China Enhances Crypto AML Laws: Regulatory Update

Key Points

• China plans to amend its anti-money laundering (AML) laws to include crypto transactions.
• The amendment aims to combat crypto money laundering issues, with the revised draft expected to pass in 2025.
• The move follows growing concerns among policymakers and solicitation of public opinion in 2021.

China is gearing up for a significant regulatory update as it considers amending its anti-money laundering (AML) laws to encompass crypto transactions. The decision, chaired by Prime Minister Li Qiang and discussed by a group of executives on January 22, represents the first major revision of China's AML rules since 2007.

The amendment, initially proposed in 2021 and included in the legislative work plan of the State Council for 2023, responds to the escalating concerns of policymakers regarding crypto money laundering issues. The revised draft is anticipated to be passed in 2025, according to insights provided by Peking University professor Wang Xin.

Professor Xin emphasized that addressing the use of cryptocurrencies in money laundering is the "most important, most urgent, and most necessary" issue at the legal level. Despite China's prohibition of providing or receiving services for cryptocurrencies since 2021, the surge in crypto-related money laundering crimes has outpaced existing preventive measures.

The revised draft of the Anti-Money Laundering Law incorporates measures to prevent virtual asset money laundering. However, there is a recognized lack of operational guidance on subsequent actions such as seizure, freezing, deduction, and confiscation of virtual asset money laundering crimes, resulting in a significant 'disconnect,' according to Professor Xin.

Yan Lixin, executive director of the China Anti-Money Laundering Research Center at Fudan University, highlighted the necessity for legal authorization. The lack of legal authorization creates "grey areas," law enforcement blind spots, and difficulties in combating crypto use for money laundering. Lixin noted that there is still room for improvement in China's AML rule enforcement, particularly in judicial relief work.

This regulatory update aligns with similar initiatives globally, such as Hong Kong's Securities and Futures Commission (SFC), which introduced an amendment to its AML regulations in April 2023. In October, the SFC announced plans to update its framework on cryptocurrency sales and requirements.

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