. They should also report this information to CAMLMAC at the same time
(Measures for the Administration of Financial Institutions' Reporting of Large-Value Transactions and
Suspicious Transactions, Art. 18). The PBC has issued guidance Document No. [2017] 99 for FIs, and
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).
There are conflicting reporting requirements in place for PIs. In addition, the minor deficiency
regarding the scope of predicate offenses for ML, as identified in the analysis of R.3 above, has a
spill over on the reporting obligation.
Recommendation 21—Tipping-off and Confidentiality
In the Third Round MER, China was rated compliant with these requirements.
Criterion 21.1—(Met) FIs, including PIs, and their employees "are protected by law" when fulfilling
their obligation to report suspicious transactions in accordance with the law (AML Law, Art. 6 and
Measures for the Administration of Financial Institutions' Reporting of Large-Value Transactions and
Suspicious Transactions, Art. 11). The AML Law does not define the extent of this protection, but the
authorities clarified that many other laws contain a similar protection provision. There is
jurisprudence that shows that the courts interpret this 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, which
prevent financial institutions, including PIs, and their staff from disclosing to their customers, or any
other person, information relating to suspicious transactions and any resulting investigation by the
PBC. 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).
It is unclear whether the tipping-off provisions for PIs are not intended to inhibit information sharing
under R.18, as Notice of the People's Bank of China on Strengthening Customer Identification
Mechanism in Anti-Money Laundering does not apply to PIs.

Recommendation 22—DNFBPs: Customer Due Diligence
In its Third Round MER, China was rated noncompliant with the former R.12 on CDD for DNFBPs
(see 4.1.3). Main shortcomings were (i) the very limited customer identification and record-keeping
requirements; (ii) the deficiency in requirements for trust service providers; and (iii) the lack of
requirements on PEPs, new payment technologies, reliance on third parties, and attention to unusual
transactions.
General information on preventive measures for DNFBPs
Authorized trust investment companies are the only entities in China that are permitted to be in the
business of administering trusts (Regulations on Trust Investment Corporations issued in 2001 and
revised in 2002). No other FIs, lawyers, accountants, or other professionals are permitted to engage
in this activity as a business. Trust investment companies are treated as FIs (nonbank banking
institutions) under Chinese law, and are supervised by the CBRC, however, authorities stated that the
PBC still assumes the AML regulatory responsibilities for trust companies.
Any individual or entity that has obtained authorization from the administrative departments of the
SAMR (the general enterprise registration procedure) can be a company service provider (i.e.,
someone who is authorized to be in the business of assisting in the establishment or registration of
companies). No particular qualifications are necessary in order to obtain such authorization.
The scope of the DNFBPs that shall perform AML obligations, and the specific AML obligations
thereof need to be formulated by the PBC in collaboration with the relevant departments of the
State Council (AML Law, Art. 35). On July 26, 2018, the Notice of the General Office of the People’s
Bank of China on Strengthening the Anti-Money Laundering Supervision Work on Designated Non-
Financial Businesses and Professions, 2018, No. 120 entered into force. This Notice designates the
DNFBPs and subjects all DNFBPs to AML/CFT requirements imposed under different regulations for
different sectors, invariably. Given that this Notice was not issued in collaboration with the relevant
departments of the State Council, the designation is deemed to not be made yet, except for
precious metals trading venues (since PBC is the regulator of this sector). The Notice of the MHURD,
the PBC, and the China Banking Regulatory Commission on Regulating the Financing of Home Buying
and Strengthening Anti-Money Laundering (MHURD Document No. [2017] 215) provided some AML
obligations for real estate agents, however, it was not issued based on the AML Law and did not
make an explicit designation of real estate agents as DNFBPs. Similarly, the Notice on Strengthening
the Supervision of Certified Public Accountants (Ministry of Finance Accounting Department Document
No. [2018] 8) includes AML/CFT obligations (internal control system, CDD, record-keeping, and
carrying out enhanced due diligence according to risk assessment result and reporting suspicious
transactions) for accountants. In the absence of a designation, DNFBPs are therefore not subject to
AML/CFT obligations, except for precious metals trading venues. In addition to relevant provisions in
the AML Law, the Notice of the People’s Bank of China on Strengthening the Anti-Money Laundering
and Combating the Financing of Terrorism Related to Precious Metals Trading Venues (PBC Document

No. [2017] 218) provides AML obligations for precious metals trading places. The PBC required the
forwarding of this Notice to members and their agents, therefore, it is considered that the Notice is
only enforceable for trading places and dealers.
The PBC is working with competent departments of relevant industries to establish the AML/CFT
administration systems for lawyers and notaries, which will stipulate obligations on CDD, record-
keeping, PEPs, new technologies, internal controls, enhanced CDD measures against the higher-risk
countries, and tipping-off and confidentiality for these DNFBPs.
Criterion 22.1—(Not met) DPM should establish and improve a client’s identity identification system
(Art. 3 of AML Law). When conducting customer identification, DPMs verify the identity of customers
using reliable, independent source documents, data or information, and understand risks and, as
appropriate, obtain information on the purpose and intended nature of the customer's
establishment and maintenance of the business relationship. DPMs should also complete the
identity verification of the customer and its beneficial owner before establishing a business
relationship or conducting occasional transactions above the designated threshold and are
permitted to complete the verification as soon as reasonably practicable following the establishment
of the relationship, where the ML/TF risks are effectively managed and where this is essential not to
interrupt the normal conduct of business. DPMs should establish corresponding risk management
mechanisms and procedures to implement effective risk management measures with respect to the
conditions under which a customer may utilize the business relationship prior to verification, such as
limiting the number of transactions, type or amount of transactions, and strengthening transaction
monitoring (Art. 3 of AML Law; Art. I.1 of General Office of the People’s Bank of China Notice on
(PBC GAD〔2018〕130)). DPMs should understand the natural person(s) who ultimately controls a
customer and/or the natural person on whose behalf a transaction is being conducted. (Art. II.c of
Notice of the People’s Bank of China on Strengthening the Anti-Money Laundering and Combating the
Financing of Terrorism Related to Precious Metals Trading Venues (PBC Document No. [2017] 218)).
However, there is no explicit requirement to identify the beneficial owner and take reasonable
measures to verify the identity of the beneficial owner, using the relevant information or data
obtained from a reliable source, such that the DPM is satisfied that it knows who the beneficial
owner is.
DPMs should conduct ongoing customer identification measures on the business relationship,
review in detail the recorded customer data and transactions occurred during the existence of the
business relationship, update customer identification documents, data, information, and materials in
a timely manner to ensure that the transactions being conducted are consistent with the DPM’s
knowledge of the customer, their business and risk profile, including, where necessary, the source of
funds. For higher-risk categories of customers, DPMs should increase the frequency and intensity of
the on-going monitoring (Art. I.1 of General Office of the People’s Bank of China Notice on Further
Strengthening Work on Anti-Money Laundering and Combating the Financing of Terrorism (PBC GAD
〔2018〕130)). However, there is no explicit requirement for DPM to ensure that documents, data,
or information collected under the CDD process is kept up-to-date and relevant.

Art. II.1 of General Office of the People’s Bank of China Notice on Further Strengthening Work on Anti-
Money Laundering and Combating the Financing of Terrorism (PBC GAD〔2018〕130) stipulates that,
in situations where the ML/TF risk is higher, DPMs should take appropriate customer identification
and transaction monitoring measures commensurate to the risks. The article also provides for a
series of enhanced measures that can be taken by DPMs commensurately to risk.
DPMs should “not provide any service to or have trade with any client who cannot clarify his
identity” (Art. 16 of AML Law). If DPMs are unable to comply with relevant customer identification
work or after an assessment that the circumstances exceed the risk management capabilities of the
institution, it shall not establish or maintain business relationships with the customer and shall
consider submitting an STR in relation to the customer (Art. I.1 of General Office of the People’s Bank
of China Notice on Further Strengthening Work on Anti-Money Laundering and Combating the
Financing of Terrorism (PBC GAD〔2018〕130)).
There are no obligations for DPMs stipulating situations when CDD is required. DPMs are not
required to (i) verify that any person purporting to act on behalf of the customer is so authorized
and identify and verify the identity of that person; and (ii) apply any specific CDD measures for legal
persons and arrangements. In addition, DPMs are not permitted not to pursue the CDD process (and
required to file an STR) in cases where a ML/TF suspicion is formed, and they reasonably believe that
performing the CDD process will tip-off the customer.
Requirements for TSPs are the same as those for FIs, and, therefore, the analysis under R.10 applies
here for TSPs. The other DNFBPs are not designated yet; therefore, they are not subject to CDD
requirements.
Criterion 22.2—(Not met) DPMs should properly save the customer’s identification material and
transaction records for at least five years and ensure that they can reconstruct every transaction
precisely and completely (Art. II.e of Notice of the People’s Bank of China on Strengthening the Anti-
Money Laundering and Combating the Financing of Terrorism Related to Precious Metals Trading
Venues (PBC Document No. [2017] 218)). DPMs should have programs to ensure that all customer
identity information and transaction records are available swiftly, conveniently, and accurately to
domestic competent authorities including regulatory authorities and LEAs upon appropriate
authority (Art. V of General Office of the People’s Bank of China Notice on Further Strengthening Work
on Anti-Money Laundering and Combating the Financing of Terrorism (PBC GAD〔2018〕130)).
However, the requirement to keep records for five years does not specify as of when it should start
to apply. The requirement to keep transaction records does not extend to business correspondence
and results of any analysis undertaken.
Requirements for TSPs are the same as those for FIs, and therefore the analysis under R.11 applies
requirements.

Criterion 22.3—(Not met) Requirements for TSPs are the same as those for FIs, and, therefore, the
analysis under R.12 applies here for TSPs. The other DNFBPs are not designated yet; therefore, they
are not subject to CDD requirements.
Criterion 22.4—(Not met) Requirements for TSPs are the same as those for FIs, and therefore the
Criterion 22.5—(Not met) If DPMs rely on third-party institutions to perform customer identification,
they shall take following measures: (i) satisfy itself that the third party is regulated, and supervised or
monitored for, and has measures in place for compliance with, customer-identification and record-
keeping requirements in line with AML laws, administrative regulations and the requirements of this
notice; (ii) obtain immediately the necessary information of customer identification from the third
party institution; and (iii) take steps to satisfy themselves that copies or photocopies of customer
identification documents and other related materials from the third party upon request without
delay. The DPMs should assume the responsibility of the third-party institution for failure to fulfil
customer identification obligations. When determining in which countries the third party that meets
the conditions can be based, DPMs should assess the risk level of country or geographic risk. DPMs
are prohibited from relying on third parties located in the high-risk countries or regions to carry out
customer identification (Art. I.2 of General Office of the People’s Bank of China Notice on Further
Strengthening Work on Anti-Money Laundering and Combating the Financing of Terrorism (PBC GAD
〔2018〕130)). However, the provisions do not stipulate what are necessary information that should
be obtained immediately from the third-party. Requirements for TSPs are the same as those for FIs,
and therefore the analysis under R.17 applies here for TSPs. The other DNFBPs are not designated
yet; therefore, they are not subject to CDD requirements.
Trust companies are DNFBPs (TSPs) that have the same AML/CFT obligations as FIs in China. The
assessment of these obligations is factored in the rating for DNFBPs. There are serious deficiencies
regarding most of the requirements for DPMs. The other categories of DNFBPs are not designated
yet and are not subject to CDD requirements.
Recommendation 22 is rated noncompliant.
Recommendation 23—DNFBPs: Other Measures
In its Third Round MER, China was rated noncompliant with the former R.16 on other measures for
DNFBPs (see 4.2.3). Main shortcomings were (i) the lack of requirement to report suspicious
transactions for DNFBPs; (ii) the lack of requirement to pay special attention to business
relationships and transactions involving persons from or in countries that do not (or insufficiently)
apply the FATF Recommendations; (iii) the lack of requirements for DPMs, lawyers, notaries, real
estate agents, and company service providers to establish internal AML/CFT control programs; and

(iv) the deficiency of requirements for trust investment companies to establish internal control
programs.
Given that the designation of DNFBPs was never made (as per Art. 35 of AML Law), DNFBPs,
therefore, are not subject to AML/CFT obligations.
Criterion 23.1—(Not met) Where DPMs suspect or have reasonable grounds to suspect that
customers’ capital or other assets, transaction or tended trades are related to ML/TF activities, they
should report to CAMLMAC after confirming the suspicious transaction, without considering the
value of capital or assets involved. Obviously suspicious transactions, involved in ML/TF activities,
should be reported to the CAMLMAC, report to local the PBC branches, public security agencies, or
national security agency (Art. II.f–g of Notice of the People’s Bank of China on Strengthening the Anti-
Money Laundering and Combating the Financing of Terrorism Related to Precious Metals Trading
Venues (PBC Document No. [2017] 218)). The reporting obligations for DPMs do not cover (i) cases
where they suspect or have reasonable grounds to suspect that funds are the proceeds of a criminal
activity; or (ii) attempted transactions. Moreover, the obligation to report suspicion is not set in a
law.
DPMs should promptly submit the reports to the CAMLMAC and the PBC or its local branches
(Art. V. of General Office of the People’s Bank of China Notice on Further Strengthening Work on Anti-
Money Laundering and Combating the Financing of Terrorism (PBC GAD〔2018〕130)).
Requirements for TSPs are the same as those for FIs, and, therefore, the analysis under R.20 applies
requirements.
Criterion 23.4—(Not met) When a DPM submits a report on a suspicious transaction, it shall be
protected by law (Art. 3 of AML Law). There are no law provisions (i) providing a similar protection
for directors, officers, and employees of a DPM from both criminal and civil liability; and
(ii) prohibiting those from disclosing the fact that an STR or related information is being filed.
Requirements for TSPs are the same as those for financial institutions, and therefore the analysis
under R.21 applies here for TSPs. The other DNFBPs are not designated yet; therefore, they are not
subject to CDD requirements.

Trust companies are DNFBPs (TSPs) that have the same AML/CFT obligations as FIs in China. The
assessment of these obligations is factored in the rating for DNFBPs. There are serious deficiencies
regarding most of the requirements for DPMs. The other DNFBPs, are not designated yet, therefore,
they are not subject to CDD requirements.
Recommendation 24—Transparency and Beneficial Ownership of Legal Persons
In its Third Round MER, China was rated noncompliant with these requirements. The technical
deficiencies were the absence of any measures to ensure that there was adequate, accurate, and
timely information on the BO and control of legal persons that could be obtained or accessed in a
timely fashion by competent authorities. Also, there were no measures taken by China which permit
the issue of bearer shares to ensure that bearer shares were not misused for ML.
See Chapter 1 for a partial overview of the type of legal persons that are available in China.
The analysis below only covers basic and legal ownership information, unless otherwise noted.
Criterion 24.1—(Partly met) The Civil Law is open ended and does not list all possible types of legal
entities. Some company creation information is publicly available on the website of the SAMR. 20 In
general, to set up a company, the first step is obtaining pre-approval for a company name.
Thereafter, a representative of the company applies to the local SAMR. If approved, a business
license is granted by the SAMR. Upon licensing, a company can engrave its seal, open a bank
account, and apply for a tax identification registration. The final step is the formal company
registration with the SAMR (Regulation of the Administration of Company Registration, Arts. 3, 9, 17,
20–22, and 25).
Criterion 24.2—(Partly met) 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. An annex to the NRA mainly
focuses on technical compliance requirements for legal entities and includes a table with a risk
classification, but the classification is not supported by information from the annex or the NRA.
Criterion 24.3—(Mostly met) For LLCs and JSLCs, these must register the following basic and legal
ownership information with the SAMR: legal person name, domicile, business premises, legal
representatives, economic nature, business scope, mode of operation, registered capital, number of
employees, period of operation, basic regulation powers, the list of directors and branch offices. The
proof of incorporation is not required (Regulations on the Administration of Company Registration,
20State Administration for Market Regulation (SAMR) is the new name for the entity previously known as the State
Administration for Industry and Commerce (SAIC). The SAMR website contains a link the previous website of the
SAIC.

