2024 Q3 AML Regulatory Inspection Focus Update

Insights for Chinese Money Remitters

Lan’s Enterprise Limited Training Program

Training Objectives

What You’ll Learn Today

  • Ensure alignment between business practice and AML programme documentation
  • Understand Chinese remittance characteristics and address regulatory misunderstandings
  • Implement enhanced record keeping with proper time stamps and file notes
  • Apply a holistic approach to Enhanced Customer Due Diligence (ECDD)
  • Prepare effectively for upcoming regulatory inspections

Overview

Regulatory Inspection Context

Several business partners are currently undergoing regulatory onsite visits. This training provides critical insights from recent inspections to help all BPs prepare effectively.

Focus Area

Analysis of AML regulatory inspections specifically for Chinese money remitters, addressing common compliance issues and regulatory expectations.

Observation 1: Alignment Between Business Practice and AML Programme

The Compliance Challenge

Your AML Programme must reflect your actual business practices. Any gaps between documentation and reality will be identified as non-compliant.

Example 1: Director Approval

Your AML Programme stipulates that it must be approved by your director—this is a legal requirement.

What Regulators Expect

  • Email confirmation from director
  • Meeting minutes documenting approval
  • Board resolution

If you cannot produce these records = FAIL

Example 2: Face-to-Face Meetings

Voluntary Practice

Your AML Programme may specify that you conduct face-to-face meetings with all new customers (by choice).

What Regulators Expect

  • File notes of meetings
  • Documentation of meeting outcomes
  • Evidence of consistent practice

No records = Non-compliant = FAIL

Conclusion: Documentation is Critical

Best Practice

For Legal Requirements:

  • Maintain formal records
  • Ensure readily accessible
  • Document approvals properly

For Voluntary Practices:

  • Establish internal record-keeping procedures
  • Document consistently
  • Make available for regulatory review

Observation 2: Chinese Remittance Characteristics

The Challenge

Chinese money remitters operate in a complex environment—providing legitimate and essential services while navigating Chinese currency control policies.

The Opportunity

Adopt a transparent and proactive approach with Regulators by educating them on Chinese practices and cultural nuances.

Issue 1: Multiple Bank Accounts and Split Payments

Why This Matters

Regulators often perceive multiple bank accounts and splitting payments as potential risk.

Root Causes

  1. Chinese currency control policies: Annual limit of USD $50,000 per person
  2. Daily transfer limits: Imposed by Chinese banks as anti-fraud measures to protect customers

Understanding Chinese Banking Regulations

Not Preference—Necessity

Multiple bank accounts are required due to:

  • Anti-fraud initiatives
  • Daily transaction limits
  • Protection of individual assets

Our Compliance

We maintain:

  • Strict identity verification
  • Source of funds/wealth verification
  • Comprehensive records of all fund flows

Document this clearly in your Risk Assessment

Issue 2: Mingled Funds

Service Company Transfers

Regulators are concerned when BPs use SG/HK intermediate remitters to send customer funds to CFX for settlement.

Our Transparent Process

  • Bulk transfers via licensed money remitter
  • One-to-one matching with customer orders
  • Meticulous tracking: Customer → Service Companies (CNY) → CFX (USD/HKD)
  • All transactions recorded and traceable

Profit Credit Usage

The Practice

Using BP profit credits on CFX platform to settle customer transactions is cost-effective and commercial.

The Transparency

  • Profit credits in multiple currencies
  • Every transaction documented
  • Profit withdrawals recorded
  • Use of credits for payments tracked

This ensures transparency and mitigates AML/CFT risks

Issue 3: Offsetting Method

Documentation Requirement

The offsetting method is documented in CFX’s annual Audit Questionnaire.

Action Required

Ensure you explicitly incorporate the offsetting method into your Risk Assessment.

Issue 4: Incomplete Bank Account Numbers

The Concern

Regulators worry that incomplete bank details hinder account verification.

The Reality

This is due to strict information protection and privacy regulations in Chinese banking, not oversight.

  • Via court order
  • Through notary public
  • Via lawyer obtaining investigation order

All require probable cause—account ownership verification does not qualify

Verifying Account Ownership

Despite Privacy Protections

  • Account ownership can still be ascertained
  • Doesn’t hinder PTR and SAR reporting obligations
  • Redacted details maintain privacy while enabling compliance

Your Action

Document clearly in your AML Programme how you verify bank account ownership under these circumstances.

Issue 5: WeChat Communication Concerns

The Regulatory Concern

Use of WeChat nicknames/aliases may hinder ability to reconstruct customer activities.

