Laws of the People's Republic of China

Circular of the People's Bank of China for Financial Institutions to Strictly Carry out Anti-money Laundering Provisions for the Prevention of Money Laundering Risks

January 1, 2005

In January 2003, the People's Bank of China has issued the Provisions on Anti-money Laundering through Financial Institutions, the Measures for the Administration on Reports of Large-sum and Suspicious Payment Transactions in Renminbi and the Measures for the Administration on Reports of Large-sum and Suspicious Foreign Exchange Transactions of Financial Institutions (hereinafter referred to as "one text of Provisions and two texts of Measures"), which marks that the anti-money laundering work of China has been on the tract of institutionalization.

In 2004, the People's Bank of China made a nationwide special anti-money laundering inspection with the focus on commercial banks, during which it is found that there still exists some prominent problems with the anti-money laundering work of financial institutions: first, some financial institutions haven't sufficiently understood or paid sufficient attention to the importance of the anti-money laundering work; second, the construction of the internal control mechanism for anti-money laundering was not sound enough, and a number of financial institutions fail to establish and improve relevant institutions and systems as required; third, the anti-money laundering provisions have not been implemented effectively and sufficiently, and especially, the systems on reporting large-sum transactions and suspicious fund transactions are needed to be further reinforced and improved; fourth, the anti-money laundering staff are relatively short of anti-money laundering knowledge and skills. In case these problems remain unresolved, the anti-money laundering work of China will be seriously restricted from being effectively implemented.

The existence of the aforesaid problems are due to the short time of the anti-money laundering work of China since its beginning as well as the insufficient work experiences. However, the most important reason is the insufficient understanding and attention. In order to resolve the aforesaid problems, all financial institutions shall seek their own problems and shortages in respect of understanding, concept, and measures. In 2005, the People's Bank of China will strengthen the supervision over the anti-money laundering work of financial institutions, and strictly investigate and punish acts violating the anti-money laundering provisions according to law. Hereby, a circular in respect of related issues is made as follows.

1.

All financial institutions shall be sufficiently aware of the importance and necessity of anti-money laundering work, earnestly intensify the leadership and promote the work initiative.

Money laundering activities foster crimes, disturb the economic order of the state, seriously endanger the financial safety, and impact the credit of the government and the international image of the state. Doing the anti-money laundering work well relates to the state security and the stability of economic order, to the effective implementation of laws of the state and to the normal operation of economy and finance, and is a necessary step to speed up the opening up of financial industry of China, and to propel the integration with international standards of China's internal control and management of the risks in the financial industry as well.

Financial institutions are the most important channel of money laundering activities, and are the main position for anti-money laundering work at the same time. Effectively undertaking the anti-money laundering work is both a piece of absolutely necessary work and a piece of legal obligation that must be performed. All financial institutions shall, from the height of practicing the important thought of Three Represents and starting from the overall situation of maintaining political stability, social stability, economic and financial safety, further advance the awareness, actually change ideas, earnestly strengthen the organization and guidance, enhance the sense of urgency and initiative in work, actively and consciously establish and perfect systems on internal control of anti-money laundering, strictly fulfill the legal anti-money laundering obligations, and guarantee the implementation of anti-money laundering provisions in an all-round way, so as to make the anti-money laundering work of China to be on the channel of regularization and legalization.

2.

Earnestly fulfilling the legal anti-money laundering obligations, and strictly carrying out anti-money laundering provisions.

According to the "One Text of Provisions and Two Texts of Measures", it is required for financial institutions to establish and improve systems on internal control of anti-money laundering and to fulfill the relevant obligations on anti-money laundering, which mainly including,

(1)

Obligation of due-diligence investigation of customers. The financial institution shall, when establishing business relationship or transacting with a customer, determine and record the customer's identity information on the basis of the statutory effective identity certificates and materials. No financial institution may provide any service of deposit or settlement, etc. to a customer who is of unclear identity, or opens an account in anonym or in fictitious name.

(2)

Obligation of conserving transaction records. The financial institution shall keep the account materials and transaction records of customers within a certain period. Account materials shall be kept for at least 5 years as of nullification of the account, and transaction records be kept for at least 5 years as of making the transaction records. The contents of transaction records shall include the account holder, the amount deposited or drawn via the account, the transaction time, the sources and uses of the funds, the method for drawing the funds and etc.

(3)

Obligation of reporting large-sum transactions. The financial institution shall make reports to the relevant departments strictly according to the standards, procedures and time for reporting large-sum transactions as prescribed in "One Text of Provisions and Two Texts of Measures".

(4)

Obligation of reporting suspicious transactions. The financial institution shall make reports to the relevant departments strictly according to the standards, procedures and time for reporting suspicious transactions as prescribed in "One Text of Provisions and Two Texts of Measures".

(5)

Other anti-money laundering obligations that financial institutions shall perform.

All financial institutions shall, strictly according to the relevant anti-money laundering provisions, establish an anti-money laundering system with sound mechanism, perfect system, powerful measures and effective controllability as soon as possible, so as to guarantee the effective implementation of the anti-money laundering work.

3.

The People's Bank of China shall strictly carry out laws, and further intensify the supervision and punishment on anti-money laundering activities.

In the newly amended Law on the People's Bank of China, it is prescribed that the People's Bank of China assumes the legal duty of "making inspection and supervision over the anti-money laundering activities of financial institutions and other entities or individuals". In 2005, the People's Bank of China will, according to the Law on the People's Bank of China, intensify the supervision and punishment on anti-money laundering activities, and shall severely penalize, according to law, the financial institutions and the relevant liable persons who fail to effectively fulfill the obligations as prescribed in anti-money laundering laws and regulations; if any crime is constituted, the case shall be transferred to the judicial organ for investigation of criminal liabilities.

According to Article 46 of the Law on the People's Bank of China, where any act in violation of the relevant anti-money laundering provisions and subject to the punishment provisions of relevant laws and administrative regulations, it shall be punished in light of such laws and administrative regulations. If there isn't any provision on punishment, the People's Bank of China shall, in light of different circumstances, give warnings, confiscate illegal gains if any, and impose a fine of one time up to five times of the illegal gains if the illegal gains are more than RMB 500,000 Yuan; and if there are no illegal gains or the illegal gains are less than 500,000 Yuan, a fine of 500,000 Yuan up to 2 million Yuan shall be imposed. The directly responsible directors, senior managers in charge and other directly liable persons shall be given a warning, or imposed on a fine of 50,000 Yuan up to 500,000 Yuan; if any crime is constituted, he shall be subject to criminal liabilities in accordance with law.

All financial institutions and practitioners shall effectively boost up their legal consciousness, further clarify the legal liabilities borne by them, and shall improve and strengthen the anti-money laundering work, consciously accept the work guidance and supervision of the People's Bank of China in light of the requirements of the anti-money laundering provisions.

All branches and business management departments of the People's Bank of China, and all central sub-branches of the People's Bank of China in provincial capital cities and deputy provincial cities shall immediately transmit it to all urban commercial banks, rural commercial banks, foreign-funded banks, urban and rural credit cooperatives within their respective jurisdictions after receiving the present Circular.