Arts. 9, 17–21). Similar requirements for other types of legal entities exist in other regulations, with
minor deficiencies.
Criterion 24.4—(Mostly met) For LLC and JSLCs, Company Law, Arts. 25, 32, 81, 96, and 130 provide
that companies need to record the names of all shareholders and their domicile and the amount of
capital contribution; however, no requirements exist regarding categories of shares and voting
rights. Whereas this information needs to be provided to SAMR, it is not clear that the company is
required to maintain the information. For JSLCs, the number of shares and serial numbers of the
shares held by each shareholder and the date of acquisition must be registered. All of this
information is submitted annually to the SAMR. The SAMR also needs a copy of the articles of
association of each company, as provided at creation, which includes information to determine
voting rights, but not necessarily on control. For listed companies, the Securities Law, Art. 54
provides additionally that the top 10 shareholders and the number of shares held must be made
public. Foreign registered companies must provide the information upon registration in China.
Criterion 24.5—(Mostly met) Changes to registered information (as listed above) need to be
submitted to the SAMR within 30 days of the (decision to) change or annually. For accuracy,
authorities rely on administrative sanctions. Inaccurate/false (changes to) registrations can be
published with a fine of RMB 10,000–100,000 (approx. US$1,467–$14,677) (changes) and
RMB 50,000–500,000 (approx. US$7,338–$73,380) (registrations), and/or a revocation of business
license or registration (changes and registrations), and/or a fine of 5–15 percent of the registered
capital (Regulation on the Administration of Company Registration, Chapter 5, Arts. 34, 36–37, 63–64,
and 68). Additional similar measures are in place specifically for listed companies (Securities Law,
Arts. 20, 63, 67, 160, and 193). The verification of the registered information is undertaken through a
random check (Art. 2, of the Interim Measures for the Random Inspection of Public Disclosure of
Information by Enterprises), but there are no other mechanisms to ensure accuracy and timely
updating of the information referred to in 24.3 and 24.4.
Criteria 24.6 (Not met) and 24.7—(Not met) Beneficial ownership information is not required nor
registered at company formation stage, or to by the companies themselves. To comply with this
criterion, authorities refer to the existing information\ obtained by FIs. However, financial institutions
only need to take reasonable measures to identify the beneficial owner and monitor CDD
information for accuracy, but there is no requirement regarding timeliness. No BO information
would be available on companies (or specific entities that are part of larger legal structures) or other
types of legal entities that are not a customer of a financial institution in China.
Criterion 24.8—(Not met) The are no specific additional requirements to ensure that companies
cooperate with competent authorities to the fullest extent possible to determine the beneficial
owner.
Criterion 24.9—(Partly met) Basic ownership information collected at creation and information on
directors and board must be kept indefinitely by the company (Provisions on the Scope of Collection
and Preservation Period in the Document Archiving of Enterprises, Art. 8.1) and upon dissolution of
the entity sent to the SAMR (Archives Law, Art. 11 and SAIC Archive Measures, Arts. 5 and 6). 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 (see R.11).
Criterion 24.10—(Mostly met) Basic legal ownership information (as far as collected) is publicly
available, as noted under criterion 24.1. No BO information is collected or maintained, but if BO
information was collected as part of CDD then law enforcement bodies have the powers to obtain
basic legal ownership information as part of their regular coercive powers (see R.31) from FIs and
financial supervisors can obtain the information also as part of their regular supervisory powers (see
R.27), but sharing is not given.
Criterion 24.11—(Partly met) Bearer shares are permitted to be issued by all domestic and foreign
registered companies that issue shares. Transfer of bearer shares becomes effective immediately
upon delivery of the shares by the shareholder to the transferee. Transfer of shares by shareholders
must be conducted at a securities trading place established according to the law or by other means
as stipulated by the State Council (Company Law, Arts. 129, 138, and 140). In practice, this means
electronic (dematerialized) transfer of shares through the China Securities Depository and Clearing
Corporation (CSDC), which is also the custodian for bearer shares issued on paper. However, it is not
clear what is meant with “other means,” and there is no provision in law that prohibits transfer of
bearer shares in other ways. Also, there are no provisions that require all bearer shares issued on
paper to be deposited with the CSDC, or that prevent issuing new bearer shares on paper.
Criterion 24.12—(Not met) Nominee shareholders and directors exist and are allowed, as a normal
part of civil law contract law (freedom of contract and autonomy of will), as confirmed by the SPC
(Provisions of the SPC on Several Issues Concerning the Application of Company Law, Arts. 24–28). The
nominee shareholders and directors are to be presented to the outside world as if they are the
actual or real shareholders or directors (principle of publicity) to ensure uninterrupted commercial
transactions and protect bona fide third parties. There is no requirement to disclose nominee
shareholders or directors, require them to be licensed and the status recorded, or other mechanism.
Criterion 24.13—(Partly met) A sufficient range of sanctions is available to the authorities, including
but not limited to unlicensed business, fraudulent registration, failure to apply for registration
changes, and failure to file documents. Available sanctions include warnings, fines between
RMB 1,500 and RMB 500,000 (approx. US$220–$7,338), revocation of license, and confiscation of
business proceeds. The fines are for failures if there are no illicit gains. If there are illicit gains, the
fines are up to five times the illicit gains. However, this only relates to basic information, not to BO
information. For criminal wrongdoings, authorities can also apply criminal sanctions.
Criterion 24.14—(Mostly met) Basic ownership information is publicly available, as far as collected.
No BO information is collected or maintained, but if BO information was collected as part of CDD
then it can be exchanged by the PBC with foreign counterparts (AML Law, Art. 23), also through
regular MLA requests, but only information that is already available to the FIU, not if it is information
that is available to the FIU on request only. This is a legal impediment. See also R.37 for MLA and
R.40 (for PBC).

Criterion 24.15—(Not met) The FIU (CAMLMAC) indicates that it responds to most requests for
assistance involving other countries and monitors quality of assistance received, and follows-up with
other countries if necessary, on an ad hoc basis. However, the Overseas Intelligence Information
Document Processing Procedures of Anti-Money Laundering Monitoring and Analysis Center contain
no mandatory feedback requirements, so it is unclear on what basis CAMLMAC would comply with
this technical requirement.
Almost all of the required basic information is collected and then publicly available. There are no
requirements to collect, maintain, or have BO information available, except if this collected as part of
CDD (but CDD requirements are not fully compliant). Measures for bearer shares, nominee
shareholders and directors are also lacking, and international cooperation is limited because BO
information not available and/or difficult to obtain and/or to exchange.
Recommendation 25—Transparency and Beneficial Ownership of Legal Arrangements
In its Third MER, China was rated partially compliant with these requirements. The main deficiency
was that there was no BO requirement for investment companies, and that trusts managed by
individuals were not subject to AML measures.
This Recommendation covers civil trusts: wealth, educational, and testamentary. Educational civil
trusts aim to provide for funds for education, testamentary civil trusts aim to ensure that the will of a
deceased is executed (as far as the distribution of assets of the deceased is concerned), and wealth
civil trusts allow a person’s wealth to be managed by another person. This recommendation also
covers foreign trusts that do business in China. This Recommendation does not cover business trusts
(which are not a trust, but a financial product of trust companies, which are a type of FI) and
charitable trusts (see R.8 for these).
Criterion 25.1—(Not met) Even though the Trust Law creates the civil trust, there are no further
requirements that require the identification of the settlor when establishing a civil trust and acting as
a trustee, register the names of the settlor and beneficiary (note that this lack of further
requirements may also impede on the ability to use the civil trust in practice, which is a factor taken
into account in IO.5).
Criterion 25.2—(Not met) There are no requirements regarding accurate record-keeping for
domestic civil trusts and/or for foreign legal arrangements operating in China.
Criterion 25.3—(Not met) There are no requirements requiring trustees of domestic civil trusts
and/or of foreign legal arrangements operating in China to disclose their status to an FI or DNFBP.

Criterion 25.4—(Met) There are no rules prohibiting trustees from disclosing their status. This is
confirmed by cases provided by the authorities that showed foreign legal arrangements identified
by banks as the beneficial owner.
Criterion 25.5—(Not met) Law enforcement bodies and supervisors have the powers to obtain all of
the information that FIs and other businesses hold, but there are no specific legal obligations that
spell out that the three categories of information that this criterion requires are indeed available for
civil trusts and foreign legal arrangements .
Criterion 25.6—(Not met) There are no specific legal obligations that require information for civil
trusts and foreign legal arrangements to be available for exchange with foreign partners, except if
the information is with a bank and indeed can be legally exchanged with foreign partners.
Criterion 25.7—(Not met) and 25.8—(Not met) 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.
The Trust Law creates civil trusts, but there is in general a lack of further requirements that could
clarify the requirements of this Recommendation, although some of the criteria can be met in
practice if banks have the relevant information on civil trusts and/or foreign legal arrangements in
their CDD files.
Recommendation 26—Regulation and Supervision of Financial Institutions
In the Third Round MER, China was rated partially compliant with the former R.23, as the AML
legislation in place did not apply to the securities and insurance sectors, and there were no AML/CFT
supervisory programs.
Criterion 26.1—(Met) The PBC has been designated by the State Council as the competent authority
for AML/CFT supervision of all FIs across China. Sectoral prudential regulators support the PBC (in
the banking and insurance sectors by the CBIRC 21 and in the securities sector by the CSRC. These
two commissions are required to assist the PBC in its AML/CFT supervisory role; participate in the
formulation of regulations governing the financial institutions they supervise, and required to
impose an obligation on such financial institutions to establish and improve an internal control
system and perform other duties and functions as may be required by law (Arts. 9 and 36 of the
AML Law of the PRC (Order of the President No. 56). The PBC is solely responsible for AML/CFT
supervision in the nonbank financial sector, the Currency Exchange and the MVTS sector (Law of the
21The CBIRC was formed on April 8, 2018 by the amalgamation of the former CBRC and the former China Insurance
Regulatory Commission (CIRC). However, in this chapter, references are to the former supervisors to be consistent
with legal references.

PRC on the PBC, Art. 32(9); AML Law, Arts. 4 and 8; Provisions on AML Through Financial Institutions,
Art. 3; CTL, Art. 24). PIs are not considered financial institutions in China, but have a designated AML
supervisor, the PBC (Law of the PRC on the People’s Bank of China, Art. 32; AML Law, Arts. 8 and 34).
The PBC is equally the designated supervisor for online lending institutions (Guiding Opinions of the
People's Bank of China, the Ministry of Industry and Information Technology, the Ministry of Public
Security, et al, on Promoting the Sound Development of Internet Finance (PBC Document No. [2015]
221)).
Criterion 26.2—(Met) In China, FIs are required to obtain permission from the competent financial
authorities before conducting financial business. Requirements are as follows:
For Core Principles FIs: Banks: the Banking Supervision Law, Arts. 2 and 16; the Law on Commercial
Banks, Arts. 11 and 12, and the Regulation of the PRC on the Administration of Foreign-Funded Banks,
Art. 7; Securities Companies: the Securities Law, Art. 122; Insurance companies: the Insurance Law,
Art. 67; Fund Companies: the Securities Investment Fund Law, Art. 13 and Measures for the
Administration of Securities Investment Fund Management Companies, Arts. 2 and 14; Futures
Companies: the Regulation on the Administration of Futures Trading, Art. 15 and Measures for the
Supervision and Administration of Futures Companies, Art. 6.
For other FI: Banking Supervision Law of the People's Republic of China, Arts. 2 and 16; Trust
Companies: Measures for the Administration of Trust Companies, Art. 7; Finance Companies: Measures
for the Administration of Finance Companies of Enterprise Groups (2006 Amendment), Art. 6; Pilot
Currency Brokerage Companies: Measures for the Administration of Pilot Currency Brokerage
Companies, Art. 5; Financial Asset Management Companies: Regulation on Financial Asset
Management Companies, Arts. 6 and 7; Financial Leasing Companies: Measures for the Administration
of Financial Leasing Companies (2014), Art. 2; and Auto Finance Companies: Administrative Measures
for Auto Finance Companies, Art. 2.
For PIs, including nonbank MVTS providers: Measures for the Administration of Payment Services of
Non-Financial Institutions, Art. 3.
For currency exchange institutions: Administrative Measures for the Pilot Work of Franchised Individual
Foreign Exchange Business, Art. 5.
For online lending institutions: Interim Measures for the Administration of the Business Activities of
Internet Information Intermediary Institutions (China Banking Regulatory Commission, the Ministry of
Industry and Information Technology, the Ministry of Public Security and the State Internet Information
Office Order No. (2016) 3).
Shell Banks
The establishment or continued operation of any bank is under the direct and exclusive supervision
of the State Council through the CBIRC. Although there is no explicit prohibition in legislation or
regulations on the establishment or continued operation of shell banks in China, in practice all banks

legally established in China require state approval to be formed and to undertake business, a sound
organizational structure, and a physical place of business operations (Arts. 11–12 of Law of the
People's Republic of China on Commercial Banks (Order of the President No. 34)); thus, any entity
carrying on the business of banking but lacking these elements would be carrying out activity
illegally (Banking Supervision Law of the People's Republic of China, Arts. 16, 19, 23, and 24; Law on
Commercial Banks, Chapter 2).
Banks: Measures are in place that allow the CBIRC to prevent the following persons from acquiring
more than five percent of the total shares of a commercial bank or representative, or their
associates, from becoming a director or senior manager of a commercial bank: (i) persons who have
been found guilty of committing corruption, bribery, encroachment, or embezzlement of properties
or disrupting economic order of the society, or who were deprived of political rights for committing
a crime; (ii) persons who assumed the post of director, factory director, or manager of a company or
enterprise which was liquidated due to mismanagement and were personally liable for the
bankruptcy of the company or the enterprise; (iii) persons who acted as the legal representative of a
company or enterprise which forfeited its business license due to violation of law, being personally
liable; or (iv) persons who were responsible for large amounts of outstanding personal debts. (Law
on Commercial Banks, Arts. 27 and 28). In addition, measures are in place extending preventive
measures to major shareholders, actual controlling shareholders and ultimate beneficial owners
(Interim Measures for the Equity Management of Commercial Banks; Measures for the Administration
of the Office-Holding Qualification of the Directors (Council Members) and Senior Managers of
Banking Financial Institutions issued by the CBRC; Provisions on the Administration of the Registration
of Legal Representatives of Business Corporations, (Order of the State Administration for Industry and
Commerce of the PRC), Art. 4).
The shareholders of foreign-funded banks should have no record of any serious violation of laws
and regulations (Regulation of the People’s Republic of China on the Administration of Foreign-funded
Banks, Art. 9), and the directors, senior executive or chief representative of a foreign-funded bank
may not have criminal records (Detailed Rules for the Implementation of the Regulation of the
People’s Republic of China on the Administration of Foreign-funded Banks).
Insurance companies: The CIRC is required to complete criminal background checks on all
shareholders including actual shareholders (Measures for the Administration of the Equities of
Insurance Companies, issued by the CIRC). Directors and officers must be screened against anti-
corruption, bribery, property infringement or disruption of market orders and have no record of
such violations for a minimum period of five years (Provisions on the Administration of the
Qualifications for the Directors, Supervisors and Senior Executives of Insurance Companies—Order
No.2 [2010] of the China Insurance Regulatory Commission).
Securities companies: The major shareholders (including actual shareholders) of a securities company
are required, inter alia, to have no irregular or rule-breaking record during the most recent three
years. Requirements similar in nature to the insurance sector apply to directors, supervisors and

