China Introduces New Anti-Money Laundering Enhanced Due Diligence Regulation
Published 30 January 2026
Xia Yu
On 16 January 2026, the People’s Bank of China (“PBOC”) promulgated the Administrative Measures for Special Preventive Measures Against Money Laundering (“Measures”), which were deliberated and passed on 17 November 2025 with the agreement of the Ministry of Foreign Affairs, Ministry of Public Security, Ministry of State Security, Ministry of Justice, Ministry of Finance, Ministry of Housing and Urban-Rural Development, and State Administration for Market Regulation. The Measures will take effect from 16 February 2026. It introduces a targeted, preventative regulatory mechanism to address money laundering and terrorist financing risks in cross-border financial activities. The Measures do not involve traditional criminal enforcement tools; instead, it translates national and systemic risk assessments into binding compliance obligations for all relevant parties, primarily financial institutions and designated non-financial businesses and professions (“DNFBPs”).
Overview
The Measures establish a preventative anti-money laundering (AML) regulatory system applicable to any entity or individual within China, centered on sanction targets listed in three categories of lists. The Measures clarify these three list categories, specify the special preventive measures to be taken against listed sanction targets, and outline the corresponding compliance obligations, primarily for financial institutions.
The Measures explicitly mandate the application of Special Preventive Measures Against Money Laundering (“Preventive Measures”) against targets enumerated in the three lists, their agents, organizations and individuals acting under their instruction, and organizations directly or indirectly controlled by them (“Sanction Targets”). The first category is the list of terrorist organizations and individuals determined and announced by the National Counter-Terrorism Leading Group under the Ministry of Public Security (“Counter-Terrorism List”). The second category is the list of organizations and individuals subject to targeted financial sanctions contained in notices issued by the Ministry of Foreign Affairs for the implementation of United Nations Security Council resolutions (“UN Sanctions List”). The third category is the list of organizations and individuals deemed by the PBOC (either solely or jointly with relevant authorities) to pose significant money laundering risks (“Money Laundering Risk List”).
The Measures do not explicitly limit the scope of Preventive Measures, only enumerating two specific actions and emphasizing that the Sanction Target must not be notified before actions are taken. The two specified measures include: (1) immediately ceasing the provision of financial services or other support, including funds and assets, to the Sanction Target; and (2) immediately restricting the transfer of related funds and assets. The referenced funds and assets encompass all funds and assets owned or controlled, directly or indirectly, solely or jointly with others, by the Sanction Target, as well as any interest or other proceeds generated from them.
Chapter III of the Measures establishes comprehensive, ongoing compliance obligations primarily for financial institutions (licensed financial enterprises conducting financial business, such as commercial banks, policy banks, securities companies, futures companies, insurance companies, and trust companies). DNFBPs (entities or individuals not traditionally part of the financial sector but legally required to fulfill AML obligations due to the higher money laundering/terrorist financing risks inherent in their business activities, e.g., real estate developers and agents, precious metals dealers, law firms, accounting firms) are to implement them by reference. These obligations include:1. Establishing and improving internal control systems to identify and assess risks.2. Continuously monitoring the publication and updates of the three lists to promptly identify listed Sanction Targets.3. Conducting thorough verification on all clients, all clients’ transaction counterparts, and all business dealings based on the published lists.4. Taking Preventive Measures immediately upon identifying risks and submitting a written report after doing so.
Broader Scope, More Specific Requirements, and Stricter Penalties Under the Measures
The currently effective Measures for Freezing Assets Related to Terrorist Activities (“Current Measures") were jointly formulated in 2014 by the PBOC, Ministry of Public Security, and Ministry of State Security for the purpose of combating terrorist financing. It applies only to financial institutions and DNFBPs within China. Under the Current Measures, these entities passively implement asset freezing measures”"in accordance with the list of terrorist organizations and terrorists published by the Ministry of Public Security and the decision to freeze assets”. These freezing measures are necessary actions taken to prevent the transfer, conversion, or disposal of existing assets, including terminating financial transactions, refusing withdrawals, transfers, or conversions of assets, and suspending the opening, modification, cancellation, and use of financial accounts. After taking freezing measures, entities must report and promptly notify the relevant client.
