On October 6, 2021, the Financial Action Task Force (FATF) officially released the Second Enhanced Follow-up Report and Technical Compliance Re-Rating on Anti-money Laundering and Counter-terrorist Financing Measures of the People’s Republic of China (hereinafter referred to as the Report). The Report reaffirms China’s efforts in addressing anti-money laundering and counter-terrorist financing (AML/CFT) deficiencies for the follow-up assessments. After the re-rating, China has been upgraded to “compliant” regarding two Recommendations, namely Recommendation 18 (internal controls, foreign branches and subsidiaries) and Recommendation 38 (mutual legal assistance: freezing and confiscation), and “l(fā)argely compliant” regarding four Recommendations, namely Recommendation 3 (money-laundering offence), Recommendation 8 (non-profit organizations), Recommendation 16 (wire transfers), and Recommendation 29 (financial intelligence units). Up to now, China has been rated compliant or largely compliant on 31 of the 40 FATF Recommendations.
With respect to the financial institutions’ internal control systems and their management of foreign branches and subsidiaries (Recommendation 18), the Report fully endorses the newly issued Measures for Supervision and Administration on Anti-Money Laundering and Countering the Financing of Terrorism in Financial Institutions (PBC Order No. 3 [2021]), holding that China has fully met the compliance requirements on financial institutions’ internal control measures, ongoing training program, independent audit function, group-wide programs against money laundering and terrorist financing (ML/TF), as well as the appointment of compliance officer at the management level, among others. In terms of freezing and confiscation measures of mutual legal assistance (Recommendation 38), the Report concludes that China has made significant progress in expediting foreign freezing, seizing and confiscation requests, allowing for seizing and confiscation of property of equivalent value, and facilitating non-conviction based confiscations, and thus has achieved compliance in this regard.
The Report reaffirms the active progress China has secured in criminalizing self-laundering, removing the threshold of determining whether a behavior is criminal, intensifying sanctions on crimes, etc. (Recommendation 3), acknowledges the series of measures China has adopted in assessing the TF risks of non-profit organizations, applying risk-based supervision, and improving resource allocation (Recommendation 8), holds that China has taken substantial steps in identifying and verifying the originators and beneficiaries of cross-border wire transfers (Recommendation 16), and in using financial intelligence and developing systems (Recommendation 29). Based on the above considerations, China was re-rated “l(fā)argely compliant” on the four Recommendations.
The Report also introduces China’s progress reported in addressing other deficiencies, including amending the Anti-money Laundering Law, conducting ML/TF risk assessments on designated non-financial businesses and professions (DNFBP), promoting the establishment of a beneficial owner (BO) regime, etc.
In February 2019, the FATF adopted the fourth round of mutual evaluation report of China and placed China in enhanced follow-up procedures. In September 2020, FATF adopted China’s first enhanced follow-up report (FUR), with three technical compliance re-ratings upgraded to “l(fā)argely compliant.” The second FUR released this month shows the AML/CFT progress in China prior to April 2021. In October 2022, China will report back to the FATF on its progress in addressing AML/CFT deficiencies during the follow-up process.
(Source: http://www.fatf-gafi.org/media/fatf/documents/reports/fur/Follow-Up-Report-China-2021.pdf)
