Author: Shanghai Shajun Lawyer
In the previous article, we made an in-depth analysis of the "Regulations on the Administration of Bank Foreign Exchange Risk Transaction Reports (Trial)" issued by the State Administration of Foreign Exchange. However, on December 26, the State Administration of Foreign Exchange also issued the "Regulations on Due Diligence and Exemption of Bank Foreign Exchange Business (Trial)". Today, let us read this regulation in one article, deeply understand the important significance and key points behind it, and help everyone clarify the rules and responsibilities in foreign exchange business.
In the process of foreign exchange business, the responsibility boundaries and exemption situations of banks have always attracted much attention. The introduction of the "Regulations on Due Diligence and Exemption of Bank Foreign Exchange Business (Trial)" has brought clear regulations to this field, avoiding excessive supervision and strong shocks to the foreign exchange business of banks,ensuring financial stability and order. This regulation is not only related to the daily business operations of banks, but also closely linked to the vital interests of every trader.
I. What are the obligations of banks?
Dutiful business development obligations:According to the "Regulations on Exemption from Due Diligence in Bank Foreign Exchange Business (Trial)", banks must perform the duties of "knowing customers, knowing business, and due diligence" throughout the foreign exchange business. Banks must be diligent and implement effective risk management measures to prevent, identify, assess, monitor and deal with foreign exchange compliance risks.
Regulatory review obligations:Banks must conduct compliance reviews on foreign exchange accounts, foreign exchange funds collection and payment, and foreign exchange settlement and sales businesses handled by customers. During the review process, the foreign exchange management regulations should be strictly followed, and when referring to the reports of third-party professional institutions, the quality and authenticity of their reports should be reviewed. If banks conduct business in accordance with the guidance of financial regulatory departments, they should maintain a prudent attitude and ensure that they meet the prescribed compliance standards.
Monitoring and reporting obligations:When implementing foreign exchange facilitation policies and handling foreign exchange business for customers, banks need to conduct transaction risk monitoring, promptly identify potential violations and report to the foreign exchange management department. If the monitoring system has issued an early warning but has not included the relevant transaction in the foreign exchange risk transaction report, the bank should provide a reasonable reason for not reporting to ensure transparency and compliance.
Compliance with international rules and reporting obligations:If banks conduct business in accordance with the international common rules of cross-border business or the requirements of international institutions such as overseas card organizations, and discover violations in the process, they should report to the foreign exchange management department in a timely manner to ensure compliance with international regulatory standards.
Obligation to cooperate in the appeal and review:When the SAFE files a case to investigate suspected violations, the bank should, after receiving the preliminary characterization and handling opinions, promptly fill out and feedback the "Appeal Form" and related evidence if it believes that it meets the due diligence exemption conditions, and actively cooperate with the SAFE's investigation and requirements during the review process.
II. What consequences will the bank face if it fails to fulfill its obligations stipulated in the Measures
If the bank fails to fulfill its obligations, it shall bear legal responsibilities including administrative penalties. According to the regulations, legal responsibilities refer to legal responsibilities related to administrative penalties implemented in accordance with the "Administrative Penalty Law of the People's Republic of China" and the "Foreign Exchange Administration Regulations of the People's Republic of China", and do not include responsibilities such as accepting interviews with the SAFE for rectification, criticism and education, and risk warnings.
III. What are the risky trading behaviors that banks are likely to report in practice? What are the typical high-frequency and high-risk transactions in virtual currency transactions?
Risk transactions with a high probability of being reported:Once a bank discovers or has reasonable grounds to suspect transactions involving suspected fraudulent trade, fraudulent investment and financing, underground banks, cross-border gambling, fraudulent export tax rebates, illegal cross-border financial activities with virtual currencies,it must monitor the information and report it to the State Administration of Foreign Exchange in a timely manner. In addition, all transactions suspected of illegal and irregular cross-border capital flows should be included in the monitoring and reporting scope.
High-frequency and high-risk typical transactions of virtual currencies:High-frequency transactions of virtual currencies refer to traders frequently recharges, withdrawals, swing operations, etc., and involve complex capital flow paths, such as funds being transferred through multiple accounts or directly connected to overseas exchanges. Related activities include large remittances, split funds and transactions that lack reasonable business background. Such transactions usually have a mismatch between the source of funds and the purpose, and the flow of funds is "informal" and lacks standardized business background support. Funds may pass through multiple wallet addresses or trading platforms and eventually flow into overseas accounts or overseas exchanges, and may even be traded anonymously through mixers. In addition, large amounts of funds flowing in and out in a short period of time and funds flowing to multiple platforms or accounts are typical high-risk trading behaviors.
Fourth, which groups of people in the currency circle are easily identified as risky traders?
Frequent arbitrageurs:People who frequently use arbitrage opportunities in the virtual currency market, convert fiat currency into virtual currency, and then repeatedly buy and sell on different exchanges to earn the price difference. Typical examples include people who engage in USDT arbitrage. Such people trade frequently and involve a large amount of funds, which is likely to attract the attention of regulatory authorities.
Anonymous traders:People who use complex trading paths to hide the flow of funds and trade through anonymous tools or in areas with weak supervision. Their trading behavior is mysterious and difficult to track, and they are often identified as high-risk groups. Banks pay close attention to such trading patterns to prevent illegal capital flows.
