Financial Crime World

Hong Kong Banks Team Up with Police to Combat Digital Fraud and Money Laundering: Still a Long Way to Go

In the digital age, financial services have become more convenient than ever. However, digitalization has also made it easier for criminals to commit digital fraud. The rise in digital fraud cases is a global concern, and Hong Kong has not been an exception. The Hong Kong Monetary Authority (HKMA) reported over 1,200 fraud-related complaints from banking customers in 2022, a significant increase from the previous year, resulting in estimated losses of around HK$7.2 billion for victims.

Consequences of Digital Fraud

Once criminals successfully trick people into sending them money, they need to move and hide the ill-gotten gains, a process known as money laundering. Money laundering often involves moving funds quickly through networks of mule accounts, which are accounts taken over by criminal syndicates. The faster the funds move, the more difficult it becomes to intercept them and recover the stolen money.

Initiatives to Enhance Information Sharing

To address this challenge, the HKMA, in collaboration with the Police and the banking sector, has launched several initiatives to enhance information sharing and facilitate swift action against financial crime.

  • Fraud and Money Laundering Intelligence Taskforce (FMLIT): Expanded from 10 to 28 banks in June 2022.
  • 24/7 stop-payment mechanism: Allows customers to stop payment instructions when fraud is suspected.
  • Real-time fraud monitoring systems: Help banks to detect and prevent fraud in real-time.
  • The Anti-Deception Alliance: A platform for banks to share information about common fraudulent activities.

These collaborations have resulted in significant progress, with over HK$1.1 billion in crime proceeds restrained or confiscated and around HK$12.3 billion intercepted.

Challenges in Combating Money Laundering and Mule Accounts

Despite these achievements, efforts to combat mule account networks and digital fraud remain insufficient. There is still a gap in the sharing of information, hampering the ability to intercept stolen funds.

Lack of Information Sharing between Banks

Banks face significant challenges in identifying and closing mule accounts. Criminals disguise their intentions and sometimes purchase legitimate accounts from their holders. Once suspicious activity emerges, that’s when banks can spot the signs of fraud and money laundering. However, criminal networks often span multiple banks, and sharing information between them would greatly aid in preventing such activities.

Sharing information between banks can be a challenge due to legal and contractual constraints. Data protection legislation and customer confidentiality requirements must be taken seriously, but these controls should not hinder efforts to prevent and detect crime and related money laundering. An international consensus is building that banks should be allowed to share information, under appropriate safeguards.

The Financial Intelligence Evaluation Sharing Tool (FINEST)

The Hong Kong Association of Banks, in collaboration with the HKMA and the Police, introduced the Financial Intelligence Evaluation Sharing Tool (FINEST) in June 2023. This secure electronic platform, used by the five major retail banks, enables the sharing of information about potential criminal activity. Since its implementation, FINEST has led to the identification of previously unknown suspicious accounts and criminal investigations.

Proposed Regulations

The HKMA has launched a consultation document, seeking public views on proposals to enable authorized institutions (AIs) to share information and grant them legal protection. These changes would allow for the swift exchange of information to prevent illicit funds from moving between banks and close the information gaps exploited by criminals.

Conclusion

The digital world continues to evolve, and so does the threat of financial crime. It’s crucial for all parties involved to work together to enhance information sharing and collaborate to combat fraud and money laundering. The initiatives and proposed regulations outlined above are steps in the right direction, but there’s still a long way to go in addressing the challenges posed by mule account networks and protecting consumers from digital fraud.