China Takes Aim at Virtual Asset Risks: Overhauling Anti-Money-Laundering Law

China is on the verge of enacting significant revisions to its outdated Anti-Money-Laundering (AML) Law, signaling a proactive stance in addressing the escalating risks associated with virtual assets. The draft amendment, which was deliberated upon during a State Council meeting chaired by Chinese Premier Li Qiang, is slated to undergo review by the national legislature, as disclosed in a recent report by state-run news agency Xinhua.

Although the comprehensive text of the draft amendment has not yet been made public, its primary focus is to combat money laundering involving virtual assets, according to insights from legal scholars cited in a January 31 report by Chinese digital news media Jiemian. Yan Lixin, executive director at the China Centre for Anti-Money-Laundering Studies at Fudan University, emphasized the imperative of addressing money laundering associated with virtual assets through legal channels.

The impending amendment underscores Beijing's commitment to keeping pace with developments in Web3, such as non-fungible tokens, while remaining steadfast in its stringent ban on cryptocurrency operations, including mining and trading. Wang Xin, a professor at Peking University Law School involved in discussions about the amendment, anticipates that the revision will proactively address emerging money-laundering risks.

Senior prosecutor Zhang Xiaojin, representing the Supreme People’s Procuratorate, has recently pledged to intensify efforts against money laundering and illegal foreign exchange trading, with a particular focus on crimes involving the use of digital currencies for transferring assets abroad.

China has ramped up scrutiny of crypto-related money laundering cases, exemplified by the arrest of 63 individuals for laundering $1.7 billion using cryptocurrency in Inner Mongolia Autonomous Region in 2022.

Legal experts, including Andrew Fei from law firm King & Wood Mallesons, underscore the significance of revising China’s AML law to effectively address virtual asset-related risks in line with evolving international standards. The Financial Action Task Force (FATF) has provided detailed recommendations to tackle virtual asset-related money laundering, urging China to incorporate them into its amended AML law.

Fei suggests that China's revised AML law should explicitly reference virtual assets and empower authorities with additional tools to tackle the unique challenges posed by virtual assets and emerging technologies.

Despite China's ban on virtual currencies, the decentralized nature of virtual-asset transactions can still have repercussions, particularly for illicit purposes. Fei notes that China’s heightened focus on combating AML risks associated with virtual assets aligns with efforts undertaken by major countries worldwide.

In summary, China's initiative to amend its AML law underscores its proactive approach in addressing the evolving landscape of financial regulations, as authorities strive to mitigate emerging risks posed by virtual assets in the digital era.

By fLEXI tEAM