Financial Crime World

Hong Kong’s Battle Against Money Laundering and Terrorist Financing: A Practical Guide for Accountants, Estate Agents, Precious Metals Dealers, and Trust Service Providers

In the bustling financial hub of Hong Kong, the threat of money laundering and terrorist financing continues to loom large. This practical guide aims to enlighten accountants, estate agents, precious metals dealers, and trust service providers about the importance of anti-money laundering (AML) and counter-terrorist financing (CFT) policies in our city.

Contents

  1. The Objectives: Understanding your responsibilities and the risks
  2. International Standards and Way Forward: Hong Kong’s commitment to adhere to global anti-money laundering and terror financing regulations
  3. The Basics: An introduction to money laundering, terrorist financing, and your role in prevention
  4. The Risks: Understanding the specific risks in each sector and how to identify suspicious activities
  5. Quiz: Test your knowledge

Part 1: The Objectives

This guide offers a comprehensive understanding of money laundering, terrorist financing, suspicious transaction reporting, customer due diligence, and record-keeping, all in the context of international regulatory standards.

Part 2: International Standards and Way Forward

Background

With money laundering and terrorist financing posing significant threats to the global financial system, the Financial Action Task Force on Money Laundering (FATF) was established in 1989 to set international standards and combat these illicit activities. Hong Kong became a FATF member in 1991.

The Importance of FATF Compliance

Hong Kong’s compliance with FATF recommendations is crucial for maintaining a well-regulated and reputable financial center.

FATF Recommendations

FATF recommendations provide guidance on various aspects of AML/CFT policies, such as customer due diligence, reporting suspicious transactions, and record-keeping.

Part 3: The Basics

A. What is Money Laundering?

Definition: Money laundering refers to methods used to conceal the origin of illegally obtained funds, making them appear legitimate. Money laundering schemes typically involve placement, layering, and integration.

Placement

Placement is the first stage where criminals introduce their illegal funds into the legitimate financial system.

Layering

Layering involves moving money through various transactions to hide the original trail.

Integration

Integration is the final stage where criminals mix their laundered funds with legitimate funds, which makes it virtually impossible to distinguish tainted funds from clean ones.

B. What is Terrorist Financing?

Definition: Terrorist financing involves providing funds for terrorist acts, manipulating funds and disguising their origin to support terrorism. Money laundering and terrorist financing methods are similar, focusing on concealment and disguise.

C. Why is Anti-Money Laundering and Counter-Terrorist Financing Important to You?

As a financial center, Hong Kong’s integrity and stability depend on an effective AML/CFT regime. Ignoring or turning a blind eye to money laundering and terrorist financing could lead to devastating consequences, as criminals and terrorists might gain control of businesses and economic sanctions imposed by international organizations. Both money laundering and terrorist financing are criminal offenses under Hong Kong Law.

Part 4: The Risks

A. Accountants

Suspicious Activity Indicators: clients from jurisdictions lacking adequate AML/CFT laws and involvement in complex corporate structures.

Case Example: A drug trafficker uses an accountancy firm to set up a company and launder over US$500,000.

B. Estate Agents

Suspicious Activity Indicators: cash transactions, short completion periods, and shell companies.

Case Example: A drug trafficker purchases and sells a property to conceal crime proceeds using a shell company.

C. Precious Metals Dealers

Suspicious Activity Indicators: high-value transactions, purchase of large quantities of gold without supporting documentation, and known criminal networks involved.

D. Trust and Company Service Providers

Suspicious Activity Indicators: complex, opaque corporate structures, and trusts established for vague reasons.

[Continue with Parts 5 (Quiz) & 6 (Answers)]

This guide serves as an essential resource for accountants, estate agents, precious metals dealers, and trust service providers in Hong Kong. By familiarizing yourself with the objective, international standards, and basics of AML/CFT policies, as well as the potential risks specific to your sector, you will be better prepared to protect your business and contribute to Hong Kong’s ongoing efforts against money laundering and terrorist financing.