senior executives of securities companies (Securities Law, Arts. 124 and 129; Regulations on the
Supervision and Administration of Securities Companies, Art. 10; Company Law of the People’s
Republic of China, Art. 146).
Fund companies: The major shareholders of a fund company are required, inter alia, to have no
violations of law in the last three years. Persons with criminal records for corruption, bribery,
malfeasance, property encroachment, or disruption of the socialist market economy are prohibited
from serving as a director, supervisor, senior manager, or employee. The scope of background
checks is limited to a few number of years. (Securities Investment Fund Law, Arts. 13 and 15). For
directors the scope of background checking is limited to some economic crimes (under the
Company Law).
Futures companies: The major shareholder and the actual controller must have no violations of laws
and regulations in the last three years (Regulation on the Administration of Futures Trading, Art. 16).
Requirements similar in nature to the insurance sector apply to directors, supervisors and senior
executives of futures companies (Measures for the Supervision and Administration of Futures
Companies, Arts. 7 to 9). For directors, the scope of background check is limited to some economic
crimes (under the Company Law).
For online lending institutions, the general measures referenced above in the Corporations Law
apply (Company Law of the Peoples Republic of China, Art. 146). In addition, the natural persons,
legal entities, and other social organizations that invest in a small-sum loan company as well as the
natural persons to be the directors, supervisors, and senior managers of the company shall have no
criminal record or bad credit record (Guiding Opinions on the Pilot Operation of Small Loan
Companies, Chapter 2). Finally, if online lending institutions or any of their directors, supervisors, or
senior executives has any serious violation of law or regulation, such institution shall immediately
take emergency measures, and report to the local financial regulatory authority at the place where it
conducts industrial and commercial registration (Interim Measures for the Administration of the
Business Activities of Online Lending Information Intermediary Institutions, Art. 36).
PIs (including MVTS and currency exchange institutions): The applicant and the directors and
managers must have no violations of laws and regulations in the last three years. The “major
investor of an applicant” must have no record of punishment for any violation or crime committed
through the payment business or illegally providing payment services in the last three years
(Measures for the Administration of Payment Services of Non-Financial Institutions, Arts. 8, 10, and 11,
Order of the Peoples Bank of China No [2010[2). In addition, the general measures referenced above
in the Corporations Law apply (Company Law of the Peoples Republic of China, Art. 146).
In summary, the measures listed above vary somewhat by sector. The main shortcoming is that in
most sectors the minimum period that directors and managers must be crime-free is limited to
between three to five years.

Criterion 26.4 (Mostly met)—
c.26.4a—(Mostly met) In December 2016, the Fund conducted its Detailed Assessment of
Observance of the Core Principles by China under the Financial Sector Assessment Program (FSAP).
The following is a summary of the issues identified by the IMF in respect of the Core Principles
relevant to the FATF.
Basel Core Principles (BCPs)
There were notable weaknesses in China’s compliance with BCPs 2 and 6, related to the operational
independence of the CBRC and the inability of the CBRC to control transfer of significant ownership
of banks because of limitations in the legal framework. In response, China has taken some steps to
address these issues, notably in the adoption of a regulation rationalizing the CBRC’s regulatory
authority (Guiding Opinions of the Office of the China Banking Regulatory Commission on Improving
the Establishment of the Internal Organisation of the Banking Regulatory Bureau 2012 No 121). In
addition, the State Council merged the CBRC and the CIRC into a new body, the CBIRC on
March 13, 2018. The assessors do not consider the BCP issues to be material in the context of this
DAR given that AML/CFT supervision is solely the responsibility of the PBC.
IOSCO Core Principles
There were no material weaknesses in the CPs relevant to the FATF standards.
IAIS Core Principles
There were notable weaknesses in China’s compliance with IAIS CP1, related to the operational
independence of CIRC. The authorities did not provide the assessors with further information on the
measures taken by China to address identified weaknesses in compliance with IAIS CP1. However,
the assessors do not consider the IAIS CP issues to be material in the context of this MER given that
AML/CFT supervision is solely the responsibility of the PBC.
The PBC conducts inspections to ensure that financial and PIs subject to the AML Law fulfil their
various AML/CFT obligations. Sector financial supervisors are not responsible for AML/CFT
supervision but are responsible for ensuring their respective financial institutions comply with sector
legislation and regulators, including compliance with internal control requirements.
In the process of supervision, the PBC and the financial regulatory authorities require financial
institutions to notify the financial groups to which they belong about issues identified by regulatory
authorities, including for issues involving the group level. The PBC requires financial groups to
assign a unique risk rating to the same customer within the group, but the same customer can be
assessed with different risk ratings by different financial institutions within the group, in accordance
with Chapter 1.1(3) of Guidelines for the Assessment of Money Laundering and Terrorist Financing
Risks and Customer Identification Management of Clients of Financial Institutions.

c.26.4b (Partly met)—As noted above, the PBC is the AML/CFT supervisor for other (Non-Core
Principles) FIs and has issued regulations and guidance on the supervisory processes that are
applied to these FIs. Online lending institutions are not covered by PBC supervisory regulations,
upon which the assessors place significant weight given its significance.
c.26.5a—(Partly met) The PBC requires each regulated institution to carry out the assessment of ML
risk itself, with the PBC subsequently applying classifications and ratings on all FIs annually
(Measures for the Administration of the Money Laundering Risk Assessment of Incorporated Financial
Institutions (for Trial Implementation). The assessment of classification and rating systems also
factors in feedback and consultations with FIs; input on internal controls from sector financial
regulators; reassessment by the PBC; and notification of reassessment results) and covers 20 criteria,
including the improvement of AML policy and systems, mechanisms, technical support capability,
personnel, customer identification, enhanced measures for higher-risk customers and business,
record-keeping, large-value and STRs, and reputation risk, training, internal audit and management.
These measures appear to be in effect for an indeterminate period as the authorities stated that no
timeline was specified for when the regulations will be finalized. No measures are applicable to the
online lending sector.
c.26.5b—(Partly met) The classification and rating system described under c.26.5(a) is generally
consistent with the ML/TF risks present in China. The authorities noted that the PBC has conducted
sector risk assessments and imposes more frequent supervisory and inspection visits on higher-risk
sectors. For example, the banking sector is rated as higher risk than the securities and insurance
sectors generally. No measures are applicable to the online lending sector.
c.26.5c—(Partly met) The risk classification and grading system considers the characteristics of
financial institutions or groups (see c.26.5a). FIs are required to provide sufficient supporting
materials on the conclusions of self-assessment. The most significant financial institutions in China
are supervised directly by PBC HO; this group includes the largest banking and insurance groups in
China. No measures are applicable to the online lending sector.
Based on the foregoing, the PBC conducts AML/CFT onsite and offsite supervisory measures
accordingly. Statistics submitted to the assessors confirmed that the frequency and intensity of
supervisory measures on higher-risk financial institutions is higher than those at lower-risk
institutions. (Measures for the Administration of Anti-Money Laundering Categorized Ratings of
Incorporated Financial Institutions (for Trial Implementation), Art. 12).
The principle shortcoming is that the measures are not applied in the online lending sector, upon
which the assessors place significant weight given its significance.
Criterion 26.6—(Partly met) The PBC institutional (or group) AML/CFT assessment is conducted
annually based on the process noted above. When there are major AML/CFT risk events in the FIs or

groups, their rating is reassessed, which can result in more frequent or intense scrutiny (Measures for
the Administration of Anti-Money Laundering Categorized Ratings of Incorporated Financial
Institutions (for Trial Implementation), Chapter 1). Authorities stated that a similar approach is used
in the PIs sector. No measures are applicable to the online lending sector.
The online lending sector is subject to limited obligations set out in (Guiding Opinions of the People's
Bank of China, the Ministry of Industry and Information Technology, the Ministry of Public Security, et
al, on Promoting the Sound Development of Internet Finance (PBC Document No. [2015] 221)) but is
not supervised for AML/CFT requirements. The assessors have given a significant weighting to this
omission on the basis of the extent of the sector and the conclusion in the NRA which is that as AML
control measures do not reduce the inherent risk, the residual vulnerability of the online lending
sector is high. There are shortcomings in the market entry requirements mostly relating to the
limited mandatory periods for criminal record searching.
Recommendation 27—Powers of Supervisors
In the Third Round MER, China was rated largely compliant with the former R.29. The effectiveness
of the penalty system was limited (similar to the former R.17). The effectiveness of the (then) new
role of the CBRC, the CSRC, and the CIRC remained to be proved.
Criterion 27.1—(Met) The AML Law of the PRC (Order of the President No. 56) Arts. 4, 8, 9, and 36)
and the CTL, Art. 24 authorize the PBC to be responsible for (supported by and in collaboration with
sector regulators) national AML/CFT and TFS supervision of financial institutions. The PBC is also
responsible for AML supervision of PIs and online lending institutions (Law of the PRC on the PBC,
Art. 32; AML Law, Arts. 8 and 34; Guiding Opinions of the People's Bank of China, the Ministry of
Industry and Information Technology, the Ministry of Public Security, et al, on Promoting the Sound
Development of Internet Finance (PBC Document No. [2015] 221)).
Criterion 27.2—(Met) The PBC: The AML Law authorizes the PBC to conduct supervision and
inspection of the performance of AML/CFT obligations by financial institutions, and the CTL contains
a parallel provision regarding TFS obligations. The PBC also has the authority to conduct AML/CFT
supervision and inspection of PIs and online lending institutions (Measures for the Administration of
Anti-Money Laundering and Combating the Financing of Terrorism of Payment Institutions (PBC
Document No. [2012] 54), Art. 3; Guiding Opinions of the People's Bank of China, the Ministry of
Industry and Information Technology, the Ministry of Public Security, et al, on Promoting the Sound
Development of Internet Finance (PBC Document No. [2015] 221)).
Criterion 27.3—(Met) The PBC may, for purposes of its AML inspections, consult, compel production,
and copy documents and materials held by financial or PIs relating to the inspection items
(Provisions on Anti-Money Laundering Through Financial Institutions (Order of the People's Bank of

China No. [2006] 1, Art. 18); Measures for the Administration of Payment Services of Non-Financial
Institutions (Order of the People's Bank of China No. [2010] 2), Arts. 36, 37, and 46; Guiding Opinions
of the People's Bank of China, the Ministry of Industry and Information Technology, the Ministry of
Public Security, et al, on Promoting the Sound Development of Internet Finance (PBC Document No.
[2015] 221)).
Criterion 27.4—(Partly met) The PBC and the sectorial financial supervisors are authorized to impose
a range of sanctions on FIs and PIs for failure to comply with the AML/CFT requirements as set forth
in R.35 including warning, ordering to correct, fine, confiscation of illegal proceeds, ordering of
suspension or revoking the business license, suspending or revoking the directly responsible
person’s qualification to hold a post, disciplinary sanction, prohibiting him/her from engaging in
financial sectors, etc.
Relevant laws that grant the supervisors power to impose sanctions on FIs and PIs unless noted
differently:
• Law of the People's Republic of China on the People's Bank of China, Art. 46;
• AML Law, Arts. 31 and 32;
• CTL, Art. 83;
• Banking Supervision Law, Art. 37; covers banks;
• Measures for the Administration of Payment Services of Non-Financial Institutions (Order of

the People's Bank of China No. [2010] 2), Art. 44; covers PIs;
• Measures for the Anti-Money Laundering Work in the Securities and Futures Sectors, Art. 17;
covers securities and futures entities;
• Measures for the Administration of Anti-Money Laundering Work in the Insurance Sector, Art.
36; covers insurance companies;
• Administrative Measures for the Freezing of Assets Relating to Terrorist Activities, Art. 19; and
• There are no measures covering online lending institutions.
Sanctions are not in line with the standards set out in R.35 (see TC Annex R.35).
Recommendation 27 is rated largely compliant

Recommendation 28—Regulation and Supervision of DNFBPs
In the Third Round MER, China was rated noncompliant with former R.24, mostly due to the fact that
DNFBPs were not covered by AML/CFT obligations, and the penalty structure for trust companies
was deficient.
Art. 35 of the AML Law provides that the specific measures for supervision and administration on
DNFBPs shall be formulated by the PBC (the administrative department of AML of the State Council)
in collaboration with the relevant departments of the State Council.
During the onsite visit the PBC purported to issue Notice of the General Office of the People’s Bank of
China on Strengthening the Anti-Money Laundering Supervision Work on Designated Non-Financial
Businesses and Professions, 2018, which purported to enter into force on July 26, 2018. This Notice
purported to designate the DNFBPs as follows:
• Real estate developers and real estate agents: when they are involved in transactions for
their clients concerning the buying and selling of real estate;
• Dealers in precious metals and stones, including institutions providing a place to dealers
for the sale of precious metals and precious stones: when they engage in or provide services
for spot trading of precious metals and precious stones;
• Accounting firms, law firms, and notaries, when they prepare for or carry out transactions
for their clients concerning the following activities: buying and selling of real estate;
managing of client money, securities or other assets; management of bank or securities
accounts; organization of contributions for the creation, operation of companies; creation,
operation, or management of legal persons or arrangements, and buying and selling of
business entities; and
• Company service providers, when they prepare for or carry out transactions for a client
concerning the following activities: providing professional services for the creation,
operation, and management of a company; acting as (or arranging for another person to act
as) a director of a company, a partner of a company, or act as a shareholder of a company;
providing a registered address, business address or correspondence address and so on.
The assessment of regulation and supervision requirements for trust companies is made under R.26
and R.27, since they are FIs in China and their designated AML/CFT supervisor is the PBC, supported
by the CBRC. However, in the context of the FATF standards, trust companies are DNFBPs (trust
service providers) covered by AML/CFT obligations.
Notwithstanding the foregoing, for the reasons further stated under R.22, the assessors do not
believe that the above designation was completed as required under the AML Law, and accordingly
DNFBPs (except for DPMs and trust companies) are not subject to AML/CFT obligations.

