In a decisive move to strengthen its Anti-Money Laundering (AML) laws, China is set to include cryptocurrency-related transactions in its regulations. This development, marked as the first significant amendment since 2007, was deliberated in a recent State Council executive meeting chaired by Prime Minister Li Qiang on January 22. The initiative highlights China’s commitment to modernize its AML measures in line with the evolving financial landscape.
The original draft of these revised AML regulations was proposed in 2021, with its incorporation into the State Council’s legislative agenda in 2023 and the anticipated enactment by 2025. This move demonstrates China’s proactive approach to adapting its legal framework to address emerging financial challenges, particularly in the digital asset’s domain.
Challenges in drafting comprehensive AML regulations
The revision process has not been without its challenges. Scholars and financial experts, including Professor Wang Xin of Peking University Law School, who contributed to the discussions, have pointed out the broad scope of AML regulations, which makes drafting a comprehensive law a complex task. As a result, the current draft primarily provides a framework, laying the foundation for more detailed regulations in the future.
One of the critical issues highlighted by experts like Professor Xin is the rise in the use of cryptocurrencies and digital assets for money laundering. This trend has accelerated, yet current Chinese laws lack a clear definition of digital assets, which poses a significant legal gap. The revised draft includes measures to prevent digital asset money laundering. However, a notable gap remains in operational guidelines for the subsequent seizure, freezing, deduction, and confiscation of assets derived from such crimes.
China’s crypto crackdown and future directions
China’s stance on cryptocurrencies has been clear since its blanket ban in 2021, which outlawed all forms of cryptocurrency use and mining within the country. This ban also prohibited offshore exchanges from offering services to mainland users. Despite these strict measures, the decentralized nature of cryptocurrencies and technological advancements have allowed mainland users to circumvent these restrictions, thus escalating the risks of money laundering.
The amended AML regulations aim to bridge these gaps and impose stricter guidelines to curb illegal activities associated with digital currencies. By doing so, China is effectively reinforcing its financial regulatory framework and positioning itself to tackle the challenges posed by the rapidly evolving digital assets landscape.
This strategic move by China to revise its AML laws and include cryptocurrency-related transactions reflects the country’s recognition of the critical role of regulatory frameworks in keeping pace with technological advancements in finance. As the world watches, these developments in China could set a precedent for how other nations approach the regulation of digital currencies and assets. The finalization and enactment of these regulations by 2025 will mark a significant step in China’s journey toward a more robust and future-ready financial regulatory environment.
