Title: FATF Report: Enhancing Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Regime

Paris, September 4, 2019 - FATF Assessment and Recommendations

Following an assessment of Hong Kong’s anti-money laundering and counter-terrorist financing (AML/CFT) regime, the Financial Action Task Force (FATF) and the Asia-Pacific Group on Money Laundering identified several areas for improvement:

1. Prosecuting Money Laundering Linked to Crimes Committed Abroad
2. Strengthening Supervision of Certain Non-Financial Businesses

Sound yet Limited Progress: A Strong Regime but Room for Advancement

Hong Kong has an effective regime in place to fight money laundering and terrorist financing, which has yielded positive results. However, the FATF’s report underscores the need for advancement:

• Although there is room for advancement, particularly in the areas of prosecuting money laundering linked to crimes committed abroad and strengthening supervision of certain non-financial businesses.
• The city’s status as a major financial center exposes it to significant money laundering and terrorist financing risks, necessitating continuous improvement and vigilance.

Attracting Criminal Activities

Despite having a low local crime rate, Hong Kong faces substantial risks of attracting individuals looking to launder the proceeds of crimes such as corruption and tax evasion. Small institutions, some non-financial businesses, and their supervisors may not fully comprehend these threats.

Ongoing Cooperation Requests

Although Hong Kong authorities are effective in pursuing domestic money laundering cases and have a strong record of confiscating proceeds of crime through successful law enforcement actions, they must increase their efforts to submit outgoing requests for cooperation, particularly in cases involving money laundering linked to offenses committed abroad.

Terrorist Financing Risks

Hong Kong faces a medium-low risk of terrorist financing. The city’s well-equipped financial systems can detect and investigate suspicious transactions effectively. However, the city’s geographic location and role as an international financial hub make it potentially attractive for transactions related to the proliferation of weapons of mass destruction. No such cases have been identified yet, but proactive preventive measures are necessary to address this risk.

FATF Recommendations and Ongoing Regulatory Enhancements

The FATF’s recommendations for enhancing Hong Kong’s AML/CFT measures came at a time when the city was making significant strides in strengthening its regulatory framework. Recent legislative amendments have bolstered its response to fighting money laundering and terrorist financing, although the full effects of these measures have yet to be fully demonstrated. In response to the FATF’s recommendations, Hong Kong continues its efforts to maintain the integrity of its financial system and stay compliant with international standards.

Areas for Improvement: Specific FATF Recommendations

1. Prosecuting Money Laundering Linked to Foreign Predicates: Increase efforts to build cases, collaborate with foreign counterparts, and strengthen criminal provisions related to money laundering and terrorist financing.
2. Enhancing Risk Understanding and AML/CFT Implementation by Smaller Institutions and Non-Financial Businesses: Develop capabilities and invest in expertise to improve understanding of money laundering and terrorist financing risks and appropriate measures for mitigation.
3. Strengthening Supervisory Measures for Specific Sectors: Enhance oversight and supervision of industries such as casinos, real estate, and high-risk industries where money laundering and terrorist financing risks are elevated.

By addressing these areas for improvement, Hong Kong can maintain its reputation as a world-class financial center while upholding the highest international standards for combating money laundering and terrorist financing.