The Reality of WeChat

  • 1.3 billion users worldwide
  • Comprehensive payment solution
  • Integral tool for daily life in China

WeChat Identity Verification

Rigorous Standards

  • Phone number for registration
  • Government-issued ID for authentication
  • Bank card registered to user
  • Two-contact verification for device switching

WeChat’s identity verification standards surpass those in our AML/CFT Act

Immutable Identity

Users can change nicknames, but WeChat ID remains consistent and immutable.

WeChat Best Practice

Current Practice

Every transaction is meticulously documented in:

  • CFX’s platform
  • BPs’ CRM systems
  • Use WeChat for preliminary communication
  • Finalize all agreements via email
  • Save emails in customer file
  • WeChat serves as supplementary information
  • Email acts as formal and binding record

Observation 3: Enhanced Record Keeping

Increased Scrutiny

Regulators focus not only on whether records are maintained, but also on their quality.

Record Keeping Requirements

Time Stamps

  • Date of customer onboarding
  • Date of each transaction
  • When identity verification conducted
  • When screening performed

Bank Account Details

  • Accurate CNY bank account details
  • Payment confirmations
  • Proof account held by customer

File Notes and Decision-Making

File Notes Must Document

  • Customer’s purpose for transactions
  • Source of funds/wealth (SOF/SOW)
  • Transaction behavior
  • Indications of suspicious activity

Decision-Making Process

  • Filing of Suspicious Activity Report (SAR)
  • Account termination decisions
  • Decision NOT to file a SAR

High-Net-Worth Customer Profile

Recommendation

Use the “High-Net-Worth Customer Profile” template for customers who have provided SOF/SOW evidence.

Benefits

  • Helps Regulators draw informed conclusions
  • Clarifies customer’s financial standing
  • Explains transaction purpose
  • Addresses complexity of SOF/SOW documents

Clear, detailed notes facilitate Regulator understanding

Observation 4: Holistic Approach to ECDD

Heightened Standards

Regulators have raised the bar for verifying customers’ Source of Funds and Source of Wealth.

What No Longer Suffices

A bank statement showing significant balance but no regular income is no longer adequate evidence.

Gifts from Parents

Cultural Context

In Chinese culture, parents commonly gift money to children, especially for property purchases—this was highlighted at last year’s FIU conference.

Required Documentation

  1. Familial relationship evidence: Household register or notarized kinship documents
  2. Parents’ identity verification
  3. Parents’ SOF/SOW verification through reliable documentation
  4. Detailed file notes when formal gifting certificate unavailable

Third-Party Gifts

Enhanced Scrutiny

Funds received as gifts from parents or third parties are subject to increased scrutiny.

Documentation Requirements

  • Verify relationship between donor and recipient
  • Verify donor’s identity
  • Verify donor’s SOF/SOW
  • Document gift circumstances

Loans

Formal Documentation Required

  • Formal loan agreement (Regulators actively review these)
  • Bank records showing fund transfer from lender to recipient
  • Lender’s identity verification
  • Lender’s SOF/SOW verification

Why This Matters

The lender’s funds represent the ultimate source being utilized by the customer—understanding their origin is critical for assessing ML/TF risks.

Complex Funding Scenarios

Example: Company Shareholder Capital Injection

When a shareholder injects capital sourced from a third party (e.g., father-in-law):

Required Documentation

  • Clear chain of evidence
  • Trace flow of funds
  • Establish transparency
  • Ensure compliance

The importance of establishing a comprehensive evidentiary trail cannot be overstated

Key Takeaways

1. Alignment is Critical

  • Document what you do, do what you document
  • Maintain formal records for legal requirements
  • Establish procedures for voluntary practices

2. Educate Regulators Proactively

  • Explain Chinese banking realities in your RA
  • Provide cultural context
  • Document processes transparently

Key Takeaways (Continued)

3. Quality Record Keeping

  • Include time stamps on all records
  • Document decision-making processes
  • Maintain comprehensive file notes
  • Use customer profile templates

4. Holistic ECDD

  • Verify ultimate source of funds
  • Document third-party relationships
  • Obtain formal agreements for loans
  • Establish clear evidentiary chains

Contact & Resources

For Further Information

  • AML Compliance Team: aml@gmfinance.co.nz
  • Emergency Hotline: +64 09-309-8808
  • Training Program: Lan’s Enterprise Limited

Questions?

Feel free to call for any queries regarding regulatory inspection preparation.

Thank You

Stay Vigilant, Stay Compliant