Criterion 28.1—(Not applicable) It is prohibited to operate a casino in China. Gathering a crowd for
gambling, making a living on gambling, or operating a casino constitute crimes (Criminal Law,
Art. 303).
Criterion 28.2—(Partly met) Art. 35 of the AML Law provides that the specific measures for
supervision and administration of DNFBPs shall be formulated by the PBC (the administrative
department of AML of the State Council) in collaboration with the relevant departments of the State
Council. The purported designation referred to above does not specify which AML/CFT measures
will apply to DNFBPs, and therefore it appears that all measures in the AML Law would apply to
these DNFBPs if the designation was effective. However, the PBC has not implemented any
measures for supervision and administration of DNFBPs except for trust companies and DPMs.
Criterion 28.3—(Partly met) The purported designation of the DNFBPs subject to the AML Law (as
set out above) took place during the onsite visit, and thus there were no systems in place for
monitoring the DNFBPs (apart from trust companies and DPMs) for compliance with AML/CFT
requirements.
• Art. 35 of the AML Law provides that the specific measures for supervision and
administration of DNFBPs shall be formulated by the PBC (the administrative department of
AML of the State Council) in collaboration with the relevant departments of the State
Council (sector supervisors). However, as noted above the PBC has not properly formulated
such measures;
• Insufficient information has been provided on how the authorities prevent criminals or their
associates from being professionally accredited or holding ownership or a management
interest in some DNFBP sectors (aside from trust companies and DPMs); and
• It is not clear which sanctions are available for the designated DNFBPs (aside from trust
companies).
Criterion 28.5—(Not met) As of the date of the onsite visit there was no supervision in the DNFBP
sector (aside from trust companies) by the PBC as the sector was only designated on July 26, 2018.
Only DPMs and trust companies are subject to any measures, applied by the sector SRO (DPMs) and
the PBC (trust companies) respectively. The assessors have given a significant weighting to the many
DNFBP sectors not covered by AML/CFT preventive measures, particularly the real estate sector.

Recommendation 29—Financial Intelligence Units
In the Third Round MER, China was rated largely compliant with these requirements (para. 187–239).
The main technical deficiency was that the FIU did not have (timely) access to other bodies’
information. In addition, there were concerns about the effectiveness of the FIU, which was not
assessed as part of technical compliance under the 2013 Methodology. Since China’s last mutual
evaluation, the FATF standards have been significantly strengthened in this area by imposing new
requirements which focus on the FIU’s strategic and operational analysis functions, and the FIU’s
powers to disseminate information upon request and request additional information from reporting
entities.
Criterion 29.1—(Partly met) China established a decentralized FIU within the PBC (PBC
Law, Art. 4(10)) that consists of the following components, which function largely independently
from each other and with limited systematic coordination between each other. 22 The assessment
team recognizes that a country has the choice to implement a decentralized FIU approach and does
not question nor criticize the fact that China has chosen this approach. However, the assessment
team has serious concerns regarding the implementation of this decentralized approach in China,
which limits its ability to act as a national center for 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.
• CAMLMAC;
• AMLB; and
• AML Units within each of the 36 provincial PBC branches (hereafter referred to as the PBC
provincial branches).
CAMLMAC is established at the central level and has primarily responsibility for the receipt and
analysis of ordinary STRs (i.e., transactions related to criminal activities such as ML, TF, and predicate
offenses—STRs) and LVTRs. CAMLMAC also receives the information contained in all key STRs
directly and simultaneously reported to the 36 provincial PBC branches (see analysis of R.20 and
below). It reports the results of its analysis to central LEAs or other competent authorities or passes
the information on to the AMLB or a PBC provincial branch for an administrative investigation (AML
Law, Arts. 8 and 10). CAMLMAC and the AMLB conduct joint analysis of complex cases identified and
transferred to them by the PBC provincial branches.
While the AMLB is primarily a policy-driven unit, it also has the power to conduct administrative
investigations of STRs identified by CAMLMAC and takes independent decisions in terms of
dissemination to central or local LEAs and other competent authorities. In addition, the AMLB
coordinates and steers administrative investigations with cross-regional aspects conducted by PBC
22The AML Law assigns various responsibilities and functions to China’s FIU. The analysis of R.29 is limited to the core
functions of the FIU, as set out in the Recommendation, and does not analyze the other FIU functions.

provincial branches (AML Law, Arts. 8, 23–26). As mentioned above, the AMLB and CAMLMAC
conduct joint analysis of complex cases.
The PBC provincial branches are the primary recipient of key STRs identified by local financial
institutions and whistle-blower reports. In addition to the analysis/investigation of these types of
reports, the provincial branches are also responsible for conducting administrative investigations
based on suspicious activity identified through CAMLMAC’s analysis and subsequently passed on to
the provincial branches (AML Law, Arts. 8, 23–26). They disseminate the results of their analysis and
administrative investigations to local LEAs without direct access to information collected, analyzed,
and disseminated by the other FIU components at central or local level, nor systematic coordination
with any of these other FIU components. Each of the PBC branches registers the information
collected during its analytical/investigative process and the subsequent disseminations in a stand-
alone database, which is not accessible outside the PBC branch itself. The PBC provincial branches
provide the details of these disseminations to CAMLMAC to ensure that the information
disseminated is on record.
CAMLMAC thus centrally registers the details of all types of reports (STRs, key STRs, and LVTRs)
received by both CAMLMAC itself and the 36 provincial branches, as well as the details on
information disseminated by the three FIU components. However, direct access to CAMLMAC’s
database by the 36 provincial branches is limited to transactions executed in their province but
branches can obtain other information from CAMLMAC upon request.
c.29.2a—(Met) CAMLMAC receives all STRs and the information in all key STRs, which FIs directly and
simultaneously report to the PBC provincial branches (Measures for the Administration of Financial
Institutions' Reporting of Large-Value Transactions and Suspicious Transactions, Arts. 11 and 17).
CAMLMAC thus centralizes the receipt of all types of reports. This is important because, as
mentioned in c.29.1, each PBC provincial branch operates a stand-alone database, which is not
accessible by CAMLMAC, the AMLB or any other PBC branch.
c.29.2b—(Met) CAMLMAC also receives
• LVTRs, including large-value cash transactions, large-value transfer transactions, and large-
value cross-border transactions23 (AML Law, Art. 10 and Measures for the Administration of
23 (i) A single transaction or accumulated transactions on a day for cash deposit, cash withdrawal, settlement or sale
of foreign exchange in cash, exchange of notes, cash remittance, payment of cash instruments, or any other form of
cash receipt and payment, the value of which reaches RMB 50,000 or more or reaches the equivalent value of
US$10,000 or more in foreign currencies; (ii) A single transfer or the accumulated transfers of funds on a day between
the bank accounts of a non-natural person customer and other bank accounts, the value of which reaches
RMB 2 million or more or reaches the equivalent value of US$200,000 or more in foreign currencies; (iii) A single
domestic transfer or the accumulated domestic transfers of funds on a day between the bank accounts of a natural
person customer and other bank accounts, the value of which reaches RMB 500,000 or more or reaches the
equivalent value of US$100,000 or more in foreign currencies; (iv) A single cross-border transfer or the accumulated
cross-border transfers of funds on a day between the bank accounts of a natural person customer (continued)

Financial Institutions' Reporting of Large-Value Transactions and Suspicious Transactions,

Art. 5);
• Copies of whistle-blower reports directly submitted by any entity or individual to PBC

branches (AML Law, Art. 7)
c.29.3a—(Partly met) CAMLMAC has the power to request a supplement and/or a correction from
any reporting institution when an LVTR or STR is incomplete or erroneous, but not any additional
information as needed to perform its analysis properly. Institutions should provide the
supplement/correction requested within five working days (AML Law, Art. 26, and Measures for the
Administration of Financial Institutions' Reporting of Large-Value Transactions and Suspicious
Transactions, Art. 28). If CAMLMAC considers that a case file would benefit from additional
information from reporting entities more broadly, then it has to transfer the case for an
administrative investigation to the AMLB or one of the provincial branches.
The AMLB and the PBC provincial branches have the power to obtain all relevant information,
documents and materials from any reporting entity when conducting an administrative investigation
(AML Law, Chapter IV, Arts. 23–26, and Notice of the People's Bank of China on Issuing the Detailed
Rules for Anti-Money Laundering Investigations, Art. 6).
c.29.3b—(Met) The FIU components at all levels have the power to access, either directly or upon
request, a wide range of financial, administrative, and law enforcement information, as well as
information from public sources (AML Law, Art. 11).
c.29.4a—(Partly met) CAMLMAC conducts operational analysis of STRs and LVTRs and based on
requests received from LEAs (Regulation on the Main Responsibilities, Internal Departments and
Staffing of CAMLMAC—PBC Document [2010] No. 16). It also has full access to the information
contained in key STRs directly and simultaneously reported to the PBC provincial branches to
support its analysis of STRs and LVTRs. In addition, as set out in c.29.1 above, CAMLMAC also
conducts operational analysis jointly with the AMLB of complex cases transferred by the PBC
provincial branches. Moreover, the administrative investigations by the AMLB and the PBC provincial
branches do also qualify as FIU operational analysis (AML Law, Art.8 and 10, and the Regulation on
the Main Responsibilities, Internal Departments and Staffing of AMLB—PBC Document [2010] No. 8,
and similar documents for each individual PBC branch).
The PBC provincial branches keep the information collected in the course of their initial operational
analysis/administrative investigation and the results of this analysis/investigation in a stand-alone
and other bank accounts, the value of which reaches RMB 200,000 or more or reaches the equivalent value of
US$10,000 or more in foreign currencies.

database, which CAMLMAC, the AMLB, or any other provincial branch cannot access. In addition, as
mentioned above in c.29.1, the provincial branches have only limited access to the information in
CAMLMAC’s database, namely to details of transactions executed in their province. Therefore, the
three FIU components do not have access to all information available and obtainable by the FIU for
use in operational analysis to follow the trail of particular activities or transactions, and to determine
links between those targets and possible POC, ML, predicate offenses, and TF, as required by
c.29.4(a).
c.29.4b—(Partly met) The three FIU components conduct strategic analysis to guide financial
institutions in the identification of STRs and key STRs, and to provide policy guidance and steering
to LEAs and other competent authorities. However, the same limitation as identified in c.29.4(a) with
regard to the use of available and obtainable information applies to c.29.4(b).
Criterion 29.5—(Met) As mentioned above with regard to c.29.1, all three FIU components
independently disseminate the results of their analysis/investigation to central or local LEAs, both
spontaneously and upon request (AML Law, Arts. 4 and 13). The CAMLMAC, AMLB, and PBC
provincial branches have established cooperation mechanisms with LEAs and other competent
authorities as the basis for the dissemination of data. The CAMLMAC, AMLB, and the PBC provincial
branches disseminate the results of their analysis by using secure and protected channels.
c.29.6a—(met) The three FIU components have rules in place governing the security and
confidentiality of information, including procedures for handling, storage, dissemination, and
protection of, and access to, information (AML Law, Arts. 5 and 7, and Provisions on Anti-Money
Laundering Through Financial Institutions, Art. 7).
c.29.6b—(Met) Staff members at the three FIU components have the necessary security clearance
levels, and procedures are in place to ensure that they understand their responsibilities in handling
and disseminating sensitive and confidential information. Violations of the confidentiality
requirements can lead to sanctions, including disciplinary and criminal sanctions, depending on the
severity of the breaches (AML Law, Arts. 5, 7, and 30).
c.29.6c—(Met) There are measures in place to ensure that there is limited access to the facilities and
information of the FIU components.
c.29.7a—(Not met) The dissemination of cases by the PBC provincial branches is subject to signature
by the president of the branch. While authorities provide that these are purely administrative
procedures without interference in the decision-making process, this arrangement has the potential
to limit the FIU’s authority to carry out its functions freely and its operational independence and
autonomy.

c.29.7b—(Met) As set out above with regard to c.29.3 and 29.5, CAMLMAC, the AMLB, and the PBC
provincial branches have access to and exchange relevant information with domestic competent
authorities, based on bilateral agreements in place (AML Law, Arts. 11 and 13). In addition,
CAMLMAC centralizes the FIU’s information exchange with foreign counterparts with no interference
of any other department within the PBC. (AML Law, Art. 28).
c.29.7c—(Met) The AML/CFT functions are distinct from the other PBC departments.
c.29.7d—(Met) Every year, the PBC (as the host of the FIU) receives dedicated funds from the MoF,
including specific funding for its FIU functions. CAMLMAC, the AMLB, and the PBC provincial
branches receive a specific budget for FIU purposes only.
Criterion 29.8—(Not met) China is not yet a member of the Egmont Group. China applied for
Egmont membership in 2005, but it did not file an unconditional application, as required by the
standards.
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 analysis, 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 also require the signature of the
president of their branch for disseminations to competent authorities. China did not file an
unconditional application for Egmont Group membership.
Recommendation 30—Responsibilities of Law Enforcement and Investigative Authorities
In the Third Round MER, China was rated largely compliant with these requirements mainly due to
no emphasis placed on pursuing ML/TF investigations, and investigators not being fully aware of the
legal elements of ML that they needed to prove. The new R.30 contains more detailed requirements.
Criterion 30.1—(Met) LEAs are designated with the responsibility for investigating ML, predicate
offenses, and TF. The MPS is China’s main law enforcement and criminal investigative authority
(CPL, Arts. 18, 139 and 142). The MPS has set up the following departments, which are responsible
for investigating ML, the majority of predicate offenses, and TF:
• The Economic Crime Investigation Department (ECID), including the AMLD;
• The Criminal Investigation Department (CID);
• The Public Security Department (PSD);

• The Narcotics Control Department (NCD);
• The Anti-Terrorism Department (ATD);
• The Cyber Security Department (CSD); and
• Other departments.
The MPS has also established corresponding departments at public security agencies at provincial,
municipal and county level (Provisions and Various Supplementary Provisions of Public Security
Agency on the Division of Jurisdiction over Criminal Cases).
The SPP is responsible for investigating corruption and bribery offenses and other crimes committed
by government officers when executing their functions (CPL, Arts. 18, 139, and 142).
The MSS is responsible for investigating cross-border terrorist and TF activities (CPL, Arts. 4, 139, and
142).
The Anti-Smuggling Bureau set up within the GAC investigates smuggling offenses. The GAC also
monitors and regulates China’s ports of entry, including implementing applicable measures for
cross-border transportation of currency (Customs Law, Arts. 2, 4, 6(5), and 61 (i)(ii)).
The SAT is an administrative LEA and is responsible for combating and preventing tax evasion, but
also tax fraud (Law of the People’s Republic of China on the Administration of Tax Collection, Art. 5).
The SAT transfers the case to the Public Security Agency when it has an indication of violation of the
Criminal Law.
Criterion 30.2—(Met) Most LEAs responsible for investigating predicate offenses are able to pursue
parallel financial investigations of related ML/TF. They can also transfer cases to the public security
agencies, regardless of where the offense occurred (Order of the Ministry of Public Security No. 127;
and Provisions on Public Security Agencies' Acceptance of Suspected Criminal Cases Transferred by
Administrative Law Enforcement Agencies).
Criterion 30.3—(Met) The People’s Court, People’s Procuratorate, Public Security Agencies, State
Security Agencies, and Customs have powers to identify, trace, freeze, and seize suspected POC or
property that is, or may become, subject to confiscation (CPL, Arts. 100, 139, 142, 280; see also c.4.2
above).
Criterion 30.4—(Met) R.30 applies to all relevant authorities responsible for investigating predicate
offenses.
Criterion 30.5—(Not applicable) As indicated above with regard to c.30.2, the People’s Procuratorate
refer ML aspects to the public security agencies for investigation.

