China’s Ministry of Public Security has been rounding up participants in crypto money laundering rings and scam compound operators across China and Southeast Asia.
Now, the country’s anti-money laundering regulations, or AML, are starting to catch up.
An executive meeting of the State Council late last month chaired by Prime Minister Li Qiang discussed including provisions for virtual assets to update its AML regulations. The updates are expected to go into effect in 2025.
The regulations haven’t undergone significant changes since 2007. Still, revisions have been in the works since 2021, with one draft currently available to the public that doesn’t include crypto. The new draft expected later this year should cover crypto.
It comes as one executive meeting participant, Peking University Law School professor Wang Xin, acknowledged that the use of virtual assets for money laundering had become a mainstream trend — despite the 2021 ban on crypto in the country.
According to Chao Xi, professor and outstanding fellow of the Faculty of Law at the Chinese University of Hong Kong, reports from Chinese official media indicate that momentum is building for the revisions.
While the scope of the legislation isn’t yet clear, he told DL News via email that “there is a pressing need for more clarity to ensure legal certainty and predictability.”
Many other countries have already adopted crypto-focused AML regulations. The Financial Action Task Force virtual asset Travel Rule requires businesses that conduct crypto-related transactions to share certain details about transactions exceeding a certain amount to prevent money laundering and illicit activities.
On a national level, FATF recommends that countries understand the money laundering and terrorist financing risks the sector faces, licence or register virtual asset service providers and supervise the sector in the same way governments supervise other financial institutions.
“With the prevailing crypto ban, we can expect any new rules to focus on stamping out financial activities with a crypto nexus,” Angela Ang, senior policy adviser at TRM Labs, told DL News.
China is in an unusual situation in that it is regulating something it has effectively banned. It’s a tacit acknowledgement that this ban has not been effective.
A report from the UN last month highlighted the use of crypto, particularly stablecoins, in money laundering. They have been adopted by gambling and fraud syndicates in Southeast Asia, where schemes are run by Chinese citizens who moved operations to the region after a crackdown on gambling in China and Macau.
In 2019, China launched Operation Chain Break to try and prevent the outflow of $157 billion in criminal proceeds from China generated by illegal gambling, pig butchering, and other activities.
It launched large-scale raids on operations across the country and abroad, including in Cambodia and Myanmar.
On January 30, the latter handed back 10 Chinese citizens, including six suspected leaders of telecom fraud gangs operating in the Kokang region.
The Ministry of Public Security said that more than 44,000 suspects have been returned to China from Myanmar, including almost 3,000 people considered fugitives.
The UN estimates about 220,000 people are working against their will at fraud compounds in Myanmar and Cambodia, many of whom were lured to the region by promises of legitimate jobs.
As such, for many the prospect of legislation in China is a positive move, according to Desmond Yong, founder of Singapore-based compliance and regulation consulting firm Meta Alpha.
“Given the borderless nature of cryptocurrency, it is a welcoming move to strengthen the AML regulations to combat any bad actors from leveraging the borderless nature of cryptocurrencies for illicit activities,” he told DL News.
