It has been 18 years since the Anti-Money Laundering Law was implemented on January 1, 2007. From an international background, money laundering activities are becoming increasingly rampant, and transnational money laundering activities are becoming more frequent, seriously threatening the international financial order and the economic security of various countries. From the perspective of the domestic environment, with the rapid development of the financial market and the continuous advancement of technological innovation, the means and methods of money laundering activities are also constantly updated and evolving. Driven by many complex factors, the Anti-Money Laundering Law ushered in its first major revision.
On April 23, 2024, the "Anti-Money Laundering Law of the People's Republic of China (Revised Draft)" (hereinafter referred to as the "Revised Draft") was submitted to the ninth meeting of the Standing Committee of the 14th National People's Congress for review. The issue of virtual asset money laundering is also one of the important backgrounds of this revision.
According to the legislative plan, the revised draft is expected to be passed in 2025. What possible impacts will the revision of the Anti-Money Laundering Law have on the Web3 industry? This article uses this perspective to interpret the "Revised Draft".
Text | Lawyer Shao Shiwei
According to Article 60 of the "Revised Draft", non-financial institutions engaged in specific When doing business, they should refer to the relevant provisions of this Law on financial institutions to perform anti-money laundering obligations and take corresponding anti-money laundering measures. This article adopts the method of enumeration and exhaustion, enumerating real estate agencies, service providers whose services involve custody of customer assets/asset accounts, precious metal traders, etc., and other institutions that need to fulfill anti-money laundering obligations.
Lawyer Shao’s Interpretation
The Financial Action Task Force (FATF) is the world’s most authoritative intergovernmental international organization against money laundering and terrorist financing. In 2007, China became a formal member of the organization. In 2012, the Financial Action Task Force revised and released a new international standard - "International Standards to Combat Money Laundering, Terrorist Financing and Proliferation Financing: FATF Recommendations" (hereinafter referred to as the "FATF Recommendations"). Based on this, from 2014 By 2022, all members will conduct mutual evaluations to comprehensively examine the compliance and effectiveness of members’ anti-money laundering work.
From 2018 to 2019, FATF conducted a year-long assessment of my country’s anti-money laundering work. my country has 6 non-compliant compliance assessments among the 40 recommendations of FATF, 3 of which involve specific non-financial industries, namely: specific non-financial industries and occupations: customer due diligence, specific non-financial industries and Occupations: other measures, regulation of specific non-financial industries and occupations). Therefore, this revision fills the gap on this issue.
The "Revised Draft" clarifies the scope of non-financial institutions with anti-money laundering obligations. This is the first issue that Web3 practitioners need to pay attention to. Because this determines the question of whether the Anti-Money Laundering Law is "relevant to me" - that is: Do Web3 institutions and practitioners have the obligation to fulfill the Anti-Money Laundering Law?
my country’s policy defines virtual currency-related businesses as “illegal financial activities.” For the localized application of blockchain technology in the country, “NFT Digital Collections” has also been issued to prevent NFT-related financial risks. From this, we can It can be seen that China generally has a negative attitude towards the financial practical application of Web3.
However, our country’s regulatory authorities’ understanding of blockchain technology and Web3-related applications is also gradually improving. For example, in the "China Financial Stability Report (2023)" released by the People's Bank of China in December 2023, it was rare to set up a separate "crypto-asset" section in a large space, without using the previous term "virtual currency", and put forward It is similar to the "same business, same risks, same supervision" principle similar to that of the US SEC. Therefore, in the long run, the future development of Web3 in China still has unlimited possibilities and potential. Then, for industries involving the Web3 field that require users to provide asset accounts and whose services include user transactions, Lawyer Shao believes that anti-money laundering obligations need to be fulfilled.
In the "Revised Draft", such as Article 21, "allocate anti-money laundering regulatory resources according to risk status and adopt corresponding measures." Risk prevention and control measures"; Article 28, "Financial institutions shall adopt money laundering risk management measures in compliance with relevant regulations and shall not adopt management measures that are obviously inconsistent with the risk status", which are all specific embodiments of the "risk-based" principle.