Recommendation 31—Powers of Law Enforcement and Investigative Authorities
In the Third Round MER, China was rated compliant with these requirements. The new R.31 was
expanded and now requires countries to have, among other provisions, mechanisms for
determining, in a timely manner, whether natural or legal persons hold or manage accounts.
Criterion 31.1—(Met) LEAs and other competent authorities are authorized to use a wide range of
powers when conducting investigations of ML, TF, and predicate offenses. These powers include:
• the production of records held by financial institutions, DNFBPs, and other natural, or legal
persons (CPL, Art. 135);
• the search of persons, articles, houses, and other premises where suspects or criminal
evidence may be hidden (CPL, Art. 134);
• taking witness statements (CPL, Arts. 52 and 122); and
• the seizure and compulsory acquisition of articles and other materials relevant to the crimes
(CPL, Arts. 139, and 142; and Provisions of Public Security Agency (PPSA) Handling Procedures
of Criminal Cases).
These powers can be exercised, subject to the LEAs obtaining a search warrant or other relevant
authorization. These powers can also be used together with freezing and confiscation actions.
Likewise, the customs and tax authorities also have powers of inquiry, detention, freezing, search,
and questioning when investigating cases under their jurisdiction (Customs Law, Arts. 2, 4, 6(5), and
61 (I)(ii); and Law of the People’s Republic of China on the Administration of Tax Collection, Art. 5). The
evidence acquired (including any frozen funds or detained articles) can be used in any subsequent
prosecution and enforcement procedures.
Criterion 31.2—(Met) LEAs are entitled to adopt special investigation techniques for which the legal
basis is included in the CPL and the PPSA handling procedures. Such techniques include:
• undercover operations (CPL, Art. 151 and PPSA handling procedures, Art. 262);
• monitoring, inspection, and verification of electronic communication devices (PPSA handling

procedures, Art. 255);
• accessing computer systems (PPSA handling procedures, Art. 112); and
• controlled delivery and controlled payments (CPL, Art. 151, and PPSA handling procedures,
Art. 263).

These powers can be used in the context of ML and TF investigations, subject to approval formalities
to ensure that relevant requirements for use of these techniques, as set out in Arts. 148–152 of the
CPL and Arts. 254–264 of the PPSA, are respected. The evidence obtained can be used in court.
Criterion 31.3—(Met) LEAs have the power and several (online) mechanisms in place through which
they are able to identify whether natural or legal persons hold or control accounts. They also have a
process in place to identify assets without prior notification to the owner. These powers are set out
in the following legal documents: for Public Security Agencies: CPL, Art. 135 and PPSA handling
procedures, Arts. 231 and 232; for the People’s Procuratorate: CPL, Art. 142 and Rules on Criminal
Procedure of the People's Procuratorates, Arts. 141 and 142; for State Security Authorities: CPL, Art.4;
and for Customs: Customs Law, Art.6(5) and Regulation on Customs Inspection, Arts. 10 and 14).
Criterion 31.4—(Mostly met) As set out with regard to c.29.5 above, the three FIU components can
cooperate with LEAs and provide them assistance with their investigations into ML, predicate
offenses, and TF activities and disseminate upon request. (AML Law, Art.4, and Regulation on the
Main Responsibilities, Internal Departments and Staffing of the CAMLMAC, AMLB, and local branches,
PBC Documents 16, 8, and others, respectively).
Recommendation 32—Cash Couriers
In the Third Round, China was rated partially compliant with these requirements (paras. 271–299)
because the reporting system in place exclusively focused on cash, and BNI was not included. In
addition, reports on cash declarations/seizures were not being provided to the FIU and were not
being used to identify and target money launderers and terrorist financiers. The new
Recommendation (R.32) contains new requirements regarding the declaration system and the
safeguards in place to ensure the secured use of information collected.
Criterion 32.1—(Mostly met) China implemented a declaration system for incoming and outgoing
cross-border transportation of both national and foreign currency at all ports of entry to/departure
from China, including airports, seaports, and rail and road crossings (Announcement of the General
Administration of Customs: Notice of Implementation of New Declaration Formalities for Passengers
Entering and Leaving the Country at All Open Ports, Art. III.5).
Travelers should declare to Customs all physical inward and outward transportations of national
currency in cash above the prescribed threshold of RMB 20,000 (US$2,935). While drafts, checks, and
promissory notes should record information on the beneficiaries and a lack of such information
results in these negotiable instruments being invalid (Negotiable Instruments Law,
Arts. 22, 75, 84, and 86), these identification requirements do not exist for traveler’s checks. The
declaration obligation does therefore not extend to traveler’s checks. China has a prohibition on the
transportation of national currency through mail and a prior authorization applies to transportation

of national currency through cargo (Decree 43 of the General Administration of Customs of the
People’s Republic of China, and Arts. 4 and 5 of the Control Procedures of China on Carrying the State
Currency into or Out of the Country).
For foreign currency, any amounts over US$5,000 (or any equivalent foreign currency) in cash carried
into or out of China is subject to an application for a Permit for Carrying Foreign Exchanges into and
out of the country. In addition to carrying the corresponding certification document, travelers should
also declare the transportation of the foreign currency to Customs. (Notice of the State
Administration of Foreign Exchange and the General Administration of Customs on Issuing the Interim
Measures for the Administration of Carrying Foreign Currency Cash for Persons Entering or Exiting the
Territory, and Interim Measures for the Administration of Carrying Foreign Currency Cash for Persons
Entering or Exiting the Territory, Art. 3). Transportation of foreign currency in cash through mail and
cargo is also subject to prior authorization (Decree 43 of the General Administration of Customs of
the People’s Republic of China). The relevant provisions are silent with regard to foreign BNI and the
declaration obligation does therefore not extend to foreign BNI.
Chinese authorities provide that there is no BNI operation in the country, and customs and financial
institutions have not identified any BNI over the last three years. However, there is no legal
prohibition on the use of 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
below.
Criterion 32.2—(Mostly met) China has a written declaration system in place for all travelers carrying
national currency in cash above RMB 20,000 (US$2,935) or foreign currency in cash above US$5,000.
The declaration obligation does not extend to traveler’s checks in any currency and other types of
BNI in foreign currency.
Criterion 32.3—(Not applicable) China has not implemented a disclosure system for the purposes of
R.32.
Criterion 32.4—(Mostly met) Customs has the authority to request and obtain further information
from the carrier with regard to the origin and the intended use of the cash upon discovery of a false
declaration or a failure to declare national and foreign currency in cash. (Customs Law, Arts. 2, 6, and
12, and Regulation on the Implementation of Customs Administrative Punishment, Arts. 33, 34, 43).
Criterion 32.5—(Mostly met) There exists a wide range of proportionate and dissuasive sanctions for
making a false declaration or failing to declare. Almost all of the relevant sanctions include the
ability to freeze, seize, and confiscate the cash involved.
A false declaration is a violation of the Customs Law, Art. 82(1) and of the Regulation on the
Implementation of Customs Administrative Punishment, Art. 7(2) and is subject to warnings,
administrative fines or criminal penalties (Customs Law, Art. 82 and Regulation on the
Implementation of Customs Administrative Punishment, Art. 9(2)). A fine applies to a false declaration
or a failure to declare by a legal person or other entity. In addition, Customs can issue a warning to

the person in charge or the directly responsible personnel, but also has the power to sanction the
individual with a fine up to RMB 50,000 (approx. US$7,338) (Regulation on the Implementation of
Customs Administrative Punishment, Art. 32).
A case of failure to declare qualifies as [currency] smuggling. In such instances, the Customs has the
power to confiscate the smuggled currency and proceeds from any illegal activities and charge a
fine (Customs Law Art. 82, and Regulation of the People's Republic of China on the Implementation of
Customs Administrative Punishment, Art. 9 (2)). Moreover, in addition to a fine, criminal sanctions,
including imprisonment, apply to individuals. (Interpretation of the Supreme People's Court and the
Supreme People's Procuratorate on Several Issues concerning the Application of Law in the Trial of
Criminal Cases of Smuggling, Art. 2).
Other cases of failure to declare, but without the intention to smuggle currency in or out of the
country, are subject to a warning, and a fine up to 20 percent of the amount concerned.
(Customs Law, Art. 85–86, and Regulation on the Implementation of Customs Administrative
Punishment, Art. 19(3)–(4)).
Criterion 32.6—(Partly met) In 2017, authorities started working on setting up a system for Customs
to notify CAMLMAC of information on cross-border transportation violation cases, but the system is
only in its very early implementation stages. While Customs periodically informs the FIU of excessive
undeclared amounts of cash, the information made available does not specifically focus on ML or TF
suspicions.
Criterion 32.7—(Mostly met) China makes use of both its Anti-Money Laundering Coordination
Mechanism and its Anti-Smuggling Coordination Mechanism to coordinate on issues related to the
implementation of R.32. Cooperation and coordination between Customs and public security
agencies (e.g., departments of immigration and emigration administration and departments of
frontier inspection) coordinate and cooperate, in particular at border ports (Customs Law, Arts. 4
and 5; and Exit and Entry Administration Law, Art. 6). However, as mentioned in c.32.6 above, the
information sharing mechanism with the FIU is only in its very early implementation stages.
Criterion 32.8—(Mostly met) Customs have the power to inspect particular, suspicious, or random
targets; check and examine cross-border vehicles, goods, and articles, and detain for up to 48 hours
items, goods, and articles in violation of relevant laws and administrative regulations, including the
regulations on the control of the cross-border transportation of cash. Customs also have the power
to seize undeclared cash or impose punishments on the identified illegal transportation of cash that
exceeds the prescribed thresholds, as set out above with regard to c.32.5 (Customs Law, Art. 6; and
Regulation on the Implementation of Customs Administrative Punishment, Art. 38).
Criterion 32.9—(Partly met) As mentioned above with regard to c.32.7, the information made
available to the FIU only covers declaration violation cases of excessive amounts, including false
declarations, but does not specifically extend to suspicions of ML and TF. The FIU has the power to
exchange this information with its foreign counterparts. The same information is also available for

exchange with foreign customs authorities based on MLA agreements, MOUs, and international
conventions.
Criterion 32.10—(Mostly met) China has strict safeguards in place to ensure proper use of the
information collected through the declaration system (General Provisions of the Civil Law of the PRC,
Art.111 and CFT Law, Art.48). The cross-border declaration system does not appear to restrict trade
payments between countries nor the freedom of capital movements (Customs Law Arts. 71, 72, and
75).
Criterion 32.11—(Mostly met) The wide range of sanctions mentioned above in c.32.5, including
seizure and confiscation, equally apply to persons who carry out a physical cross-border
transportation of currency that is related to ML and TF. In addition, in such cases, persons also
qualify for criminal sentences for ML and TF, as set out in R.3 above.
The declaration requirement does not extend to BNI, but this deficiency carries less weight because
China prohibits most types of domestic BNI. 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.
Recommendation 33—Statistics
In its Third Round MER, China was rated largely compliant with these requirements. The main
technical deficiencies were that no statistics were kept concerning the number of cross-border
transportations of currency and bearer negotiable instruments, and the time taken to respond to
extradition requests. In addition, there were no statistics available on the number of freezing,
seizing, or confiscation actions, or the amount of assets involved.
FIU
c.33.1a—(Met) CAMLMAC centrally collects and maintains the statistics on the receipt of China’s
large-value and STRs, including key STRs directly received by the PBC’s local branches and
disseminations to LEAs, by all three FIU components, both spontaneously and upon request.
CAMLMAC can produce these statistics in real time using its IT system.
c.33.1b—(Mostly met) The PBC acts as the central repository for China’s statistics relating to ML/TF
investigations, prosecutions, and convictions. The PBC keeps statistics on administrative
investigations stemming from STRs.

The MPS, the MSS, the SPP, and the SPC report annual statistics to the PBC relating to ML
investigations, TF investigations, and ML/TF prosecutions and convictions respectively. China
qualified statistics provided as samples as not all judgments are publicly available and therefore
statistics provide were not comprehensive.
c.33.1c—(Mostly met) The MPS, the MSS, the General Administrations of Customs, and the SPP keep
statistics on assets frozen and seized. Tax authorities have the authority to freeze taxpayer’s
deposits, however it is unclear whether comprehensive statistics are kept on funds frozen. While
China has issued an Opinion on Further Regulating the Disposition of Property Related to Criminal
Proceedings which indicates that investigative authorities should input relevant case related property
information into a centrally managed system, this system is not yet fully functional.
The SPC maintains statistics on asset confiscations resulting from judgements.
All illegally gained property, regardless of the crime, is turned over to the State Treasury which is
supervised by the MOF. The MOF is responsible for maintaining statistics on confiscations from the
different authorities.
c.33.1d—(Met) The MOJ and the SPP maintain statistics on extraditions and MLA requests sent and
received. The MPS maintains statistics on cross border police to police cooperation, and the PBC
maintains statistics related to financial intelligence sharing with foreign FIUs.
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.
Recommendation 34—Guidance and Feedback
deficiency was that no guidance had been issued in relation to what were, at the time, new
obligations under the enacted AML Law (2006) and connected regulations.
Supervisory Guidance
The PBC, CBRC, CSRC, and CIRC have developed a series of published guidelines and notices to
guide the FIs and PIs in performing AML/CFT work. The guidelines include:

• The PBC and the sector financial regulators instruct financial industry associations to
establish guidance for their industry (Provisions on Anti-Money Laundering through Financial
Institutions, Art. 12).
• The associations of securities industry, futures industry and the fund management industry
respectively have issued the Guidelines for Anti-Money Laundering of Securities Companies,
Guidelines for Anti-Money Laundering of Member Entities of the China Futures Association,
Guidelines for Anti-Money Laundering of Fund Management Companies, and Guidelines for
the Anti-Money Laundering Customer Risk Classification Standards of Fund Management
Companies.
Guidelines and notices are issued both by the PBC HO and also its branches. The latter guidelines
and notices only apply to the province, region, or area covered by the branch, and there is no
central approval system; hence it is possible for inconsistent guidance to be issued to different
branches of the same FI across China.
The PBC has published 33 ML risk warnings to the end of 2017, and PBC branches also issued some
ML risk warnings for guiding the financial institutions to focus on high-risk areas of ML/TF.
The PBC annually holds a “Briefing on AML Situation.” These inform both sector financial regulators
and FIs about the external threats of ML/TF and the key issues identified during supervision. The
PBC shares with the CBRC, CSRC, and CIRC information about the AML supervision information of
FIs, which promote the FIs to perform their duties in compliance with relevant laws and regulations.
For AML enquiries that are raised by the FIs, the PBC conducts research and issues professional
interpretations.
No guidance applies to online lending institutions.
Trust companies are considered as FIs in China and are subject to guidance and feedback as
described above. However, in the context of the FATF standards, trust companies are DNFBPs (trust
service providers). Guidance specifically directed to the provision of trustee services does not appear
to be issued. Little or no guidance was issued to other categories of DNFBPs.
FIU Guidance and Feedback
CAMLMAC provides reporting institutions with the various formats for the reporting of suspicious
and large value transactions. Art. 28 of Measures for the Administration of Financial Institutions'
Reporting of Large-Value Transactions and Suspicious Transactions provides that if reports submitted
by a FI are incomplete or erroneous, CAMLMAC may send a notice of supplementation and
correction to the FI. According to authorities, upon receipt of submissions, CAMLMAC’s monitoring
and analysis system automatically and systematically reviews the completeness of the reports
submitted. Such feedback involves an acknowledgement of receipt and automatic verification of the
completeness of LVTRs and STRs submitted by reporting institutions. In addition, CAMLMAC

provides annual feedback on the quality of the STRs and LVTRs to reporting institutions. This
comprises both written and face-to-face feedback.
DNFBPs (aside from trust companies and DPM) are not subject to the AML Law and hence related
guidance is not applicable.
Recommendation 35—Sanctions
In its Third Round MER, China was rated partially compliant on the former R.17. The effectiveness of
penalties provided in the AML Law for major deficiencies was relatively low. The penalty system
focused excessively on minor deficiencies and was ineffective in dealing with structural weaknesses.
Regarding R.6 (terrorism-related TFS): Where an FI or a DNFBP fails to immediately freeze the
funds or other assets of any designated terrorist organization or terrorist, the public security agency
shall impose a fine of not less than RMB 200,000 (approx. US$29,352), but not more than
RMB 500,000 (approx. US$73,380) on the institution, and impose a fine of not more than
RMB 100,000 (approx. US$14,676) on its directly responsible directors, senior executives, and other
directly liable persons. If the circumstances are serious, these fines may be increased to not less than
RMB 500,000 (approx. US$73,380) on the institution, and not less than RMB 100,000
(approx. US$14,676) but not more than RMB 500,000 (approx. US$73,380) on its directly responsible
directors, senior executives, and other directly liable persons; may revoke its business license and
order it to cease operations; and may detain such natural persons for not less than 5 days, but not
more than 15 days (Counter Terrorism Law of the Peoples Republic of China, Order of the President
No. 36, Arts. 83 and 93). Coverage of DNFBPs (apart from trust companies) only took effect on
July 26, 2018 when such DNFBPs were designated under the AML Law by PBC.
If the circumstances are serious, the competent department can order the FI to cease doing business
(Art. 93 of the CTL). The FI may also be subject to sanctions imposed by the PBC (Art. 19 of
Administrative Measures for the Freezing of Assets Relating to Terrorist Activities). The PBC can impose
a warning or fine on the entities and individuals for violating AML regulations, and confiscate the
illegal proceeds (Art. 46 of Law of the People's Bank of China (Order of the President No. 12)).
Regarding R.8 (NPOs): Social organizations and their staff who are in violation of their TF
obligations shall be sanctioned by the PBC in accordance with the Law of the People's Republic of
China on the People's Bank of China (Law of the People’s Republic of China on the People’s Bank of
China, Art. 12).
The social organizations and their staff in violation of the Charity Law, the Regulation on the
Administration of the Registration of Social Organizations, the Regulation on Foundation

