Behind the 2021 Anti-Money Laundering law and the 2022 Action Plan in China
Why the response to financial crime might prove quicker and more effective than the decades long efforts on boosting IPR compliance
In the past two decades China has started a process of integration into international organizations and joining agreements – a process involving the passing of the uniformization of its laws in order to be compliant and in line with international standards. In terms of trade issues such as Intellectual Property Rights (IPR), this process spans across two decades, at the turn of the 20th and 21st centuries (and is still ongoing), because it was linked to the necessity of entering the World Trade Organisation (WTO) in 2001 and is compliant with its regulations. The flaws on the implementation of the incredibly advanced and comprehensive Chinese regulation on IPR resulted in many disputes from the 2000s to recent days, filed for Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement infringement before the WTO’s Dispute Settlement Body at the charge of the Chinese government. In contrast, the financial assimilation is of more recent interest and linked with more present-day agreements, as the Comprehensive Agreement on Investments (CAI) with the EU having recently been recently halted. This seems to have started a strong, effective, and quicker than usual response from the government with increasing efforts on preventing financial crime.
One of the recent government policies which made the news regarding the finance sector was the announcement of the three-year action plan to combat money laundering, published in January 2022. Already in 2021, China focused on cracking down on financial crimes with the Measures for the Supervision and Administration of Anti-Money Laundering and Counter-Terrorist Financing of Financial Institutions. The Measures which expand the scope of applicable entities to non-bank payment companies and wealth management firms provide enhanced requirements for internal control and risk management standards and increase People Bank of China’s (PBOC) supervision and powers. On the implementation side, the actions are not lacking either. This has been seen especially in the financial crimes related to the cryptocurrency market. In June 2021, police arrested over 1,100 people accused of trading cryptocurrencies for money laundering. As cryptocurrencies were being traded increasingly in recent years and being widely accepted even as payment for website security services, the State Council announced crackdowns on bitcoin mining and trading in China, resulting in a stop of all mining in June 2021. From 2022 to 2024 money laundering will be assuming a central role and will be approached via a national risk prevention system, in conjunction with the revision of regulations and the intelligence of information.
According to PBOC, these measures will bring China more in line with global anti-money laundering standards. This can be easy to agree upon if the legislation alone is taken into consideration. However, will China be able to implement the action plan it has planned to make its citizens comply with the body of norms promulgated? The PBOC has investigated and punished money laundering cases with greater intensity in recent years (pursuant to art.191 on financial management crimes as money laundering increased from 5 in 2014 to 83 in 2019), and will continue to do so under the new action plan in collaboration with the Ministry of Public Security with customs authorities and the regulators securities, foreign exchange as well as banking and insurance. However, will this be sufficient to enter investments and financial international agreements? Is it acceptable by the international community to enter a financial agreement with China with the regulation acting as an insurance, despite the risk of having pending issues to correct after ratification, as is the case with the IPR?
From the speed and the scope of the actions taken so far, it seems that, at least in the short term, the financial crackdown will prove more effective versus the one of the IPR breaches. This is because the former responds well to the necessity of the central government requiring control over the outflows of capitals, compared to the latter- for which a reduction of copycats is perceived by the government to contribute to the slowing of the economy. In addition, other more recent developments might influence the strength of Chinese authorities’ action on financial crime, such as the war in Ukraine. The latter is a likely influential factor on the implementation of regulations on financial crime. Since the Russian invasion of Ukraine, capital outflows have dramatically increased and a tighter control on the movement of large sums will help stop at least the illegal part of it, hence easing the current high pressure on the yuan.