"Customer due diligence" replaces "customer identification"
Article 3 of the "Anti-Money Laundering Law" stipulates that financial institutions and specific non-financial institutions should establish and improve customer identification systems, but " Article 4 of the revised draft replaces "identity identification" with "due diligence", and Article 26 stipulates that "financial institutions shall establish a customer due diligence system in accordance with regulations and understand the customer's identity, transaction background and risk status through due diligence."
Paragraph 2 of Article 28 stipulates the scope of “money laundering management measures”: “The money laundering risk management measures referred to in this Law include continuous monitoring and verification of customers and their transactions, and restrictions on transaction methods and amounts. Or frequency, limit business types, refuse to handle business, terminate business relationships, etc.”
lawyer Shao’s interpretation
The 2012 "FAFT Recommendations" established a "risk-based" regulatory system, replacing the "rules-based" regulatory system in previous regulations. The concept of "risk-based", in short, requires anti-money laundering entities to adopt differentiated anti-money laundering measures for different risk areas through scientific assessment to improve the effectiveness of anti-money laundering work. This revision also implements the "risk-based" working principle.
This also reminds Web3 platforms and service providers to also perform corresponding compliance review obligations based on the specific service content provided to users. It is not only necessary to conduct a static formal review of users (the documents are authentic and the witnesses are consistent), but also to adopt a "due diligence investigation" working method, maintain dynamic attention to users, and comprehensively analyze the actual controller and ultimate beneficiary of the customer's assets, and It is necessary to review the consistency of customer transaction activities with their identity background, business needs, risk status, source and purpose of funds, etc.
For the Web3 industry, anti-money laundering work in commercial services requires the use of KYC, KYB, KYT and other means.
KYC (Know Your Customer, Know Your Customer) is a formal review of customer identity verification; KYB (Know Your Business, Know Your Business) is a review of the legal compliance of customer business activities. For example, the legality of the transaction, the purpose of the transaction, the source of funds, etc.; KYB and KYC methods are more suitable for the traditional financial field, but based on the decentralization, anonymity and other characteristics of the blockchain, the data monitoring of transactions on the chain becomes Very necessary.
KYT (Know Your Transcations) is an anti-money laundering method more suitable for the Web3 industry. It can continuously track all addresses controlled by specific entities according to different anti-money laundering strategies, and collect and fund in real time. Intelligence related to the source or destination can accurately identify high-risk activities, and curb illegal activities such as money laundering through on-chain data tracking and digital asset traceability technology.
Compared with the Anti-Money Laundering Law, the "Draft Revision" mentions the diligence of directors, supervisors and senior executives for the first time Due diligence clause. According to Article 53 of the "Revised Draft", "Directors, supervisors, senior managers or other directly responsible personnel of financial institutions who can prove that they have taken anti-money laundering measures diligently and responsibly may not be punished."
Interpretation by Lawyer Shao
In the field of criminal litigation, the procuratorate may decide not to prosecute qualified companies after completing compliance and rectification requirements. Article 53 of the "Amendment Draft" stipulates that directors, supervisors and senior executives are diligent and perform their duties in compliance with the exemption from penalties, which can be regarded as criminal compliance and non-prosecution in the field of anti-money laundering.
It is the responsibility of financial institutions to undertake comprehensive and complete anti-money laundering obligations. The Anti-Money Laundering Law and its supporting hundreds of regulatory documents also constrain financial institutions. Lord. Our country's legislation itself has not been in practice for supervising specific non-financial institutions for a long time, and experience has yet to be accumulated. In other words, due to the lack of practical anti-money laundering guidelines and rules, the relevant Web3 industry has no idea whether the company is a "non-specific financial institution" "category, and if so, how to carry out anti-money laundering work, we can only cross the river by feeling the stones. Then, due to the lack of regulatory legislation itself, if Web3 companies have fulfilled their general anti-money laundering precautions and still have relevant consequences, they should not impose heavier legal liabilities on the company's directors, supervisors and senior personnel. .
Article 46 of the "Revised Draft" stipulates that in the process of investigating money laundering and terrorist financing activities in accordance with the law, relevant state agencies shall, in accordance with the principle of reciprocity or after consultation with Relevant countries may, upon consensus, require cooperation from overseas financial institutions that open agency bank accounts within the country or have other close financial ties with my country.
Lawyer Shao’s Interpretation
Can the Web3 project avoid domestic anti-money laundering-related obligations when it goes overseas? This article provides the answer. According to the principles of personal jurisdiction and protective jurisdiction in criminal jurisdiction, the competent authorities in my country can require domestic correspondent bank accounts or overseas financial institutions to cooperate.
