China to Amend AML Legislation to Tackle Risks Linked to Digital Assets

China is preparing to update its outdated Anti-Money-Laundering (AML) legislation to address the growing risks linked to virtual assets.

The draft amendment, which was reviewed during a State Council meeting led by Chinese Premier Li Qiang, is set to be examined by the national legislature, as reported by South China Morning Post.

Although the complete text of the proposed amendment has not been made public, legal experts suggest that its main goal is to combat money laundering involving virtual assets.

The necessity to tackle money laundering associated with virtual assets is highlighted in a report by Chinese digital news outlet Jiemian, referencing Yan Lixin, executive director at the China Centre for Anti-Money-Laundering Studies at Fudan University in Shanghai.

China Takes Proactive Measures Against Crypto

China’s recent initiative in the battle against money laundering demonstrates the government’s commitment to keep pace with advancements in the Web3 sector, including non-fungible tokens and other virtual assets.

This initiative is consistent with the nation’s ongoing prohibition of cryptocurrency activities, such as mining and trading.

The anticipated amendment to the AML law, expected to be enacted next year, seeks to address new forms of money laundering risks.

Wang Xin, a professor at Peking University Law School who is engaged in the discussions regarding the law’s revision, emphasizes the importance of adapting to changing practices.

Zhang Xiaojin, a senior prosecutor with the Supreme People’s Procuratorate, reaffirmed a commitment to enhance efforts against money laundering and illegal foreign exchange trading offenses, particularly those involving digital currencies for asset transfers abroad.

In recent years, Chinese authorities have increased their oversight of money laundering cases related to cryptocurrencies.

In 2022, law enforcement in the Inner Mongolia Autonomous Region apprehended 63 individuals for laundering 12 billion yuan (approximately US$1.7 billion) through cryptocurrency.

China’s AML Remained Unchanged for 17 Years

China’s AML regulations have largely remained static since their implementation over 17 years ago, not accounting for the emergence of cryptocurrencies like Bitcoin (BTC).

According to Andrew Fei, a partner at law firm King & Wood Mallesons in Hong Kong, it is essential to revise China’s AML law to address the risks associated with virtual assets, given the significant advancements in international standards and best practices.

The Financial Action Task Force (FATF), an intergovernmental organization focused on combating money laundering and terrorist financing, has already issued comprehensive recommendations to address virtual assets in the proposed AML law amendment.

Although the FATF assessed mainland China as “largely compliant” with virtual asset-related AML recommendations, the country’s ban on crypto activities exempted it from several criteria.

Fei stated that China should integrate the relevant FATF recommendations into the revised AML law.

He suggested empowering authorities with additional tools and capabilities to specifically address the unique challenges posed by virtual assets and emerging technologies.

Despite China’s prohibition on virtual currencies and related activities, the borderless and decentralized nature of virtual asset transactions can still have direct or indirect effects on the country, particularly when exploited for illicit activities.

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