Compared to the Current Measures, the Measures establish a preventative regulatory system centered on list management with broader coverage, stricter obligations, more precise procedures, and harsher penalties. First, the Sanction Targets under the Measures are no longer limited to terrorist organizations and individuals determined by the Ministry of Public Security. They include targets identified in the Counter-Terrorism List published by the Ministry of Public Security, the UN Sanctions List published by the Ministry of Foreign Affairs, and the Money Laundering Risk List published by the PBOC. This expansion extends the regulatory reach from “terrorist acts that have occurred” to “money laundering behaviors posing significant risks”, shifting risk prevention forward.
Second, the Measures enrich the Preventive Measures, moving beyond the only freezing action. It requires measures such as immediately ceasing the provision of financial services or asset support and immediately restricting related asset transfers. The Preventive Measures thus not only freeze existing assets but also prohibit all future transactions and cooperation, representing stronger and broader coverage. Furthermore, the Measures mandate that “no prior notification” be given before taking the Preventive Measures, highlighting their sudden and compulsory nature.
Third, the Measures set forth detailed, full-cycle compliance obligations, attempting to form a dynamic, closed-loop risk management process. They require financial institutions to establish robust internal controls, continuously monitor and obtain the latest lists, conduct thorough verification on all clients and transaction counterparts, take the Preventive Measures immediately upon risk discovery, and submit written reports.
Fourth, the Measures increase penalties by invoking more precise legal bases, explicitly establishing a dual-punishment system, and expanding the scope of violations. They cite multiple articles of the Anti-Money Laundering Law of the People's Republic of China [ https://www.gov.cn/yaowen/liebiao/202411/content_6985765.htm ] applicable to specific violations, such as lacking internal controls or failing to fulfill Preventive Measures obligations. Regarding personal liability, the Measures stipulate that while penalizing the financial institution, authorities may also, depending on the circumstances, issue warnings, impose fines, disqualify from positions, or prohibit engaging in financial industry work against responsible directors, supervisors, senior management, or other directly responsible personnel. The violations clearly outlined in the Measures almost cover the entire process from prevention to execution and initiation to release, addressing gaps in the Current Measures (e.g., inability to effectively penalize missing internal controls or unauthorized unfreezing), thereby making regulation more stringent.
Impact of the Measures and Compliance Recommendations
The AML regime adopted by the Measures occupies a middle ground between the Financial Action Task Force’s (FATF) principle-based guidelines and the enforcement-oriented special measures under Section 311 of the US Patriot Act. On one hand, the Measures emphasize risk control and prevention similar to FATF standards. On the other hand, similar to US special measures, they can lead to transaction restrictions, enhanced scrutiny, or suspension of business relationships even in the absence of a criminal conviction. For international enterprises, compliance risk may arise independently of wrongdoing. Once regulators identify elevated money laundering risks, stricter AML obligations and operational restrictions may be triggered. This shifts the compliance focus from retrospective liability to prospective risk management and regulatory responsiveness.
Given the direct and practical impact of the Measures on cross-border transactions involving China, correspondent banking relationships, and global cash management structures, it is recommended that foreign banks and multinational corporations reassess whether their existing AML frameworks possess practical operational capability, not merely technical compliance. Recommended adjustments include:1. Treating China as a distinct risk environment for specific risk assessments, explicitly covering China-related risk scenarios such as transaction channels involving high-risk jurisdictions, business models reliant on intermediaries or multi-layered payment structures, and industries subject to stricter regulatory scrutiny.2. Financial institutions should strengthen governance of China-related correspondent banking relationships, e.g., periodically reassessing these relationships from both AML and operational perspectives, documenting the rationale for maintaining, restricting, or terminating relationships, and ensuring the ability to swiftly escalate due diligence measures if required by regulators.3. Enhancing transaction transparency and documentation readiness. Foreign banks and enterprises should assume that transaction purposes, economic substance, and fund flows may be questioned; they may be required to provide documentation within short timeframes; and explanations must remain consistent across different jurisdictions.4. Conducting AML security stress tests on existing cross-border structures, including assessing whether routing choices increase transaction opacity or risk perception; reviewing the use of third-party payment agents or offshore entities; and identifying structures that may not align with actual business circumstances.5. Making necessary preparations for increased information requests and regulatory interactions, including responding to inquiries from Chinese banks or regulators.
