HISTORICAL DEVELOPMENT AND LEGAL OVERVIEW
From financial institutions to a wider preventive compliance regime
The primary regulatory pillar governing preventive compliance in Hong Kong is the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO, Cap. 615). It came into operation in 2012 as the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance.
A major legislative expansion took effect in 2018, when the parenthetical “Financial Institutions” was removed from its title and statutory customer due diligence and record-keeping requirements were extended to designated non-financial businesses and professions. These included legal professionals, accounting professionals, estate agents, and trust or company service providers. The regime has since expanded further, including regulation of dealers in precious metals and stones from 1 April 2023.
Preventive requirements for specified financial institutions
CDD and record-keeping extended beyond traditional finance
Registration and supervision introduced for specified dealers
The AMLO shifts the legal strategy from solely prosecuting the handling of criminal proceeds to requiring institutions and regulated businesses to protect the financial system proactively. It codifies administrative duties for customer due diligence and record-keeping and grants inspection, investigation and disciplinary powers to the relevant Hong Kong authorities.
THE OPERATIONAL CORE OF AMLO
Mandatory compliance obligations
The statutory requirements and their practical application are set out together below.
Customer Due Diligence
Legal requirementA financial institution must carry out the prescribed customer due diligence measures in the circumstances set out in Schedule 2, including before establishing a business relationship or carrying out a qualifying occasional transaction, and when it suspects money laundering or terrorist financing.
ApplicationBanks, brokers and insurance businesses must identify and verify customers and beneficial owners, understand the purpose and intended nature of the relationship, and apply the required measures at the statutory trigger points.
Record-Keeping Requirements
Legal requirementRequired customer-identification documents, data and information must generally be retained for at least five years after the business relationship ends. Transaction records must likewise be retained for the applicable five-year period.
ApplicationInstitutions must securely preserve the identity, corporate and transaction records needed to reconstruct the relationship and individual transactions during the statutory retention period.
Powers of Inspection
Legal requirementAn authorized person may, at any reasonable time, enter the business premises of a financial institution and inspect or copy records and documents for the purpose of ascertaining compliance with the Ordinance.
ApplicationAuthorized regulatory inspectors may enter business premises, examine compliance records and take copies to determine whether the institution is meeting its statutory AML/CTF obligations.
NON-COMPLIANCE AND EVASION
Elements of an offence under section 5
Unlike money laundering under OSCO, which targets dealing with criminal proceeds, section 5 of AMLO addresses contraventions of specified customer due diligence and record-keeping requirements. The precise route to liability depends on the regulated person, the applicable requirement and the state of mind proved.
Status of the person or entity
The accused must fall within the statutory regime governing the relevant financial institution or regulated person.
The contravention
The prosecution must prove the failure to comply with an applicable CDD or record-keeping requirement in Schedule 2.
The required state of mind
Criminal liability under section 5 applies where the contravention is committed knowingly or recklessly. A more serious tier applies where the contravention is committed with intent to defraud a relevant authority.
REGULATORY AUTHORITIES
Sector-specific supervision under one statutory framework
Four principal authorities supervise financial institutions and specified registered sectors under AMLO. Designated professions are additionally subject to the supervisory arrangements and professional rules applicable to their respective sectors.
STATUTORY PENALTIES