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Risk-Based Approach to Anti-Money Laundering in Hong Kong Takes Centre Stage
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In an effort to combat financial crimes in the legal sector, the Law Society of Hong Kong has conducted its first sector-wide anti-money laundering (AML), counter-terrorist financing (CTF), and proliferation financing (CPF) risk assessment. The comprehensive report highlights the need for a risk-based approach (RBA) to AML/CTF/CPF supervision, aiming to identify, assess, and understand international and domestic risks of money laundering, terrorist financing, and proliferation financing.
Understanding the Risk-Based Approach
The RBA is a critical component in reducing vulnerabilities of the legal sector in Hong Kong. By applying mitigating measures commensurate with identified risks, law firms can effectively manage their exposure to financial crimes. The approach involves assessing inherent risks specific to the legal profession before any AML/CTF controls are applied.
Key Risk Indicators and Sectoral Risk Assessment
The 2022 AML/CTF sectoral risk assessment has identified key risk indicators (KRIs) that may attract criminals and money launderers in the legal sector. The report considers various reports, guidelines, and typologies issued by authorities such as the Hong Kong Government, the Financial Actions Task Force (FATF), and the Joint Financial Intelligence Unit (JFIU).
Risk Categories
The assessment focused on five risk categories:
1. Client Risk
Assesses the risk of clients engaging in money laundering or terrorist financing activities.
2. Geographical Risk
Evaluates the risk associated with transactions involving countries or regions with high AML/CTF risks.
3. Products and Services
Examines the risk related to specific services or products offered by law firms, such as trust and company services or foreign exchange transactions.
4. Delivery Channels
Assesses the risk of money laundering or terrorist financing through various delivery channels, including online banking or mobile payments.
5. Type of Transactions
Evaluates the risk associated with different types of transactions, such as cash-based or cross-border transactions.
Implications for Legal Professionals
The 2022 AML/CTF Risk Assessment of the Legal Sector in Hong Kong highlights the importance of conducting firm-wide risk assessments to identify and mitigate money laundering and terrorist financing risks. The report emphasizes that law firms should target their resources to areas or services most likely to be used to launder money.
Call to Action
Legal professionals are encouraged to take into account the results of the 2022 AML/CTF Risk Assessment when carrying out their own risk assessments at a practice-wide, client, and matter level. The report is available for download in the Member’s Zone under the tab “Support for Members / Law Firms”, “AML/CTF Sectoral Risk Assessment”.