Bank Headquarters Publication [2014] No. 24
Bank of Communications; Shanghai Pudong Development Bank; China Development Bank; policy banks, state-owned commercial banks, and joint-stock commercial banks; Shanghai Branch of Postal Savings Bank of China; Bank of Shanghai; Shanghai Rural Commercial Bank; Shanghai branches of other banks with legal person status; village or township level banks in Shanghai; foreign banks in Shanghai; trust companies, financial asset management companies, financial management companies, financial leasing companies, auto finance companies, and currency brokerage companies in Shanghai; securities companies, futures companies, and fund management companies in Shanghai; insurance companies and insurance assets management companies in Shanghai; and payment institutions in Shanghai:
In order to facilitate the construction of China (Shanghai) Pilot Free Trade Zone (referred to hereafter as “the PFTZ”) and avoid potential risks, and in accordance with the Anti-Money Laundering Law and other relevant laws and regulations, as well as the Opinions of the People’s Bank of China on Financial Sector Support for the China (Shanghai) Pilot Free Trade Zone, you are hereby notified of the following issues about effectively combating money laundering and terrorist financing in the PFTZ:
I. Fully Understanding the Importance of Effectively Combating Money Laundering and Terrorist Financing
The establishment of the PFTZ is an important decision made by the CPC Central Committee and the State Council of China in the new context of China's reform and opening up. According to the Opinions of the People’s Bank of China on Financial Sector Support for the China (Shanghai) Pilot Free Trade Zone, financial institutions and specific non-financial institutions in the PFTZ shall adhere to the relevant laws and regulations and fulfill their due obligations in terms of anti-money laundering, counter-terrorist financing and anti-tax evasion. The effective implementation of anti-money laundering and counter-terrorist financing is beneficial to fostering in the PFTZ an internationalized market strictly subject to the rule of law; the application of anti-money laundering control measures helps to adequately assess and effectively control potential money laundering risks in the PFTZ’s operation; the risk-based nature and indirect involvement of anti-money laundering supervision and management are conducive to improving supervisory authority’s capability to tackle issues based on intermediary and post-establishment supervision, while ensuring that the PFTZ’s vigorous drive for development remains unhindered. All financial institutions and payment institutions (referred to hereafter as “obligatory institutions”) shall fully understand that anti-money laundering and counter-terrorist financing are crucial to the PFTZ’s stable and healthy development, and therefore shall implement schemes and measures for anti-money laundering and counter-terrorist financing, take proactive actions to seek innovative solutions, and build up the PFTZ’s anti-money laundering experience which is replicable and widely applicable.
II. Fully Implementing Schemes and Measures for Anti-money Laundering and Counter-terrorist Financing
- Obligatory institutions shall fully implement the Anti-Money Laundering Law, the Regulations on Combating Money Laundering by Financial Institutions and other relevant laws and regulations, fulfill due obligations of anti-money laundering, set up a robust internal control scheme to combat money laundering related to the PFTZ’s operation, apply strict procedures to client identification and verification, submit reports on large and suspicious transactions as required, and properly preserve clients’ information and transaction records, so as to prevent potential risks of money laundering and terrorist financing.
- During the design and development process of the separate accounting system for Free Trade Accounts (referred to hereafter as “FTAs”), obligatory institutions shall consider embedding into the system anti-money laundering requirements or modules, keep an accurate record of the transaction parties’ basic information, type of account, transaction amount, customs declaration form number, tax clearance certificate number and other relevant information, and make sure that the transaction information and client information are transmitted in a complete manner, so as to provide support for the system to carry out cash flow monitoring and analysis and allow efficient and accurate information retrieval for large and suspicious transactions.
- When building and maintaining business relationship with PFTZ entities, obligatory institutions shall clearly identify the actual controller of the client or the actual beneficiary of the transaction. Also, obligatory institutions shall take into consideration various factors of different clients, including locations, characteristics, scopes of business, and business sectors, so as to properly determine the level of risk to a client. When all other things being equal, clients from the PFTZ shall be viewed as potentially involving higher risk. And for those determined as high-risk clients, obligatory institutions shall conduct more in-depth due diligence investigation.
Upon approval of relevant authorities, obligatory institutions are entitled to refuse building business relationship with the following clients from the PFTZ: (1) clients who refuse to provide basic information; (2) clients who are reasonably suspected of involvement in money laundering, terrorist financing and other crimes; (3) clients who come from countries/areas with poor regulation on anti-money laundering and counter-terrorist financing; and (4) high-risk clients who are assessed to be beyond the obligatory institution’s risk governance capacity.
- Obligatory institutions shall strengthen the monitoring and analysis of FTAs and PFTZ entities, conduct adequate background investigation of FTAs’ fund transfer, and make accurate judgment on the types and trends of trade-based money laundering. When a transaction or a client is, based on effective analysis of client information, transaction information and other relevant information, reasonably suspected of involvement in money laundering or other crimes, the obligatory institutions shall submit a suspicious transaction report as required to China Anti-Money Laundering Monitoring & Analysis Center as well as to Shanghai Headquarters of the People's Bank of China (referred to hereafter as “PBC Shanghai”).
