PBOC Tightens Bank-Reporting Requirements in Bid to Curb Money Laundering

(Beijing) — China’s central bank rolled out amended rules on Friday that will require financial institutions to flag large-volume and suspicious transactions — a bid by the government to identify money laundering.

Daily RMB transactions of 50,000 yuan ($7,190) or above, plus foreign-currency transactions with a value of $10,000 or more, will be flagged as large-sum transactions, according to the rule issued by People’s Bank of China. Transactions subject to scrutiny include cash deposits, cash withdrawals, settlements or sale of foreign exchange in cash, exchange of notes, cash remittances, and payments via a cash instrument.

The new rule will take effect on July 1.

In a previous rule put in place in March 2007, cash transactions of 200,000 yuan or more and foreign currency transactions with a value of $10,000 or above were required to be flagged as “large volume.”

Other large-volume transactions covered by the new rule include daily transfers between bank accounts of companies and other institutions that reach 2 million yuan or more, and foreign currency transactions with a value equivalent to $200,000 or above; daily domestic transfers between an individual’s bank account and other bank accounts that reach 500,000 yuan or more; and foreign-currency transactions with a value equivalent to $100,000 or above.

Financial institutions are now also being asked to report on any daily cross-border transfers between an individual’s bank account and other bank accounts that reach 200,000 yuan or more — a requirement that was absent from the 2007 regulation.

The new rules will apply to financial institutions that include banks, securities firms, fund management firms, insurers and trust companies.

Any suspicious large-sum transactions must be reported within five working days of the transaction date, according to the new rules. In addition, financial institutions must inform the central bank upon finding any transactions related to money laundering or terrorism financing, regardless of the amount of money involved.

The central bank said in an online statement in response to media inquiries on Friday that the more stringent requirements relating to large-volume cash transactions bring China in line with global standards adopted by developed countries such as the U.S. and Canada, and support China’s efforts to crack down on corruption, tax evasion and attempts to skirt foreign-exchange regulations.

Despite the progress mainly made in the banking sector in tracking financial transactions connected with money laundering and terrorism financing, underground banks, which are hard to eradicate, are creating difficulties in the fight against such crimes, said Hong Hao, head of research at Bank of Communications International.

Hong also said that the central bank’s new rule served as a warning against capital flight at a time when the yuan looks likely to face further devaluation pressure in the coming year.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)