Hong Kong: Law of Offshore
Money Laundering Law
Hong Kong has two major pieces of legislation to control money laundering: the Drug Trafficking (Recovery of Proceeds) Ordinance ("DTRPO"); and the Organised and Serious Crimes Ordinance ("OSCO")
Since being enacted, these Ordinances have been amended in order to:
- extend the government's power to attack money laundering associated with drug trafficking and other serious offences; and
- impose statutory duties on providers of financial and professional services to disclose and to make proper inquiries into suspicious transactions.
The amendments make it an offence for professionals such as bankers, lawyers or accountants to deal with property that they know or have reasonable grounds to believe represents, directly or indirectly, the proceeds of drug trafficking or other serious crimes. The maximum penalty for the offence is 14 years imprisonment and/or a fine of HKD5m.
It is also an offence if a person who knows or suspects that any property represents the proceeds of drug trafficking does not report his knowledge or suspicion to the authorities.
Therefore the onus is on financial institutions and professionals to act as watchdogs and control systems have been established by many companies to ensure that they are fulfilling their responsibilities under the new amendments. However, no offence will have been committed if proper disclosure is made before the prohibited act occurs and the act is done with the consent of the authorised officer. Similarly, if disclosure is made to an authorised officer voluntarily and soon after the act has been committed, there is no offence. It is an offence to disclose anything which is likely to prejudice an investigation into the suspected money laundering.
The new amendments ensure that disclosures will not be treated as a breach of any restriction imposed by contract (such as a bank's duty of confidentiality to its customers). Those making any disclosures will not be liable for any loss arising from the disclosure even if the suspicion is later shown to have been unfounded, although reasonable.
Furthermore, the amendments require money changers and remittance agents to follow anti-money laundering measures such as customer identification and keeping transaction records for transactions over HKD8,000. This has helped to prevent criminals from using non-bank financial businesses as conduits for money laundering.
Informants are not required to reveal in civil or criminal proceedings that they have made disclosures under the legislation.
In July 2009, Hong Kong's Financial Services and the Treasury Bureau announced the launch of a consultation on the conceptual framework of a legislative proposal on the anti-money laundering regulatory regime for the financial sectors.
The proposal aims to address issues identified by the Financial Action Task Force (FATF) during an evaluation of the SAR's anti-money laundering regime undertaken in 2008.
The consultation document contains details of:
- The financial institutions which would be subject to the proposed legislation;
- The customer due diligence and record-keeping obligations would have to be met; the liability and offence for breaching such obligations;
- The regulatory authorities' powers in supervising compliance, with appropriate checks on the exercise of such powers;
- Criminal and supervisory sanctions for breaches of the obligations; and
- A proposed licensing system applicable to entities engaging in remittance and money-changing services for anti-money laundering regulatory purposes.
These views were to be taken into account in drawing up detailed legislative proposals, and another round of consultation on the detailed legislative proposals was planned for the end of 2009.
In October 2010, the HKMA wrote to all authorized institutions to inform them that the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Bill (the Bill) would be put before the Legislative Council on November 10, with a view to implementation on April 1, 2012. Compared with the earlier proposal, the key changes made in the Bill include removing the across-the-board requirements to conduct customer due diligence on all pre-existing accounts and removal of personal civil liability of officers of financial institutions. The customer due diligence requirements for beneficiaries of life insurance policies have also been clarified.
The Hong Kong Monetary Authority, Hong Kong Stock Exchange and Securities and Futures Commission have also established guidelines for their members aimed at helping them to avoid facilitating money laundering.
In February, 2004, the Hong Kong Monetary Authority (HKMA) urged banks in the jurisdiction to be alert to the possibility of money laundering as they geared up to offer yuan-denominated banking services. "Participating banks are requested to heighten the awareness of their staff involved in such business to possible money laundering transactions," the regulator announced.
In order to reduce the possibility of money laundering activity taking place, the HKMA ordered banks to record whether yuan deposits are made in cash, or via the conversion of other currencies. It also urged the financial institutions to keep track of multiple accounts opened by the same customer, and to ensure that the 20,000 yuan per day exchange limit is not breached by spreading the transactions across several accounts.
In June of that year, the HKMA issued a supplement to the territory's anti-money laundering guidelines, setting out the latest "Know-Your-Customer" principles, taking account of the requirements of the paper on "Customer Due Diligence for Banks" issued by the Basel Committee on Banking Supervision in October 2001 and the revised Forty Recommendations issued by the Financial Action Task Force on Money Laundering in June 2003.
Under the guidelines, banks and financial service providers are urged to subject the transactions of higher risk customers to enhanced due diligence. Those deemed by the HKMA to fall into the high risk category include politically exposed persons, correspondent banks from "non-cooperative jurisdictions", and offshore companies established in order to disguise beneficial ownership.