The suspicious transaction reports submitted to PBC Shanghai by obligatory institutions shall meet the following requirements: (1) comprehensive investigation and collection is carried out to identify client information and transaction information related to the suspicious transaction reports, including information from the internal system of the bank and publicly available information; (2) it is believed that, through relevant analysis, identification and verification, the transaction or the client is involved in money laundering, terrorist financing or other crimes; and (3) a complete suspicious transaction report is completed as required, which keeps a detailed record of the due diligence investigation, suspicious transaction investigation analysis and other relevant information.
- Obligatory institutions shall establish a money-laundering risk assessment scheme for the PFTZ’s innovative business. The obligatory institutions’ anti-money laundering departments shall be fully engaged in the design, development and operation of innovative business, and assess the associated risk of money laundering. The PFTZ’s innovative business is allowed to be launched only when it is subject to the above-mentioned assessment and control measures that match the level of risk.
The report on the money laundering risk of the PFTZ’s innovative business shall include the following elements: (1) details about the money laundering risk assessment, including the specific part of the process that involves risk, the level of risk and possible penalties for the money laundering that has taken place; (2) money laundering risk control measures, including control measures for different parts of the process that involves risk and the effectiveness of the control measures; and (3) comments and conclusion.
- Obligatory institutions shall strengthen the anti-money laundering risk management for the whole process of PFTZ cross-border business, keep a complete record of cross-border remittances, and make sure that background information related to the trade is transmitted in a transparent and complete manner throughout the business process. The watch list for money laundering shall be updated in a timely manner and the timeliness of cross-border business monitoring shall be improved via technical support. Meanwhile, anti-money laundering monitoring on the cash flow between FTAs and domestic accounts outside the PFTZ shall also be enhanced.
The following PFTZ cross-border business shall be subject to investigation by anti-money laundering departments of the obligatory institutions: (1) a cross-border transaction involving more than 2 million RMB (or its equivalent in foreign currency) processed through accounts owned by legal persons, other organizations or individual business, or a cross-border transaction involving more than 200,000 RMB (or its equivalent in foreign currency) processed through accounts owned by natural persons; (2) a transaction involving one or more parties that come from countries/areas with poor supervision on money laundering and terrorist financing; (3) a transaction involving one or more parties whose names are identical to those identified by the relevant departments and bodies of the State Council or judicial authorities as crime suspects or people involved in money laundering and terrorist financing who require investigation or special attention from the part of obligatory institutions; (4) a transaction involving one or more parties who have been reported to be involved in suspicious transaction or whose name is identical to those contained in the risk warning list issued by relevant authorities; (5) a transaction related to countries/areas with poor supervision on money laundering and terrorist financing; (6) other high-risk cross-border business.
III. Improving the organization and leadership in anti-money laundering and counter-terrorist financing
1. Obligatory institutions shall build a robust anti-money laundering management system for the PFTZ-related business, improve their internal control scheme to combat money laundering related to the PFTZ business, and submitted reports to PBC Shanghai on the their anti-money laundering management framework and internal control system for the PFTZ-related business.
2. Obligatory institutions shall clearly designate senior management members to be responsible and accountable for anti-money laundering activities, and provide sufficient staff to implement anti-money laundering for the PFTZ-related business. It shall be ensured that the senior management members responsible for anti-money laundering are capable of doing so, and adequate resources are provided to facilitate their work. Obligatory institutions shall promote training to personnel responsible for anti-money laundering and other relevant business operations so as to enhance their knowledge about international trade, trade-based money laundering and other relevant issues, and strengthen their awareness and skills of identifying and preventing the risks of trade-based money laundering.
3. A communication and cooperation mechanism on anti-money laundering between People’s Bank of China (referred to hereafter as “PBC”) and the Administrative Committee of the PFTZ shall be established, in order to enhance information sharing among relevant departments, including the customs, tax administrations and industrial and commercial administrative authorities, and strengthen the capability of back-end monitoring for the trade and cash flow within the PFTZ. The obligatory institutions shall also join hands with tax administrations and police authorities to improve research on the types of crimes that may occur in the PFTZ, and strengthen efforts to combat trafficking and tax-related crimes.
4. PBC shall promote specific training on anti-money laundering related to the PFTZ business operations, disseminate knowledge about anti-money laundering laws and regulations, and create a better legislative environment for the development of the PFTZ. Meanwhile, PBC shall adhere to the risk-based approach, and enhance supervision and effectiveness evaluation on the construction and operation of the obligatory institutions’ internal control scheme for anti-money laundering. PBC shall also publish in a timely manner warning notices concerning money laundering risks related to the PFTZ business operations, and conduct targeted anti-money laundering investigation against the obligatory institutions with poor internal control against money laundering or high risks of money laundering.
Shanghai Headquarters of the People's Bank of China
February 27, 2014
