Financial Crime World

Title: FATF Report: Hong Kong’s Progress and Key Areas for Improvement

Overview

Hong Kong, a Special Administrative Region (SAR) of China, has received the latest Follow-Up Report from the Financial Action Task Force (FATF), an international organization that sets standards for preventing money laundering and terrorist financing. The report assesses Hong Kong’s compliance with the FATF Recommendations.

Key Findings

  • Hong Kong shows largely compliant status for 13 recommendations (R.1, R.2, R.4, R.6, R.11, R.14, R.17, R.19, R.28, R.29, R.31, and R.33).
  • The city demonstrates partial compliance with 15 recommendations (R.3, R.5, R.8, R.9, R.12, R.13, R.15, R.16, R.18, R.21, R.22, R.23, R.24, R.25, and R.34).
  • The FATF calls for Hong Kong to address deficiencies in 9 recommendations (R.3, 5, 9, 12, 13, 15, 16, 18, and 35).

Partially Compliant Recommendations

The following is a list of the recommendations where Hong Kong shows partial compliance:

- **R.3 - Money laundering offence**
  - Not fully compliant
  - Urged to criminalize typical money laundering offenses under its existing laws.

- **R.5 - Terrorist financing offence**
  - Not fully compliant
  - Called to criminalize terrorist financing offenses under its existing laws.

- **R.8 - Non-profit organizations**
  - Partially compliant
  - Acknowledged for making progress, but more needs to be done to enhance transparency and regulation.

- **R.9 - Financial institution secrecy laws**
  - Partially compliant
  - FATF recommends revisiting laws to allow for effective exchange of information.

- **R.12 - Politically Exposed Persons (PEPs)**
  - Partially compliant
  - Urged to strengthen regulations regarding customer due diligence for PEPs.

- **R.13 - Correspondent banking**
  - Partially compliant
  - Acknowledged for taking steps to assess and manage risks, but needs to improve overall.

- **R.15 - New technologies**
  - Partially compliant
  - Working to address the risks posed by new technologies but needs to strengthen the legislative framework.

- **R.16 - Wire transfers**
  - Partially compliant
  - Needs to improve regulations and guidelines for wire transfers.

- **R.18 - Internal controls and foreign branches and subsidiaries**
  - Partially compliant
  - Urged to implement effective policies, procedures, and controls for branches and subsidiaries.

- **R.21 - Tipping-off and confidentiality**
  - Partially compliant
  - Acknowledged for actions taken but needs to strengthen the framework to ensure effective implementation.

- **R.22 - DNFBPs: Customer due diligence**
  - Partially compliant
  - Needs to improve customer due diligence procedures for Designated Non-Financial Businesses and Professions.

- **R.23 - DNFBPs: Other measures**
  - Partially compliant
  - Urged to implement measures addressing the deficiencies identified in the FATF evaluation.

- **R.24 - Transparency and beneficial ownership of legal persons**
  - Partially compliant
  - Needs to improve transparency for legal entities and update the beneficial ownership register.

- **R.25 - Transparency and beneficial ownership of legal arrangements**
  - Partially compliant
  - Urged to implement measures addressing the deficiencies identified in the FATF evaluation.

- **R.26 - Regulation and supervision of financial institutions**
  - Partially compliant
  - Needs to improve supervision and regulation of financial institutions to effectively mitigate risks.

- **R.31 - Powers of law enforcement and investigative authorities**
  - Partially compliant
  - Urged to grant law enforcement agencies adequate powers to address money laundering and terrorist financing.

- **R.34 - Guidance and feedback**
  - Partially compliant
  - Urged to provide adequate guidance and feedback for implementing and updating AML/CFT measures.

- **R.36 - International instruments**
  - Partially compliant
  - Needs to take steps to bring its domestic laws and regulations in line with international instruments.

- **R.38 - Mutual legal assistance: freezing and confiscation**
  - Partially compliant
  - Needs to implement and apply mutual legal assistance effectively regarding freezing and confiscation of assets.

Next Steps

The FATF Plenary will take the report into account during its June 2023 meeting to decide on the next steps for Hong Kong’s compliance with the Recommendations. Hong Kong will continue to be under increased scrutiny from the international community.