Conclusion
The Measures reflect a broader global trend where financial integrity and AML are increasingly viewed as matters of national regulatory security. For multinational corporations and financial institutions, understanding the regulatory framework embodied in the Measures is not only crucial for AML compliance within China but also for managing cross-border transaction risks within an evolving global regulatory landscape.
Overview
The Measures establish a preventative anti-money laundering (AML) regulatory system applicable to any entity or individual within China, centered on sanction targets listed in three categories of lists. The Measures clarify these three list categories, specify the special preventive measures to be taken against listed sanction targets, and outline the corresponding compliance obligations, primarily for financial institutions.
The Measures explicitly mandate the application of Special Preventive Measures Against Money Laundering (“Preventive Measures”) against targets enumerated in the three lists, their agents, organizations and individuals acting under their instruction, and organizations directly or indirectly controlled by them (“Sanction Targets”). The first category is the list of terrorist organizations and individuals determined and announced by the National Counter-Terrorism Leading Group under the Ministry of Public Security (“Counter-Terrorism List”). The second category is the list of organizations and individuals subject to targeted financial sanctions contained in notices issued by the Ministry of Foreign Affairs for the implementation of United Nations Security Council resolutions (“UN Sanctions List”). The third category is the list of organizations and individuals deemed by the PBOC (either solely or jointly with relevant authorities) to pose significant money laundering risks (“Money Laundering Risk List”).
The Measures do not explicitly limit the scope of Preventive Measures, only enumerating two specific actions and emphasizing that the Sanction Target must not be notified before actions are taken. The two specified measures include: (1) immediately ceasing the provision of financial services or other support, including funds and assets, to the Sanction Target; and (2) immediately restricting the transfer of related funds and assets. The referenced funds and assets encompass all funds and assets owned or controlled, directly or indirectly, solely or jointly with others, by the Sanction Target, as well as any interest or other proceeds generated from them.
Chapter III of the Measures establishes comprehensive, ongoing compliance obligations primarily for financial institutions (licensed financial enterprises conducting financial business, such as commercial banks, policy banks, securities companies, futures companies, insurance companies, and trust companies). DNFBPs (entities or individuals not traditionally part of the financial sector but legally required to fulfill AML obligations due to the higher money laundering/terrorist financing risks inherent in their business activities, e.g., real estate developers and agents, precious metals dealers, law firms, accounting firms) are to implement them by reference. These obligations include:1. Establishing and improving internal control systems to identify and assess risks.2. Continuously monitoring the publication and updates of the three lists to promptly identify listed Sanction Targets.3. Conducting thorough verification on all clients, all clients’ transaction counterparts, and all business dealings based on the published lists.4. Taking Preventive Measures immediately upon identifying risks and submitting a written report after doing so.
Broader Scope, More Specific Requirements, and Stricter Penalties Under the Measures
The currently effective Measures for Freezing Assets Related to Terrorist Activities (“Current Measures") were jointly formulated in 2014 by the PBOC, Ministry of Public Security, and Ministry of State Security for the purpose of combating terrorist financing. It applies only to financial institutions and DNFBPs within China. Under the Current Measures, these entities passively implement asset freezing measures”"in accordance with the list of terrorist organizations and terrorists published by the Ministry of Public Security and the decision to freeze assets”. These freezing measures are necessary actions taken to prevent the transfer, conversion, or disposal of existing assets, including terminating financial transactions, refusing withdrawals, transfers, or conversions of assets, and suspending the opening, modification, cancellation, and use of financial accounts. After taking freezing measures, entities must report and promptly notify the relevant client.
Compared to the Current Measures, the Measures establish a preventative regulatory system centered on list management with broader coverage, stricter obligations, more precise procedures, and harsher penalties. First, the Sanction Targets under the Measures are no longer limited to terrorist organizations and individuals determined by the Ministry of Public Security. They include targets identified in the Counter-Terrorism List published by the Ministry of Public Security, the UN Sanctions List published by the Ministry of Foreign Affairs, and the Money Laundering Risk List published by the PBOC. This expansion extends the regulatory reach from “terrorist acts that have occurred” to “money laundering behaviors posing significant risks”, shifting risk prevention forward.