Administration, or the Interim Regulations on Registration Administration of Private Non-Enterprise

Units shall be investigated and sanctioned by the civil affairs department (Art. 21 of Measures for the
Administration of Anti-Money Laundering and Combating Terrorist Financing of Social Organizations).
Such sanctions may include warnings, orders to take corrective action within a prescribed time limit,
fines, confiscation of illegal income, revocation of registration certificates, and subject to criminal
liability. The PBC is empowered to apply penalties of between RMB 500,000 (approx. US$73,380) to
RMB 2 million if there are no illicit profits, or if these are less than RMB 500,000 (approx. US$73,380).
The directors and senior management personnel directly responsible and other persons directly
liable shall be given a warning or receive a penalty of between RMB 50,000 (approx. US$7,338) to
RMB 500,000 (approx. US$73,380) Law of the People’s Republic of China on the People’s Bank of
China, Art. 46).
The public security agencies shall take sanctions according to different illegal activities of the
overseas NPOs, including: banning or ordering to cease the illegal acts; confiscation of illegal
property and illegal income; revoking or placing a temporary ban on the registration and
certificates; giving a warning to the directly responsible personnel, and in serious cases, 10 or
15 days’ detention. Once there is a suspected crime, the overseas NPO shall be investigated for
criminal responsibility according to law (Arts. 45, 46, 47, and 52 of Law on the Administration of
Activities of Overseas Non-Governmental Organizations within the Territory of China).
Regarding R.9–21 (FIs’ and DNFBPs’ obligations on secrecy; CDD and record-keeping; additional
measures for specific customers and activities; reliance, controls and financial groups; reporting of
suspicious transactions): When an FI fails to establish a prescribed internal control system of AML, or
fails to establish an AML institution or an internal department on AML, or fails to conduct AML
training for employees, it shall be liable to receive an order to correct the deficiency within a time
limit. If the deficiency is serious, the PBC may order the sectorial supervisor to apply a disciplinary
sanction to the chairperson, senior management or any other person as well (Art. 31 of AML Law).
These penalties appear to apply to failures to comply with AML Law, Art. 15 (internal control systems
and specialized AML unit), and 22 (training). For more serious violations, the financial penalties
noted above under Art. 32 of the AML Law will apply.
Where an FI fails to comply with the AML Law in the following circumstances (i) performing CDD
(Art. 16, 17, 18, 21), (ii) keeping records (Art. 19, 21), (iii) reporting large-value or suspicious
transactions (Art. 20, 21), (iv) dealing with a client without completing identify verification or
establishing anonymous or pseudonymous accounts, (v) violating confidentiality provisions,
(vi) retarding AML examinations or investigations, and (vii) refusing to provide investigations
material or provides false material on purpose, the PBC can order the institution to correct the
breach. Where the breach is serious the institution can be fined RMB 20,000–50,000
(approx. US$2,935–$7,338, and a natural person can be fined RMB 10,000–50,000
(approx. US$1,467–$7,338). Where the breach leads to ML, a fine of RMB 500,000 up to
RMB 5 million (approx. US$73,380–$733,804 shall be imposed upon the FI and a fine of RMB 50,000
up to RMB 500,000 (approx. US$7,338–$73,380) shall be imposed upon its directly liable director,
senior management, or any other person. In the case of particularly serious circumstances, the PBC

may advise the sectorial regulator to order the FI to suspend its business for rectification or to
revoke its business license. However, given that the highest sanctions only apply when ML occurs,
their availability is confined to limited circumstances, which affects their effectiveness.
As to the directly liable director, senior management, or any other person of an FI, the PBC may
advise the relevant financial regulatory body to order the FI to give a disciplinary sanction thereto or
revoke his/her qualification to hold a post and prohibit him/her from engaging in any financial work
(AML Law, Art. 32).
Art. 49 of the Measures for the Administration of Anti-Money Laundering and Combatting the
Financing of Terrorism for Payment Institutions PBC Document 2012 (54) provides that where PIs
violate AML/CFT requirements, they can be sanctioned in accordance with the provisions of Arts. 31
and 32 of the AML Law.
As of the date of the onsite visit, the foregoing measures apply to designated DNFBPs (apart from
trust companies) (Art. 4, Notice of the General Office of the People’s Bank of China on Strengthening
the Anti- Money Laundering Supervision Work on Designated Non-Financial Businesses and
Professions, 2018, No. 120, which entered into force on July 26, 2018).
Regarding criminal sanctions: See c.14.2 regarding violations for engaging illegally in fund
payment and settlement business, without the approval of the relevant competent departments of
the state.
Entities and individuals who are subject to the above penalties and who have committed a crime
shall be transferred to judicial authorities and be subject to criminal responsibilities (AML Law,
Art. 33; Law of the People's Republic of China on the People's Bank of China, Art. 46; Banking
Supervision Law, Art. 45; Administrative Measures for the Freezing of Assets Relating to Terrorist
Activities, Art. 19; Measures for the Administration of Financial Institutions' Reporting of Large-Value
Transactions and Suspicious Transactions, Art. 24; Administrative Measures for Customers
Identification and Documentation of Customers Identity Information and Transaction Records by
Financial Institutions, Art. 31; etc.).
Regarding proportionality: The remedial actions and penalties discussed above allow the
authorities to apply a range of sanctions: financial penalties, suspension or cancellation of business
licenses, and removal of directors and senior managers from office in more serious circumstances.
However, these sanctions only apply in cases where there are violations of CDD and other measures
outlined above, which precludes the possibility of applying these penalties to other violations.
Further, as noted above it is not clear whether the measures apply to designated DNFBPs.
The cap on financial penalties in the financial sector seems low (this was also a criticism in the
previous MER) at RMB 500,000 (approx. US$73,380), and RMB 5 million (approx. US$733,805) where
the breach leads to ML. The authorities advise that the penalties can be accumulated and apply to
each instance of failure, or for a group of failures, or for each day a failure continues. However, the

aggregate penalties actually applied to large financial institutions in 2016 and 2016 are low (see IO.3
discussion).
Regarding dissuasiveness: the authorities believe that their ability to suspend or cancel business
licenses acts as a major deterrent. However, no business license in any financial sub-sector has been
revoked for violation of the AML Law in the five-year period prior to the onsite visit. The low
amounts of the financial penalties applied are, in the view of the assessors, insufficient to act as a
meaningful deterrent, particularly in the banking sector and larger banks in particular. Further, as
noted above, it is not clear whether the measures apply to DNFBPs.
Criterion 35.2—(Partly met) Applicability of sanctions to directors and senior management of

financial institutions is discussed as part of c.35.1. All applicable penalties available include elements
of applicability to directors and senior management, including removal from office. It is not clear
whether the penalties available are effective, dissuasive and proportionate, or whether the measures
apply to DNFBPs.
The assessors doubt whether the sanctions available are effective, dissuasive, and proportionate
given their low scale and cap compared to the size and composition of the financial sector in China,
which includes four G-SIFIs (see further discussion in IO.3). No sanctions are applicable to
designated DNFBPs.
Recommendation 36—International Instruments
In its Third Round MER of 2007, China was rated partially compliant with requirements for former
R.35 and SR.I. The main deficiencies were that criminalization of ML, the seizure/confiscation regime,
and preventative measures were not fully in line with the Vienna, Palermo, and TF Conventions.
There was also a deficiency of inadequate implementation of UNSCR 1267 and 1373, but that is no
longer assessed under this Recommendation.
Criterion 36.1—(Met) China is a party to all four conventions. China ratified the Vienna Convention
on October 25, 1989, the Palermo Convention on September 23, 2003, the Merida Convention on
January 13, 2006, and the Terrorist Financing Convention on April 19, 2006.
Criterion 36.2—(Mostly met) China has substantially implemented the Vienna, Palermo, Merida, and
TF Conventions. There are some aspects that might impact the implementation of the conventions:
for example, equivalent value confiscation is reached through mandatory confiscation court ruling
(see for more detail R.4), and self-laundering is not criminalized (see for more detail R.3). Not all of
the terrorist acts referred to in the conventions and protocols listed in the Terrorist Financing
Convention are criminalized in China’s domestic legislation, in particular those related to the
aviation and maritime sectors, protected persons, and nuclear materials (see for more detail R.5).

Some crimes are formulated too generally in the Criminal Law, which might present difficulties in the
prosecution process.
China has ratified and substantially implemented the international conventions required by R.36,
although not all offenses set in these conventions are offenses under the Chinese law.
Recommendation 37—Mutual Legal Assistance
In its Third Round MER, China was rated compliant (R.36) and largely compliant (SR.V) with these
requirements. The main deficiency was partial coverage of the TF offense in Art. 120 bis CL (sole
collection of funds not criminalized) which constituted an impeding element when applying the dual
criminality principle in relation to a foreign MLA request.
Criterion 37.1—(Mostly met) The Criminal Procedure Law, AML Law, and other relevant laws of China
set a legal basis for providing MLA (Art. 17 of the Criminal Procedure Law). China provides MLA, in
AML/CFT investigations including, on the basis of bilateral MLA treaties and international
conventions that China is a party to, or under the principle of reciprocity (CPL, Art.17; AML Law,
Art. 29; CTL, Art. 68). China can provide a wide range of legal assistance to foreign countries in
investigations, prosecutions, and related proceedings involving ML or related predicate offenses and
TF although due to the complexity of the procedures it is not rapid as a rule.
Criterion 37.2—(Partly met) There are two principal channels of communication for MLA in China
depending on what legal basis the MLA is to be provided.
Under general circumstances, the MOJ of China is the central authority for international conventions
and bilateral treaties on MLA. The MOJ will pass the requests on to the authority competent to take
the requested actions according to Chinese laws. Besides, the MOJ is responsible for following up
the implementation. Additionally, some treaties or ratification notes for conventions have
designated the MPS (for example, for the Palermo Convention) or the SPP (for example, for the
Merida Convention) as central authorities, which are in charge of receiving, investigating,
transmitting, and coordinating criminal legal assistance cases.
Outside the context of a convention or an agreement, the MFA is the correspondent in China. It
reviews the request, forwards it to the appropriate law enforcement authority, and channels the
reply. The MLA is granted in such a case on the condition of a commitment of reciprocity to China.
The SPC, the SPP, the MPS, and the MFA have procedures for criminal legal assistance to ensure the
timely handling of requests for criminal legal assistance (Interpretations of the Supreme People's
Court on the Application of the Criminal Procedure Law of the People’s Republic of China, Chapter 18;
Rules of Criminal Procedure of the People's Procuratorate, Chapter 16; Provisions on the Procedures
for Handling Criminal Cases by Public Security Agencies, Chapter 13).

There are specific provisions for the process related to the execution of foreign requests, but there
are no requirements for prioritizing them. The MOJ, the SPP, the MPS, the MFA, and other
authorities have internal case management systems to supervise the procedures of processing the
cases involving legal assistance but not prioritization.
Criterion 37.3—(Met) In China the legal conditions for MLA are international treaties that have been
concluded or acceded to by China or the principle of reciprocity. Requests that do not conform to
the provisions of the treaties or the relevant laws are not enforced by China. In addition, damaging
the sovereignty, safety, and public interests of the country or violation of the Chinese laws are other
reasons for rejection of MLA (CPL, Art. 17). The latter is in line with the principles and traditions of
international MLA.
Criterion 37.4—(Met) Based on the legal framework, China would not refuse a request for legal
assistance due to (i) fiscal issues or (ii) confidentiality issues, except in cases covered under c.37.3.
Criterion 37.5—(Met) The Secrecy Law of China stipulates that the secrets in diplomatic and foreign
affairs, the secrets bearing the obligations of confidentiality, and the secrets related to the criminal
offenses are state secrets protected by law. All state agencies, armed forces, political parties, public
organizations, enterprises, and citizens have the duty to protect state secrets (Secrecy Law, Arts. 3
and 9). The Criminal Procedure Law sets that evidence involving any state secrets, commercial
secrets, or personal privacy shall be kept confidential (Art. 52).
Criterion 37.6—(Partly met) China uses dual criminality as a condition for providing MLA. (Criminal
Law, Art. 7–9). In certain situations, China can negotiate with a foreign party on not using the basis
of “dual criminality” as the condition for rendering assistance. For example, the Treaty on Legal
Assistance in Criminal Matters between China and Brazil sets that the party being requested may
provide the assistance under a negotiated scope (not using requirement for dual criminality),
regardless whether the action constitutes a crime under its domestic law.
Criterion 37.7—(Met) Dual criminality for the purposes of MLA shall be satisfied regardless of
whether both countries place the offense within the same category of offense, or denominate the
offense by the same terminology, as long as both countries criminalize the conduct underlying the
offense (treaties on MLA between China and other countries).
Criterion 37.8—(Met) Chinese competent authorities dealing with requests for criminal legal
assistance can use the powers and investigative techniques consistent with the handling of domestic
cases which are extensive depending on the nature of requested actions. These investigative powers
and techniques can be used for regular MLA requests, but also for requests directly from foreign
judicial or law enforcement authorities to China’s counterparts. (Interpretations of the Supreme
People's Court on the Application of Criminal Procedure Law of the People’s Republic of China,
Art. 410; Rules of Criminal Procedure of the People's Procuratorate, Arts. 679 and 693; Provisions on
the Procedures for Handling Criminal Cases by Public Security Agencies, Arts. 365, 367, and 368).
See R.31 for an overview of the available investigative powers and techniques for MLA.

