Chinese Banks Pushed to Comply With International Rules Against Money Laundering

China’s regulators issued new guidelines to strengthen banks’ compliance with overseas rules to combat money laundering and terrorist financing as Chinese financial institutions face growing scrutiny as they “go global.”

Banks should “sort out, update and optimize” their systems for preventing tax evasion, compliance with sanctions, consumer protection, internet security and environmental risks, as well as those for countering money laundering and terrorist financing, according to guidelines released by the China Banking and Insurance Regulatory Commission on Tuesday.

Several Chinese state-owned banks have faced fines or warnings in Europe and the U.S. in recent years for violating money laundering regulations. In 2016, several senior executives at the Madrid branch of China’s largest bank, Industrial and Commercial Bank of China Ltd. (ICBC), were arrested on suspicion of being involved in money laundering. In May, the U.S. unit of ICBC agreed to pay $6.16 million in fines to American regulators for insufficient measures to prevent money laundering.

Pressure is also increasing in China. A crackdown on domestic violations of money laundering and terrorist financing regulations began in 2017, bringing tougher rules, more inspections and hefty fines. New rules to increase oversight of suspicious activities in the burgeoning internet financial sector took effect on Jan. 1.

Banks should strengthen corporate governance, clearly set out which people are responsible for compliance and evaluate risks in a forward-looking manner, according to a notice accompanying the guidelines. They should also foster a “compliance culture,” said the notice.

The new regulations give more independence to banks’ overseas branches to comply with local regulations, while also requiring that headquarters do not relax their supervision of branches’ activities, said a specialist in preventing money laundering at an overseas-based bank.

Contact reporter Ke Baili (bailike@caixin.com)