Abnormal fund operations:Cryptocurrency participants whose account funds flow in and out frequently and in large amounts, which are inconsistent with their personal economic conditions and who cannot provide reasonable explanations for their transactions. Such accounts are usually high-risk accounts, and banks will pay special attention to and strengthen their review to avoid illegal activities such as money laundering.
V. Banks mentioned that they can be exempted from liability when they exceed their review capabilities. So what kind of transactions are considered to exceed their review capabilities? For example, the flow of funds in virtual currency transactions is complex and involves multiple overseas accounts. How does the bank determine whether this exceeds its review capabilities?
Technical and resource limitations: According to industry insiders, banks have limited monitoring technology and human and material resources. For example, in virtual currency transactions, if the flow of funds involves a large number of anonymous overseas wallet addresses, and transactions are frequently conducted through decentralized trading platforms, the transaction data of these platforms is difficult to obtain and analyze.
Banks are limited by their own technical means and resources and cannot track the true source and destination of funds, which can be regarded as exceeding their review capabilities. Some small banks, without advanced monitoring systems and professional analysis teams, find it difficult to conduct a comprehensive review of complex cross-border virtual currency transactions.
Regulation and information transparency:Virtual currencies lack a unified international regulatory framework, and regulations vary greatly from country to country. If a transaction involves multiple countries and regions with different regulatory policies, it is difficult for banks to accurately judge the compliance of the transaction based on current regulations, and it can also be considered as exceeding the review capacity. For example, some virtual currency transactions are legal in country A, but strictly prohibited in country B, and it is difficult for banks to clarify the applicable regulations.
In addition, the opacity of virtual currency transaction information, such as the trading platform does not provide complete and accurate transaction records, and banks cannot obtain the key information needed to judge the legality of the transaction, which should also fall into the category of exceeding the review capacity.
Abnormal complexity of transactions:If virtual currency transactions present a highly complex fund flow pattern,such as multiple currency mixing operations, transfers through multiple "shell" company accounts or associated accounts, resulting in extremely chaotic fund flows, even if banks take routine review measures, it is difficult to sort out the entire transaction chain, which can also be regarded as beyond their review capabilities.
Sixth, banks can be exempted from liability when doing business in accordance with international rules, but if international rules conflict with domestic regulations, how should banks deal with it? For example, there are strict regulations on virtual currency transactions in China, but there are no similar restrictions in international rules. What impact does this have on traders? Do we need to pay special attention to these potential conflicts?
When international rules conflict with domestic regulations, banks usually give priority to following domestic regulations.Because banks conduct business in China, they are subject to domestic supervision, and following domestic laws and regulations is the basis for ensuring the stability of financial order.
For example, a customer of a domestic bank is engaged in cross-border e-commerce business. He learned that under some international rules, he could use virtual currency to pay overseas suppliers to reduce costs. The customer then applied to the bank for related business, but there are strict restrictions on virtual currency transactions in China to prevent financial risks. At this time, if the bank handles it according to international rules, it will not only face severe penalties from domestic regulators, but the customer's transaction will also be invalid due to violation of domestic regulations. Once a transaction dispute or capital loss occurs, the customer cannot get legal protection and may also face legal risks due to participation in illegal transactions.
For traders, these potential conflicts must be paid special attention. Before trading, you must fully understand domestic laws and policies to avoid damage to your own interests due to rule conflicts, and you must also be alert that the bank may refuse to handle certain businesses that seem feasible under international rules due to compliance requirements.
VII. If a bank is investigated and punished for illegal behavior and appeals are made, what role does the trader play in it? For example, if a bank fails to identify risky transactions in time, does the trader need to provide new evidence? If evidence is provided, will it increase the risk of being identified as an illegal cross-border financial activity?
When a bank is investigated for violations and appeals are made, the role played by the trader is more complicated:
Assisting investigation role:The trader may need to assist the bank in providing business-related information to restore the true situation of the transaction. If the bank fails to identify risky transactions in time, the State Administration of Foreign Exchange may require the trader to provide evidence such as transaction contracts and fund transaction records during the investigation. For example, if a bank is investigated for a foreign exchange fund collection and payment business of a customer, if the trader can provide complete and clear transaction background information, it will help the bank appeal and explain his due diligence in the business handling process.
Potential liability-related role:Providing evidence has certain risks. Anti-money laundering experts pointed out that if there are problems with the evidence provided by the trader, such as deliberately concealing important information or providing false materials, it will not only affect the bank's appeal, but the trader himself may also be investigated for participating in illegal cross-border financial activities. However, if the trader conducts normal and compliant transactions and provides evidence truthfully, it generally does not increase the risk of being identified as engaging in illegal cross-border financial activities. If the transaction is legal, the trader's cooperation with the investigation and providing evidence is the fulfillment of a civic duty and should theoretically be protected by law. However, if the trader's own transactions are in violation of regulations, the evidence provided may expose the violations and thus face legal risks.
In general, traders should be cautious in the process of bank appeals and provide evidence truthfully to safeguard their own and the bank's legitimate rights and interests.
This article only represents the personal views of the author and does not constitute legal advice or legal opinions on specific matters.
Catherine
