Top Chinese Law Firm Analyzes Digital Yuan AML Challenges

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Hongji Feng

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Hongji Feng

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Hongji is a crypto and tech reporter. He graduated from Northwestern University's Medill School of Journalism with a Bachelor's and a Master's. He has previously interned at HTX (Huobi Global),...

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April 29, 2024 05:37 EDT

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China’s JunHe Law Firm has released a report addressing the anti-money laundering (AML) challenges posed by digital yuan.

JunHe’s Partner Chen Xin recently co-authored and published The Anti-Money Laundering Challenges and Opportunities of the Digital Yuan, an article that analyzes China’s central bank digital currency (CBDC)’s AML compliance.

JunHe’s Report on Digital Yuan AML Compliance

As a digitalized legal tender directly issued by the People’s Bank of China (PBOC), the digital yuan is poised to innovate payment systems but also faces unique vulnerabilities that could be exploited for illicit activities.

A major concern was the potential for the digital yuan to be used anonymously. While providing user privacy, the digital currency’s features could potentially make it easier for bad actors to mask illegal transactions.

“An anonymous wallet allows users to conduct transactions without revealing their identity information, designed to provide a higher degree of privacy protection,” the article reads.

The report also highlighted the speed and cross-border nature of transactions with the digital yuan, which could complicate traditional AML monitoring practices. Transactions with e-CNY are completed almost instantaneously, which reduces the window for regulatory intervention.

In addition, the integration of the digital yuan into the global financial system could raise concerns about its compatibility with international AML standards.

As the currency becomes more widely used internationally, ensuring that transactions comply with a diverse range of regulatory environments becomes increasingly challenging.

Suggestions, Solutions, and Opportunities

The firm suggested integrating advanced technologies such as artificial intelligence and blockchain to improve real-time monitoring of transactions. This technological upgrade would enhance the ability to promptly identify and address suspicious activities.

Additionally, the report called for refining the identity verification processes, especially concerning anonymous wallets.

By implementing strict transaction limits and ensuring rigorous due diligence, the balance between maintaining user privacy and ensuring transaction transparency can be managed.

On the international front, the report emphasized the importance of aligning e-CNY with global AML standards.

“There is reason to believe that the implementation and improvement of the digital yuan’s AML guidance policies will provide a healthy, transparent, and secure financial environment for financial institutions, businesses, and the public,” the article reads.

“As the digital yuan continues to be promoted and used, we look forward to seeing a more efficient, convenient, and secure digital payment future,” the firm concluded.