China has a sound system and rules for MLA. Despite the clear procedures for dealing with foreign
requests, there are no requirements for prioritization of them. China relies on the indication by the
requesting party of the urgency of 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.
Recommendation 38—Mutual Legal Assistance: Freezing and Confiscation
deficiency identified was the absence of a formal legal basis for equivalent value confiscation as an
obstacle to the execution of foreign MLA requests based on such orders. There have been changes
to the Recommendation since the Third Round MER.
Criterion 38.1—(Partly met) Requests to take seizing or confiscation action must be based on a
bilateral treaty or multilateral convention that has been concluded or signed by China, or on the
principle of reciprocity. All types of property and instrumentalities are covered in China (Criminal
Law, Art. 64). As with other MLA issues, the MOJ has been designated as the competent authority to
handle requests based on multi- or bilateral treaties (see c.37.2 above). Diplomatic channels must be
used when no such treaty or convention exists.
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
(see R.4 above).
Criterion 38.2—(Partly met) There are no specific authority or procedures for providing MLA to
requests made on the basis of foreign nonconviction-based confiscation proceedings—except in
cases when 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. If his or her
illegal proceeds and other property involved in the case are to be recovered in accordance to the
Criminal Law, a People's Procuratorate may file an application to a People's Court for confiscation of
illegal proceeds. However, such application could not be triggered by an MLA request without a pro
forma domestic investigation or procedures (CPL, Arts. 280–283; Provisions of the Supreme People's
Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of the
Confiscation Procedures for Illegal Proceeds in a Case Where a Criminal Suspect or Defendant Escapes,
Hides or Dies).

Criterion 38.3—(Met) The arrangements for coordinating seizure and confiscation actions with other
countries are those provisions that regulate all MLA (see R.37) and specific arrangements in bilateral
agreements with other countries (e.g., Agreement between the Government of the United States and
the Government of China on Mutual Legal Assistance in Criminal Matters, Arts. 14, 16).
The legal obligation for proper preservation of properties involved in criminal cases that are seized,
frozen, and confiscated are contained in CPL, Art. 139. China’s mechanism for the management and
disposal of case properties, which includes the system for retention of case properties and
procedures for the management of properties in advance, to manage, when necessary, the frozen,
seized, or confiscated property is set in Opinions on Further Regulating the Disposition of Property
Related to Criminal Proceedings (issued by the General Office of the CPC Central Committee and the
General Office of the State Council), Provisions on the Management of Property Involved in Criminal
Proceedings by People’s Procuratorates, and Provisions of the Supreme People's Court, the Supreme
People's Procuratorate, the Ministry of Public Security, the Ministry of State Security, the Ministry of
Justice, and the Legislative Affairs Commission of the Standing Committee of the National People's
Congress on Several Issues concerning the Implementation of the Criminal Procedure Law (Art. 10,
Handling of Property Involved in a Case).
Criterion 38.4—(Met) Where a criminal case is solved through international cooperation, the Chinese
government may share with the cooperative countries the illegal gains, the proceeds thereof, the
property used for the drug-related crimes, or the money from selling such property (Narcotics
Control Law, Art. 57).
China and other countries can share confiscated properties under provisions of agreements. For
example, in 2016, China and Canada signed the Agreement between the Government of the People’s
Republic of China and the Government of Canada on the Sharing and Return of Recovered Assets. The
agreement stipulates that the illegally occupied properties should be returned to their legitimate
owners if ownership is confirmed. If the origin of the criminal proceeds cannot be identified, both
countries can share the confiscated properties in proportion to their contributions to the legal
assistance.
The Chinese MLA regime presents a coherent picture. The approach to the equivalent value
confiscation through fines might be an issue in the international context. Another issue is absence of
direct confiscation in response to request from another country. Only seizure and freezing are
possible in that case.

Recommendation 39—Extradition
In its Third Round MER, China was rated compliant with these requirements.
Criterion 39.1—(Met) China has a separate law, Extradition Law of the People’s Republic of China
(enacted on December 28, 2000), which provides the legal basis for the execution of extradition
requests. The law does not contain provisions that could delay the execution of extradition requests.
The law states that all crimes with punishment over one year (Art. 7) are extraditable, which includes
ML and TF. Extradition is possible for the purpose of instituting criminal proceedings and executing
a criminal penalty. The law establishes clear procedures for dealing with the extradition requests.
The law defines clear processes for all the agencies involved in the different stages of the extradition
process, but is silent on the existence of a case management system. General case management
systems for mutual legal requests are used (see c.37.2). There are no unreasonable or unduly
restrictive conditions for the rejection of requests. Conditions when an extradition can be denied, are
clearly defined in Arts. 8 and 9 of the Extradition Law.
Criterion 39.2—(Met) China’s nationals cannot be extradited (Extradition Law, Art. 8). Although a
Chinese national should not be extradited, the person sought should be prosecuted as per the
extradition request sent by the requesting country.
At the same time, China has signed 45 extradition treaties including with Argentina, Russia, Italy,
Australia, Portugal, France, Brazil, Spain, and other countries (37 treaties are in force) which state
that the requested country must submit the request to its competent authorities for public
prosecution in line with the request of the requesting party. (This provision is included in 35 of the
37 treaties in force). When there is no treaty the Extradition law provisions apply on a reciprocity
basis.
Criterion 39.3—(Met) China’s Extradition Law stipulates dual criminality for extradition (Art. 7). The
law does not provide for the offense in both countries to be placed within the same category of
offense, or be denominated by the same terminology, provided that both countries criminalize the
conduct underlying the offense.
Criterion 39.4—(Not met) The Extradition Law does not provide for a simplified extradition. Just
2 out of 37 extradition treaties in force between China and other countries have a provision on
simplified extradition procedures. Consent must be free-willed, clear, and voluntary, and the person
sought should be informed of his/her rights.
The extradition regime of China is solid and well organized. The main deficiency is absence of
provisions for simplified extradition.

Recommendation 40—Other Forms of International Cooperation
China was rated largely compliant with R.40 in the Third Round MER. The only technical deficiency
was that China’s LEAs and financial supervisors could not spontaneously offer assistance to their
foreign counterparts. Moreover, the effectiveness of the FIU’s ability to cooperate with its foreign
counterparts was somewhat impeded by the relatively small number of MOUs that it has entered
into. The other deficiency related to effectiveness. The requirements in the new R.40 are
considerably more detailed.
General Principles
Criterion 40.1—(Mostly met) All of the provisions relating to the ability of China’s competent
authorities to provide other forms of international cooperation apply equally to cases involving ML,
TF, and predicate crimes. China conducts international cooperation in the AML/CFT sphere in
accordance with international treaties China is party to, or under the principle of reciprocity. (AML
Law, Arts. 27, 28; CTL, Arts. 68, 69). China allows competent authorities to exchange information
spontaneously and upon request, in accordance with international custom. Agencies (including the
FIU) have a number of MOUs and agreements available to facilitate information exchange with
international partners. There are no legal impediments for CAMLMAC to rapidly provide a wide
range of information in urgent cases to foreign counterparts. 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 with quicker answers to Asia-
Pacific countries.
Criterion 40.2 (Mostly met)—
c.40.2a—(Met) The legal basis for competent authorities to provide cooperation exists in relevant
provisions in various laws. The AML Law stipulates that the AML competent authority of the State
Council (PBC) cooperates with foreign governments and international organizations in exchanging
information. Its exchange of information is done through CAMLMAC. Based on formal agreements
or the principle of reciprocity, China's public security agencies are authorized to cooperate in
criminal cases, including ML and certain predicate offenses, with foreign police agencies (Provisions
on the Procedures for Handling Criminal Cases by Public Security Organs, Arts. 13 and 364). The CTL
(Art. 69) stipulates that relevant departments of the State Council, with the authorization from the
State Council carry out combating terrorism policy dialogues, intelligence information sharing, law
enforcement cooperation, and international financial supervisory cooperation with foreign
governments and international organizations. The Banking Supervision Law (Art. 7) stipulates that
the banking regulatory authority can establish supervisory cooperation mechanism with banking
supervisory institutions of other countries or regions and implement cross-border supervision. The
Law on the Administration of Tax Collection (Art. 91) stipulates that the Chinese government can
conclude taxation treaties with foreign jurisdictions to engage in international co-operation.
c.40.2b—(Met) Competent authorities are not prevented from using the most efficient means
possible for providing assistance. Competent authorities have entered into numerous MOUs or

bilateral and multilateral agreements with other foreign entities to facilitate cooperation. This
information sharing agreements cover a broad range of foreign counterparts from numerous
jurisdictions.
c.40.2c—(Met) There are clear and secured information exchange channels for the transmission and
reception of foreign requests during international cooperation. The CAMLMAC has established its
International Anti-Money Laundering Information Transmission System (CSW), which is dedicated to
exchanging information with foreign FIUs. Art. 5 of the Processing Procedures of AML and Analysis
Center provides that in addition to the CWS System, e-mails, letters, and faxes can be used for
international information exchange. As of April 2018, it signed MOUs or similar cooperative
documents with FIUs of 50 countries. Other competent authorities also sign MOUs to facilitate the
exchange of information. They conduct information exchange with overseas parties through various
channels. Nonconfidential intelligence can be delivered via internet e-mail; while confidential
intelligence shall be exchanged through encrypted networks, encrypted faxes, or special channels.
The PBC has signed MOUs with a number of jurisdictions including Russia, Argentina, and Macau,
China, to facilitate international cooperation, including the exchange of information. The MPS has
established close cooperation relationships with 113 countries, established 129 bilateral and
multilateral cooperation mechanisms and 96 liaison hotlines, sent 72 police liaison officers to
35 countries, and signed nearly 400 cooperation documents with the internal police department of
more than 70 countries.
c.40.2d—(Not met) Clear standard procedures have been established for international cooperation
with foreign counterparts, but the processes for the timely prioritization of the execution of requests
have not been established. The Procedures for Processing of Foreign Intelligence Information
Documents of the CAMLMAC clarify the processing procedures for the exchange of intelligence with
foreign counterparts by mentioning the “designated time limits” for the process. A similar approach
has been taken by the SAT in its Rules for the International Exchange of Tax Information. In practice,
the priority is decided at the beginning of dealing with requests. There is no information on other
authorities.
c.40.2e—(Met) Various competent authorities have processes and procedures for safeguarding
information received from foreign counterparts. The legal documents have provisions on
safeguarding the confidentiality of information received by them.
Criterion 40.3—(Met) The Chinese government can carry out international cooperation in AML, CFT,
and related fields in accordance with international treaties concluded or acceded to, or in
accordance with the principle of equality and reciprocity. Thus, while generally multilateral or
bilateral agreements are welcome, they are not required conditions for competent authorities to
carry out international cooperation (AML Law, Art. 27). CAMLMAC can only exchange information
with counterpart FIUs based on a formal cooperation agreement, and it does not engage in the
exchange of information exclusively based on confidentiality and reciprocity.
Competent authorities of China have negotiated with a wide range of foreign counterparts and
signed cooperation agreements. For instance, the PBC has signed memoranda of cooperation with

four jurisdictions (Argentina; Australia; Macau, China; and Russia). The CAMLMAC has signed MOUs
on information exchange with 50 countries, the General Administration of Taxation has signed a
number of international treaties on tax cooperation on behalf of the Chinese government. The
conclusion of agreements is done in a timely manner.
Criterion 40.4—(Mostly met) In accordance with international custom, 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 the foreign counterparts.
The SAT expresses its gratitude to foreign counterparts for the 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 the treaties, agreements, or according to the
principles of equality and reciprocity (AML Law, Arts. 27, 28). There is no information suggesting that
laws 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. The 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 authorities
stated that the information request of a foreign authority will not be rejected because of the
involvement of fiscal matters, issues of confidentiality, active inquiry or investigations (with
reasonable exclusion of cases of possible impeding of investigations or prosecutions), or the status
of the requiring authority.
Specific provisions for such situations is mentioned only for the SAT. It shall not reject providing
intelligence to foreign counterparts for the following reasons: the information request has nothing
to do with tax benefits of China; the tax authorities have the obligation to keep the taxpayer
information confidential; the bank has confidential obligation with the information of the depositor;
the tax information is controlled by an agent, an intermediary, or other third parties etc. (Rules for
the International Exchange of Tax Information, Art. 10).
Criterion 40.6—(Met) The PBC, CAMLMAC, and tax authorities have controls and safeguards in place
to ensure that information exchanged is only used for its intended purpose. The MPS, for example,
includes such provision in its MOUs with LEA of other countries. When the CAMLMAC requests
intelligence from foreign counterparts, it explicitly states the purpose of using the information. If the
intelligence information provided by a foreign FIU is to be disclosed to the domestic LEAs,
CAMLMAC requests the consent of the foreign counterpart (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 the confidentiality of information
exchanged, consistent with the relevant applicable legal provisions (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) and the terms of MOUs and agreements entered into by competent authorities. For
example, the CAMLMAC applies confidentiality requirements (see 40.2). The CAMLMAC also requires
corresponding confidential measures to be adopted by the foreign counterparts for intelligence
information provided to them; the CAMLMAC may refuse to provide the information if the foreign
counterparts cannot protect the information effectively. Relevant provisions are included in the
MOUs.
Criterion 40.8—(Mostly met) While some of China's competent authorities can, within their
mandates, conduct inquires domestically, and give feedback upon receiving requests from foreign
counterparts, this does not extend to all of them (e.g., CSRC and CBIRC).
Exchange of Information between FIUs
Criterion 40.9—(Met) As indicated above with regard to c.40.2, the AML Law stipulates that the PBC
(having FIU functions in accordance with that law and the Law on the People’s Bank of China)
represents the Chinese government in carrying out AML cooperation with foreign governments and
relevant international organizations, exchanges information and materials related to AML with
foreign counterparts (AML Law, Art. 28). AML, according to Art. 36 of the AML Law includes TF as
part of terrorist activities.
Criterion 40.10—(Met) The feedback is to be provided to the foreign counterparts after the
intelligence is utilized according to Chapter II of the Standard Procedures for Processing of Foreign
Intelligence Information Documents of the CAMLMAC. Only information provided by foreign FIUs for
reference has no mandatory feedback requirements (Art. 4 of the Standard Procedures).
Criterion 40.11—(Met) The CAMLMAC can share information it directly obtains, such as the large-
value and STRs, commercial and public databases containing information on legal persons and their
representatives. Additionally, the FIU can obtain law enforcement and additional financial
information from financial institutions and make this information available to foreign FIUs, on a
case-by-case basis.
Exchange of Information between Financial Supervisors
Criterion 40.12—(Met) Art. 27 of the AML Law on carrying out AML cooperation with foreign
governments and relevant international organizations, exchanging relevant information and
materials related to AML with foreign counterparts also applies to the supervisory cooperation.
The CTL stipulates that the relevant departments of the State Council represent the Chinese
government in combating terrorism policy dialogues, intelligence information exchange, law
enforcement cooperation, and cooperation in international financial supervision with foreign
governments and relevant international organizations (Art. 68). That provision also applies to the
international financial regulatory cooperation.
Cooperation on AML/CFT with respect to the financial sector is the responsibility of the PBC
(AML Law, Arts. 27, 28; CTL, Arts. 68, 69).

