Comment on the Judicial Interpretations on Money Laundering Cases

by Shu on November 26, 2009

in AML


On November 4, 2009, the Supreme People’s Court published the “Judicial Interpretations on Money Laundering Cases” (Interpretations). It established that the “knowledge” element required to prove the offense of money laundering (ML) can be inferred from objective factual circumstances. This important change shifts the burden of proof from prosecutors to defendants in ML cases. From now on, certain suspicious activities (such as purchasing property well below the market price or assisting someone to deposit a large sum of money at different bank accounts) will, by itself, establish prima facie evidence of the existence of the “knowledge” requirement. The burden will then shift to the defendant to rebut that presumption.

China’s ML laws are contained within three different articles of the China Penal Code. In all of them a “physical element” must be proved where a defendant performs a physical act in order to cover up, hide, or disguise the true nature or source of the illegal proceeds. Generally, all of them contain four specific ways, each one related with a bank note or monetary instruments. Two of the articles contain a “catch-all” provision which intends to cover all possibilities of “concealment”, but there is no guidance with this provision. The Interpretation now provides six examples within this “catch-all” provision. They are “using illegal proceeds” in pawning and other investment arrangements; business operations; document fraud; purchasing lottery tickets; gambling; and transporting illegal proceeds across the border. With the supplemental examples provided by the recent Interpretation, China has made it clear that for a conviction of money laundering offence, the proceeds of a crime could be anything of a monetary value, and financial institutions are not the only ones vulnerable to money laundering activities.

The Interpretations also clarify that a predicate offense conviction is not required in order to convict someone of ML. Previously, the lower courts were not uniform in their application. The Interpretations provide that as long as there is enough evidence that a predicate offense has been committed, then a ML offense can be found. Therefore, a conviction of bribery (a predicate offense in China) is not required to convict someone of ML, just enough evidence that it actually occurred.

From the Interpretations, we can sense a clear signal from the Chinese government that it is very serious on its Anti-Money Laundering initiatives. We will not be surprised to see an increased amount of ML convictions in the future. From 2002 to 2006, China had 151 ML convictions. In 2005, the United States had 1,075. 

Finally, as mentioned earlier, Interpretations implied that companies other than financial institutions also need to be aware of money laundering activities. Hopefully, more and more companies will be developing and improving their Anti-Money Laundering compliance program in the near future.

Considering this change with the government’s increased endeavor to combat with corruption witnessed by an increased number of bribery convictions, the Interpretations have cleared the way for government to convict those who offer bribes under the money laundering charge in addition to the bribe-offering charge (PRC Criminal Law 389).

By Adam Ehrlich, Chief Representative and Joe Zhang, Attorney, Diaz Reus Shanghai.

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