Second, the Measures enrich the Preventive Measures, moving beyond the only freezing action. It requires measures such as immediately ceasing the provision of financial services or asset support and immediately restricting related asset transfers. The Preventive Measures thus not only freeze existing assets but also prohibit all future transactions and cooperation, representing stronger and broader coverage. Furthermore, the Measures mandate that “no prior notification” be given before taking the Preventive Measures, highlighting their sudden and compulsory nature.
Third, the Measures set forth detailed, full-cycle compliance obligations, attempting to form a dynamic, closed-loop risk management process. They require financial institutions to establish robust internal controls, continuously monitor and obtain the latest lists, conduct thorough verification on all clients and transaction counterparts, take the Preventive Measures immediately upon risk discovery, and submit written reports.
Fourth, the Measures increase penalties by invoking more precise legal bases, explicitly establishing a dual-punishment system, and expanding the scope of violations. They cite multiple articles of the Anti-Money Laundering Law of the People's Republic of China [ https://www.gov.cn/yaowen/liebiao/202411/content_6985765.htm ] applicable to specific violations, such as lacking internal controls or failing to fulfill Preventive Measures obligations. Regarding personal liability, the Measures stipulate that while penalizing the financial institution, authorities may also, depending on the circumstances, issue warnings, impose fines, disqualify from positions, or prohibit engaging in financial industry work against responsible directors, supervisors, senior management, or other directly responsible personnel. The violations clearly outlined in the Measures almost cover the entire process from prevention to execution and initiation to release, addressing gaps in the Current Measures (e.g., inability to effectively penalize missing internal controls or unauthorized unfreezing), thereby making regulation more stringent.
Impact of the Measures and Compliance Recommendations
The AML regime adopted by the Measures occupies a middle ground between the Financial Action Task Force’s (FATF) principle-based guidelines and the enforcement-oriented special measures under Section 311 of the US Patriot Act. On one hand, the Measures emphasize risk control and prevention similar to FATF standards. On the other hand, similar to US special measures, they can lead to transaction restrictions, enhanced scrutiny, or suspension of business relationships even in the absence of a criminal conviction. For international enterprises, compliance risk may arise independently of wrongdoing. Once regulators identify elevated money laundering risks, stricter AML obligations and operational restrictions may be triggered. This shifts the compliance focus from retrospective liability to prospective risk management and regulatory responsiveness.
Given the direct and practical impact of the Measures on cross-border transactions involving China, correspondent banking relationships, and global cash management structures, it is recommended that foreign banks and multinational corporations reassess whether their existing AML frameworks possess practical operational capability, not merely technical compliance. Recommended adjustments include:1. Treating China as a distinct risk environment for specific risk assessments, explicitly covering China-related risk scenarios such as transaction channels involving high-risk jurisdictions, business models reliant on intermediaries or multi-layered payment structures, and industries subject to stricter regulatory scrutiny.2. Financial institutions should strengthen governance of China-related correspondent banking relationships, e.g., periodically reassessing these relationships from both AML and operational perspectives, documenting the rationale for maintaining, restricting, or terminating relationships, and ensuring the ability to swiftly escalate due diligence measures if required by regulators.3. Enhancing transaction transparency and documentation readiness. Foreign banks and enterprises should assume that transaction purposes, economic substance, and fund flows may be questioned; they may be required to provide documentation within short timeframes; and explanations must remain consistent across different jurisdictions.4. Conducting AML security stress tests on existing cross-border structures, including assessing whether routing choices increase transaction opacity or risk perception; reviewing the use of third-party payment agents or offshore entities; and identifying structures that may not align with actual business circumstances.5. Making necessary preparations for increased information requests and regulatory interactions, including responding to inquiries from Chinese banks or regulators.
Conclusion
The Measures reflect a broader global trend where financial integrity and AML are increasingly viewed as matters of national regulatory security. For multinational corporations and financial institutions, understanding the regulatory framework embodied in the Measures is not only crucial for AML compliance within China but also for managing cross-border transaction risks within an evolving global regulatory landscape.