Criterion 40.13—(Met) The PBC can exchange the information obtained in its AML supervision with
foreign counterparts. At present, China has signed MOUs for AML supervision with four jurisdictions,
which enables China to exchange AML supervisory information with counterparts in other
jurisdictions.
Criterion 40.14—(Partly met) For the AML/CFT purpose, the PBC can exchange domestically available
information specified in sub-criteria 40.14 (a) to (c) including supervisory information on AML and
financial regulation with foreign counterparts, regardless of whether they are supervising the same
group of financial institutions (AML Law, Art. 27; CTL, Art. 68). However, 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.
Criterion 40.15—(Partly met) The PBC can carry out international AML/CFT cooperation, but the law
describes in general its powers to cooperate and exchange relevant information, and is silent on the
power, at the request of the foreign counterparts, to investigate AML/CFT information and provide
feedback (AML Law, Arts. 27–28, CT Law, Art. 68). Based on the bilateral agreements or on the
principle of reciprocity, Chinese regulators may authorize or facilitate the ability of foreign
counterparts to conduct inquiries themselves in China.
Criterion 40.16—(Met) The PBC should explicitly state the purpose of information (e.g., for
supervision only) when requesting supervisory information from foreign supervisors. If the
information needs to be disclosed to other parties or used for other purposes, the PBC will obtain
prior authorization from the information providers. In accordance with the terms of cooperation
agreements (where in place), the preliminary consent to disclose information is required.
Exchange of Information between Law Enforcement Authorities
Criterion 40.17—(Met) The law enforcement authorities of China carry out international cooperation
with foreign law enforcement authorities according to international treaties of China, or under the
principle of equality and reciprocity, and exchange information on ML, relevant predicate offenses,
and TF with foreign law enforcement authority, including the tracking and searching of criminal
proceeds although the absence of provisions in law for confiscating property of corresponding value
might present certain limitations to the cooperation (CTL, Art. 68; Provisions on the Procedures for
Handling Criminal Cases by Public Security Agencies, Art. 364).
Police Cooperation. Public security authorities can cooperate with foreign police authorities to carry
out police cooperation, including the exchange of criminal intelligence, investigation and evidence
collection, service of criminal proceedings documents, transfer of evidence, documentary evidence,
audio-visual materials or electronic data and other evidence, extradition, arrest and deportation of
suspects, defendants, or criminals, as well as other criminal legal assistance and police cooperation
stipulated in the international treaties and agreement (Provisions on the Procedures for Handling
Criminal Cases by Public Security Agencies, Art. 365).

Prosecution cooperation. As of September 2017, the SPP has signed 146 cooperation agreements,
MOUs, and other documents with 96 countries and regions. The content involves the cooperation in
combating crimes, information exchange, and personnel training, etc.
Criterion 40.18—(Met) In police cooperation, the public security agencies of China can use the same
investigative powers, techniques, and coercive measures as investigating domestic cases, and upon
the requests from foreign counterparts, can inquire and obtain information on behalf of foreign
counterparts (Provisions on the Procedures for Handling Criminal Cases by Public Security Agencies,
Art. 368).
When the Chinese LEAs and international organizations or foreign LEAs sign multilateral/bilateral
cooperation agreements, parties agree on the use of information exchange. When a Chinese LEA
requests information from a foreign counterpart, it will clearly indicate the purpose of using the
information; if the information needs to be disclosed to other agencies or used for other purposes,
prior authorization will be sought from the requested party. For instance, the multilateral
cooperation agreements signed by the MPS (such as through Interpol to acquire data, investigate,
and collect evidence) and bilateral police cooperation agreements also govern the restrictions on
the use of information exchange.
Criterion 40.19—(Met) On the basis of multilateral and bilateral agreements, China can cooperate
with other countries to carry out law enforcement joint action. For instance, since 2011, according to
a joint statement of China, Laos, Burma, and Thailand, under the framework of the security
cooperation mechanism among the four countries, the LEAs of China and the other three countries
carry out the Mekong joint patrol enforcement to prevent, combat, and investigate crimes in
Mekong River basin.
Exchange of Information between Non-Counterparts
Criterion 40.20—(Met) China allows domestic and foreign non-counterparts to exchange information
indirectly under existing international cooperation mechanisms, but this is limited to agreements or
MOUs concluded by China (for police cooperation—Provisions on the Procedures for Handling
Criminal Cases by Public Security Agencies, Art. 364, 367). For instance, foreign police trying to obtain
information on financial supervision of China can make a request to the MPS which will transfer the
request to the appropriate financial supervisor. The information from the financial supervisor will be
provided through the MPS. Similarly, a foreign FIU can send a request to the CAMLMAC upon the
request of their domestic police and transfer the information from the CAMLMAC to the police. The
AML Law itself requires coordination among ministries and agencies in their AML work.
According to concluded international agreements and MOUs (for example, the MOU between the
PBC and AUSTRAC), the Chinese authorities exchange information with foreign counterparts making
it clear for what purpose and on whose behalf the request is made

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).

Annex II. Summary of Technical Compliance—Key Deficiencies

Compliance with FATF Recommendations
Recommendations Rating Factor(s) underlying the rating
1. Assessing risks & applying LC • Notable gaps in China’s assessment of risk relate to the
a risk-based approach very recent designation of DNFBPs and the lack of
oversight for DNFBPs in terms of AML/CFT obligations.
In addition, no assessment of risk by DNFBPs of their
products nor clients has been made.
• There is currently no effective oversight or monitoring
to ensure that DNFBPs are implementing their
obligations under R.1.
• DNFBPs have not been designated under the AML Law
and therefore are not subject to AML/CFT risk
assessment obligations.
• PIs are not subject to a general requirement to have
policies, controls and procedures approved by senior
management to enable them to manage and mitigate
identified risks.
2. National cooperation and C • The Recommendation is fully met.

coordination
3. Money laundering PC • Arts. 191 and 312 of the PC criminalizing ML do not
offenses cover “possession.”
• China follows the all-crimes approach under Art. 312 of
the PC, however provinces and autonomous regions can
also place a value range to determine if the behavior is
criminal.
• Some of the predicate offenses under Art.312 of the PC
are too narrow.
• Self-laundering is not criminalized in China.
• Prison sanctions are proportionate compared to other
financial crimes, but low compared to the penalties for
some of the main predicate offenses that the third-party
ML criminalization aims to deter.
• Legal entities are not criminally liable, and it is unclear if
sanctions for legal persons are proportionate and
dissuasive.
4. Confiscation and C • The Recommendation is fully met.
provisional measures
5. Terrorist financing offense C • The wording of the TF offense in Art. 120A of the PC is
very general and lacks the level of detail of the TF
Convention, which makes it somewhat difficult to assess
the requirements.

• Not all required conduct listed in three Conventions

Annexed to the TF Conventions has been criminalized
as terrorist conduct.
• With respect to the terrorist-related offenses
mentioned in the Annex of the TF convention there are
three conventions where, not all conduct, has been
criminalized as terrorist conduct.
• Art. 120A of the PC seems to cover only direct
assistance and not the willful collection of funds.
6. Targeted financial PC • There are no legal provisions that prohibit legal persons
sanctions related to and entities from making funds available to designated
terrorism & TF entities (i.e., a prohibition).
• There is no legal requirement to freeze assets that
extends to all assets of a designated person or entity.
• The legal framework, in general, lacks some of the
details that R.6 requires, such as designation criteria set
by the UNSCRs.
• There are no legal provisions or mechanisms that
ensure that authorities operate ex parte against entities
designated by the UNSCR or against entities to be
proposed to the UN, or against entities designated
upon a foreign request or a domestic proposal.
• The freezing requirements in the CTL and in Notice
187/2017, are incomplete in scope and only apply to FIs
and designated DNFBPs.
• The relevant legal provisions do not allow for freezing
without delay and without prior notice.
• Not all UNSCRs and UNSC designations are
communicated to the financial sector and DNFBPs
immediately upon taking such actions.
• Publicly known procedures to handle so called false
positives are in place, but only apply to those sectors
that are designated under the AML Law.
• De-listing and unfreezing communications suffer from
the same deficiencies as designation/freezing
communications, and there is no guidance on how to
handle such events.
7. Targeted financial NC • There are no legal provisions that prohibit legal persons
sanctions related to and entities from making funds available to designated
proliferation entities (i.e., a prohibition).
• There is no legal requirement to freeze assets that
extends to all assets of a designated person or entity.
• The framework, in general, lacks some of the details that
R.6 requires, such as designation criteria set by the
UNSCRs.

• The freezing requirements in Notice 187/2017, are

incomplete in scope and only apply to FIs and
designated DNFBPs.
• The legal provisions do not allow for freezing without
delay and without prior notice.
• Not all UNSCRs and UNSC designations are
communicated to the financial sector and DNFBPs
immediately upon taking such actions.
• Publicly known procedures to handle so called false
positives are in place, but only apply to those sectors
that are designated under the AML Law.
• De-listing and unfreezing communications suffer from
the same deficiencies as designation/freezing
communications, and there is no guidance on how to
handle such events.
8. Nonprofit organizations PC • China has not attempted to identify the subset of
organizations within its broader NPO sector in an effort
to identify those organizations that meet the FATF
definition of an NPO and are therefore at risk of TF
abuse.
• No information was provided with respect to how
outreach is conducted nor how China raises awareness
of the donor community about the potential
vulnerabilities of NPOs to TF abuse and TF risks.
• China does not have a risk-based monitoring
mechanism to address the risk of TF within this sector
and has not demonstrated that it conducts outreach
specific to the risk of TF abuse.
• It is unclear if there is sufficient investigative expertise
and capabilities to examine NPOs suspected of either
being exploited by, or actively supporting, terrorist
activity, or terrorist organizations.
9. FI secrecy laws C • The Recommendation is fully met.
10. Customer due diligence LC • PIs are not required to undertake CDD measures when
carrying out occasional transactions in several
operations that appear to be linked for a total
exceeding the equivalent of USD/EUR 15,000.
• PIs are not required to verify that any person
purporting to act on behalf of the customer is so
authorized and identify and verify the identity of that
person.
• FIs are not explicitly required to identify the natural
person who ultimately owns a customer that is a legal
person or a legal arrangement.

• There is no explicit requirement for PIs to ensure that

documents, data, or information collected under the
CDD process is kept up-to-date and relevant.
• For customers that are legal persons or legal
arrangements, the FIs are required to understand the
nature of the customer’s business and its ownership
and control structure, but the requirement seems to be
unduly limited to taking reasonable measures.
• There is no requirement to collect information on the
place of business of legal arrangements.
• For life and other investment-related insurance policies
where a beneficiary is designated by characteristics or
by class or by other means, insurance institutions are
not required to obtain sufficient information on the
beneficiary to be able to establish the identity at the
time of the pay-out. Measures of verification of the
identity of the beneficiary are subject to thresholds and
limited to specific types of payments.
• FIs are not required to take enhanced measures,
beyond enhanced customer-identification measures, if
they determine that a beneficiary who is a legal person
or a legal arrangement presents a higher risk.
• It is unclear whether the requirements governing the
situation where low-risk customers are allowed to
utilize the business relationship prior to verification are
mandatory.
• The requirement to supplement or update CDD
information of existing customers is not based on
materiality, nor should be done at appropriate times.
• The implementation of CDD for existing relationships of
PIs is not required on the basis of materiality and risk,
or at appropriate times.
• It is not clear whether the requirement to apply
enhanced measures in situations where ML/TF risks are
high are mandatory.
11. Record-keeping C • The Recommendation is fully met.
12. Politically exposed PC • There are no requirements for the use of risk
persons 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 LC • Banks are not explicitly required to include agents in
services 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 PC • The obligations for FIs on establishing internal controls
foreign branches and do not explicitly require having regard to the ML/TF
subsidiaries 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 LC • The minor deficiency regarding the scope of predicate
transaction 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 LC • It is unclear whether the tipping-off provisions for PIs
confidentiality are not intended to inhibit information sharing under
R.18
22. DNFBPs: Customer due NC • With the exception of trust companies, which have the
diligence 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 NC • China’s Company Law is open ended and does not list
legal persons 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. To comply with this criterion,
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 NC • There are no obligations that require the identification
legal arrangements 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 PC • The online lending sector is not subject to the AML Law
supervision of financial and is not supervised for AML/CFT requirements. This
institutions 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 NC • There are no measures for regulation and supervision
supervision of DNFBPs of DNFBPs, except for trust companies and DPMs. This
scope issue has an impact on all aspects of R.28.
29. Financial intelligence PC • China’s FIU arrangement does not fully qualify as a
units 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 C • The Recommendation is fully met.
enforcement and
investigative authorities
31. Powers of law C • The Recommendation is fully met.
enforcement and
investigative authorities
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: PC • Beyond the legal provisions and procedures that apply
freezing and confiscation 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 LC • Feedback from the Global Network suggests that it
international cooperation 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

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MF Country Report No.

PEOPLE’S REPUBLIC OF CHINA

Copies of this report are available to the public from

International Monetary Fund • Publication Services

International Monetary Fund

© 2019 International Monetary Fund

DETAILED ASSESSMENT REPORT ON ANTI-MONEY

Prepared By This Detailed Assessment Report was prepared in the

EXECUTIVE SUMMARY __________________________________________________________________________ 9

KEY FINDINGS ___________________________________________________________________________________ 9

DETAILED ASSESSMENT REPORT _____________________________________________________________ 19

ML/TF RISKS AND CONTEXT __________________________________________________________________ 20

NATIONAL AML/CFT POLICIES AND COORDINATION ______________________________________ 36

LEGAL SYSTEM AND OPERATIONAL ISSUES _________________________________________________ 42

TERRORIST FINANCING AND FINANCING OF PROLIFERATION_____________________________ 73

PREVENTIVE MEASURES ______________________________________________________________________ 92

2 INTERNATIONAL MONETARY FUND

SUPERVISION _________________________________________________________________________________ 106

LEGAL PERSONS AND ARRANGEMENTS ____________________________________________________ 124

INTERNATIONAL COOPERATION ____________________________________________________________ 131

INTERNATIONAL MONETARY FUND 3

4. Convictions Entered Pursuant to the Three ML Articles ________________________________________ 60

4 INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND 5

AMLB Anti-Money Laundering Bureau

AMLJMC Anti-Money Laundering Joint Ministerial Conference

CAMLMAC China Anti-Money Laundering Monitoring and Analysis Center

CBIRC China Banking and Insurance Regulatory Commission

CCDI Central Commission for Disciplinary Inspection

CDD Customer Due Diligence

CIRC China Insurance Regulatory Commission

CSP Company Service Provider

CTL Counter Terrorism Law

CSRC China Securities Regulatory Commission

DNFBP Designated Non-Financial Businesses and Professions

DPM Dealers in Precious Metals

DPRK Democratic People’s Republic of Korea

ECID Economic Crime Investigation Department

ETIM Eastern Turkistan Islamic Movement

FIU Financial Intelligence Unit

GAC General Administration of Customs

GDP Gross Domestic Product

LEA Law Enforcement Agency

LVTR Large Value Transaction Report

MCA Ministry of Civil Affairs

MER Mutual Evaluation Report

MFA Ministry of Foreign Affairs

6 INTERNATIONAL MONETARY FUND

MLA Mutual Legal Assistance

MOF Ministry of Finance

MOJ Ministry of Justice

MOHURD Ministry of Housing and Urban-Rural Development

MOU Memorandum of Understanding

MPS Ministry of Public Security

MOS Ministry of Supervision

MSS Ministry of State Security

NPC National People's Congress

NPO Nonprofit Organization

NRA National Risk Assessment