Another similar question, do foreign Web3 projects need to comply with the anti-money laundering obligations of other countries? Take Binance, the world's largest cryptocurrency exchange, as an example. On April 30, 2024, Binance was fined US$4.3 billion for being accused by the U.S. government of violating U.S. anti-money laundering laws. At the same time, its founder Changpeng Zhao was sentenced to four years by a local U.S. court. months in prison. The Binance exchange is registered in Malta.
In the context of globalization, the importance of anti-money laundering work is self-evident. It is not only related to the stable operation of the financial system, but also an indispensable part of ensuring national security. Because of this, regulatory authorities around the world attach great importance to anti-money laundering work. At the same time, for criminal crimes, the criminal jurisdiction of various countries also has certain extraterritorial extension. Therefore, for Web3 practitioners, they need to pay special attention to anti-money laundering work when engaging in business activities in any country
Article 21 of the "Revised Draft" mentions that "the anti-money laundering administrative department of the State Council, in conjunction with relevant state agencies, conducts national and industry money laundering risk assessments and promptly monitors new types of money laundering Risks, allocate anti-money laundering supervision resources according to risk status, and adopt corresponding risk prevention and control measures. "
The public’s anti-money laundering obligations
are only mentioned twice in the Anti-Money Laundering Law." The anti-money laundering obligations of "units and individuals" are mentioned as many as 7 times in the "Revised Draft", mainly involving: not engaging in/providing facilities for money laundering activities, cooperating with financial institutions' due diligence obligations, reporting money laundering activities, and Obligation to take special anti-money laundering precautions on relevant lists.
lawyer Shao’s interpretation
Yan Lixin, executive director of the China Anti-Money Laundering Research Center at Fudan University, said, “The most important, most urgent, and most necessary issue to be resolved at the legal level is: It is the money laundering problem involving virtual assets” and “the use of cryptocurrency and virtual assets for money laundering has gradually become a mainstream trend.”
As early as 2013, the People's Bank of China and other five ministries and commissions issued the "Notice on Preventing Bitcoin Risks", which mentioned that Bitcoin "does not have the same legal status as currency and cannot and should not Circulated and used in the market as currency"; in 2021, ten ministries and commissions issued the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Transactions", which once again reiterated the above point of view and stated that "virtual currency-related business activities are illegal financial activities." But the reality is that criminals are increasingly using virtual currency to launder money and use virtual currency as a medium to conduct illegal exchanges through "foreign exchange knock-offs."
Combined with the concerns about new money laundering risks in the "Revised Draft" and the public's anti-money laundering cooperation obligations, it can be predicted that the country will strengthen the crackdown and punishment of virtual currency transactions in the future. Although there are currently no relevant laws and regulations prohibiting virtual currency transactions between individuals, under the background of the revision of the Anti-Money Laundering Law, OTC trading entities may be subject to heavier duties of care, for example, due to Bank card freezes caused by transactions may become more and more difficult to unfreeze; as to whether the transaction subject should have known or knowingly knew that it was a money laundering crime, the burden of proof of the judicial authorities may be appropriately reduced in practice.
In response to the revised draft, Wang Xin, a professor at Peking University Law School and an expert who participated in the discussion of the revised draft of the Anti-Money Laundering Law, said, “The Anti-Money Laundering Law involves a relatively wide range, and the revised draft It is difficult to cover everything, so we can only frame the most urgent content first." Therefore, the "Revised Draft" fails to make more clear provisions on the anti-money laundering supervision of the Web3 industry. Another practical reason is that the Web3 field is an emerging industry, and legislation in various countries is also being explored.
Everything has two sides, and the same is true in the Web3 field. While bringing unprecedented opportunities to financial innovation and the digital economy, it also provides new channels for illegal activities such as money laundering. The lack of supervision will hinder the healthy development of the Web3 industry to a certain extent, but the development speed of the industry must precede supervision. Therefore, for the sustainable, healthy and stable development of the industry, Web3 practitioners must attach great importance to anti-money laundering work and actively fulfill relevant anti-money laundering obligations.
What will be the future development of Web3 in China? No one can predict it. However, only compliance can have a future.
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