The following shows a selection of frequently answered questions in conjunction with the prohibition of money laundering in the PRC Criminal Law.
What is the key legal source for the prohibition of money laundering in the PRC Criminal Law?
The key legal source is Article 191 of the PRC Criminal Law, which provides criminal liabilities for entities and individuals who have committed money laundering within the scope of this regulation. Further guidance is primarily stated in the Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Money Laundering Cases (2024), which became effective on 20 August 2024.
The Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Money Laundering Cases (2024) provides inter alia explanations to the following:
- Clarifying the criteria for determining the crimes of "self-money laundering" and "third-party money laundering", as well as the criteria for assessing the subjective awareness in third-party money laundering crimes;
- Specifying the criteria for determining the "serious circumstances" in money laundering offences;
- Outlining seven specific situations, which constitute "covering up or concealing the sources and nature of criminal proceeds and gains through other means";
- Clarifying the principles for the concurrent punishment of the crimes of money laundering and crimes of concealing or disguising criminal proceeds and gains;
- Setting the standards for the amount of fines; and
- Specifying the standards for granting lenient punishment.
What are the key requirements for committing money laundering according to Article 191 of the PRC Criminal Law?
According to Article 191 of the PRC Criminal Law, the following key requirements shall be fulfilled:
- Predicate offence (also called “upstream crime”), which has generated proceeds and gains;
- Intention from the offender, who intends to dissimulate or conceal the source/nature of such proceeds and gains; and
- Act of the offender, who dissimulates or conceals the source/nature of such proceeds and gains.
Currently, the following seven predicate offences exist:
- Drug-related crime
- Organized crime
- Terrorism
- Smuggling
- Corruption & bribery
- Disruption of financial order
- Financial fraud
Tax evasion does not belong to the predicate offences in Article 191 of the PRC Criminal Law.
How are PRC authorities usually determining whether an offender has acted with intention in conjunction with money laundering as criminal offence?
The authorities will investigate whether the offender has (1) knowledge about the predicate offence, (2) knowledge that the predicate offence has generated proceeds and gains, and (3) knowledge and willingness to dissimulate or conceal the source/nature of the proceeds and gains from the predicated offence.
The PRC Criminal Court will specifically look at the following parameters, to determine whether the requirement "intention" has been fulfilled by the offender as outlined in Article 191 of the PRC Criminal Law and its relevant interpretation.
- Cognitive capacity of the offender;
- How the offender becomes aware of others’ criminal activities and/or criminal proceeds and gains;
- Type and amount of the criminal proceeds and gains;
- How the criminal proceeds and gains have been transferred or transformed; and
- Offender’s statement.
Which conducts of the offender shall be considered as acts for money laundering in Article 191 of the PRC Criminal Law?
The offender must have conducted at least one of the following acts under Article 191 of the PRC Criminal Law:
- Providing fund accounts;
- Converting property into cash, financial instruments or negotiable securities;
- Transferring the funds through transferring accounts or any other form of payment and settlement;
- Transferring assets across a border; or
- Covering up or concealing by any other means the source or nature of the proceeds obtained from crimes and the gains derived therefrom.
According to Article 5 of the Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Money Laundering Cases (2024) under any of the following circumstances, the offender may be recognized to be "covering up or concealing by any other means the source or nature of criminal gains and the proceeds thereof":
- Transferring or converting criminal proceeds and gains through means such as pawning, leasing, buying, selling, investing, auctioning, or purchasing financial products;
- Transferring or converting criminal proceeds and gains by mixing them with the operating revenue of cash-intensive venues such as shopping malls, restaurants, and entertainment venues;
- Transferring or converting criminal proceeds and gains through fictitious transactions, fictitious claims and liabilities, false guarantees, or false reporting of income;
- Converting criminal proceeds and gains through means such as buying or selling lottery tickets, prize vouchers, stored-value cards, gold or other precious metals;
- Converting criminal proceeds and gains into gambling proceeds through gambling;
- Transferring or converting criminal proceeds and gains through "virtual asset" transactions or financial asset exchanges; or
- Otherwise transferring or converting criminal proceeds and gains.
Which criminal liabilities arise on entities and individuals, if they have committed money laundering according to Article 191 of the PRC Criminal Law?
Entities
Entities shall be subject to fines, while the PRC Criminal Law does not provide a cap of the fine. Further, the affected entity could be blacklisted (for up to 3 years) under China’s Corporate Social Credit System (“CSCS”), if the requirements of CSCS have been fulfilled.
Directly Responsible Personnel and Other Responsible Personnel of the Entity
The directly responsible personnel and other responsible personnel of the entity shall be subject to imprisonment of less than 5 years or detention (5-10 years if the circumstances are serious) and/or imposed with a fine (a fine is mandatory, if the circumstances are serious).
Acting Individuals
The acting individual will be subject to imprisonment of less than 5 years or detention (5-10 years, if the circumstances are serious) and/or fine (a fine is mandatory if the circumstances are serious).
Which statute of limitation does apply for money laundering as criminal offence?
The statute of limitation for money laundering as criminal offence is 15 years, commencing from the conclusion of criminal activities, i.e. commencing from the act of money laundering by the offender. The statute of limitation may be interrupted under certain circumstances.
Does a disclosure obligation towards PRC authorities in conjunction with the criminal offence of money laundering exist?
Whether or not disclosure obligations from the PRC law perspective exist must be assessed for the individual scenario. If disclosure obligations don’t exist by PRC laws, company policies and agreements with business partners could still contain disclosure obligations. Banking regulatory requirements shall be also taken into consideration.
Does the criminal offence of money laundering in Article 191 of the PRC Criminal Law leads to any negative consequences at China’s Corporate Social Credit System?
Whether the committed money laundering in Article 191 of the PRC Criminal Law triggers a downrating or a blacklisting at China’s CSCS must be assessed for the individual scenario. If, for example, an entity due to the committed money laundering as criminal offence has been added on the “List of Seriously Dishonest Companies” (in Chinese: 严重失信主体名单), it could be also blacklisted at CSCS.
What is the regulatory outlook with regard to the prohibition of money laundering as criminal offence?
The prohibition of money laundering in Article 191 of the PRC Criminal Law will likely become subject of regulatory changes. It is to be expected that the number of predicate offences, which are currently limited to seven predicate offences only (which are, see above, drugs, organized crime, terrorism, smuggling, corruption & bribery, disruption of financial order and financial fraud), will increase, in order to broaden the scope of application of money laundering in Article 191 of the PRC Criminal Law.
Which compliance and risk management strategies exist for the mitigation of money laundering risks from the perspective of a company, which is not a financial institution, doing business in China?
It shall be considered to first conduct a risk assessment with an emphasis on money laundering risks of the operation of the company and then to develop a compliance and risk management strategy for the mitigation of the identified money laundering risks. Solid compliance and risk management strategies usually include the following:
- Demonstrating truthfully that there is zero intention or tolerance of the company and its management to get involved in any money laundering activities. This may be implemented internally through company policies and trainings.
- Specifically, cash transactions shall be avoided in the entire operation of the company.
- Specifically, business with obviously red-flagged business partners shall be avoided, for avoiding getting involved in investigations by regulators.
- Strictly controlling the company seals and strictly following the company's internal authorization rules, to avoid that business will be concluded with red-flagged business partners.
- Strict KYC processes and background checks on business partners.
The above list is not exhaustive and shall be adjusted to the individual risk profile of the company.
