MCS answers questions from Conventuslaw.com on Anti-Money Laundering and Counter-Terrorist Financing Laws in Hong Kong:
As criminal enterprises have gotten savvier with their methods of laundering money, financial institutions have also had to step up their protocols for identifying suspicious transactions and ensuring they are in compliance with all the relevant anti-money laundering (“AML”) laws. In fact, the Hong Kong Monetary Authority (“HKMA”) announced back in June 2015 that some banks in Hong Kong may have failed to meet AML requirements, specifically in part because the systems those banks have in place for know-your-client (“KYC”) background checks on clients were inadequate. We had a chance to catch up with the solicitors at Morley Chow Seto to learn more about the HKMA’s investigative and enforcement powers as well as how financial institutions are identifying suspicious transactions and how banks may ensure they have sufficient compliance checks in place.
Morley Chow Seto – Under section 9 of the Ordinance an authorised person of the HKMA has (for the purposes of ascertaining whether a financial institution has complied with or is complying with the Ordinance) the power to:
- Enter the business premises of the financial institution
- Inspect and make copies of records and documents relating to the financial institution’s business
- Make enquiries of persons at the financial institution in relation to the financial institution’s business
- Require the production of documents and answers to questions put
Section 10 lists various penalties including fines and imprisonment for those who fail to comply with a requirement under section 9 without reasonable excuse.
If the HKMA has reasonable cause to believe that an offence may have been committed under the Ordinance, it has powers to require a person to produce a record or document and/or to attend at an interview to answer questions relating to the investigation AND if the answer to a question may incriminate the person he/she is not excused from answering (note – in these circumstances section 15 of the Ordinance can be relied upon to claim privilege – similar to section 187 of the Securities and Futures Ordinance)
MCS – The HKMA has only reported disciplinary action against one bank under the Ordinance – that was in July 2015 so if that is a yardstick then the answer is no. There may, of course, be many situations where the bank concerned is not disciplined.
MCS – Schedule 2 of the Ordinance also sets out the KYC requirements under the Ordinance and allows banks (until March 2018) to use intermediaries (such as solicitors) in the due diligence/KYC process. Also, there are guidelines issued by the HKMA which can be found here: http://www.hkma.gov.hk/eng/key-information/guidelines-and-circulars/guidelines/
MCS – No – for that we have to go to section 25A of the Organized and Serious Crimes Ordinance, Cap. 455 )”OSCO”)
MCS – The key is knowing enough about the customer’s business to recognise that a transaction, or a series of transactions, is unusual and, from an examination of the unusual, whether there is a suspicion of money laundering. Where a transaction is inconsistent in amount, origin, destination, or type with a customer’s known, legitimate business or personal activities, etc., the transaction should be considered as unusual and the bank should be put on alert.
MCS – The provisions of OSCO already specifically exclude legal professional privilege as between lawyers and their clients.
The legislation is designed such that there is an obligation on the banks to police themselves and, where appropriate, to report to the JFIU – the need for this kind of self-policing and reporting is designed to over-ride existing obligations of privacy and privilege. Many suspicious transaction reports (STRs) result in a letter of consent from the JFIU to carry on with the transaction.
The banks fulfil their obligations under the Ordinance and OSCO by due diligence and reporting.