Financial Crime World

Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Regulations in Hong Kong

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Overview

Hong Kong has implemented various anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations to prevent financial crimes. These regulations are crucial for businesses operating in the territory, particularly those engaging in cross-border correspondent relationships.

Key Points

Additional Customer Due Diligence (CDD) Requirements

  • Collect adequate information about respondent institutions
  • Determine their reputation
  • Construct and assess economic profiles
  • Evaluate AML/CFT controls
  • Obtain senior management approval
  • Understand AML/CFT responsibilities within cross-border correspondent relationships

Higher-Risk Relationships

  • In-depth reviews of respondent institutions’ AML/CFT controls are required for high-risk relationships, including:
    • Interviewing compliance officers
    • Conducting on-site visits
    • Reviewing internal or external auditor findings
    • Reviewing financial statements

Tipping-Off

  • Staff members should avoid disclosing that a suspicious transaction report has been filed to prevent tipping off the customer.

Ongoing Monitoring

  • Financial institutions should review existing CDD records of customers regularly and upon triggering events such as:
    • Substantial transactions
    • Adverse media reports

Record-Keeping

  • Record-keeping is essential for detecting, investigating, and confiscating criminal property or funds.
  • Check results and screening records should be documented electronically throughout the business relationship and for at least five years after its end.

Penalties

  • Penalties may include:
    • Fines (up to HK$1,000,000, approximately $128,000)
    • License revocation
    • Imprisonment (up to seven years for company violations and 14 years for individual money laundering offenses)

Fintech 2025 Strategy

  • The Hong Kong Monetary Authority (HKMA) aims to promote the adoption of new technology in the financial sector by 2025.
  • Encouraging banks to digitize operations from front-end to back-end and enhancing data infrastructure to enable fintech application.

Conclusion

By understanding these regulations and strategies, businesses can prepare for the economic and legal consequences of non-compliance.