Financial Crime World

Hong Kong’s Battle Against Money Laundering: A Legal Analysis

Hong Kong, known for its status as a major international financial hub, has established robust legal frameworks to prevent money laundering and terrorist financing. In this article, we provide an analysis of Hong Kong’s Anti-Money Laundering (AML) regime.

The primary legislation prohibiting money laundering in Hong Kong includes:

  • The Drug Trafficking (Recovery of Proceeds) Ordinance (Cap 405) (DTROP)
  • The Organized and Serious Crimes Ordinance (Cap 455) (OSCO)
  • The United Nations (Anti-Terrorism Measures) Ordinance (Cap 575) (UNATMO)

2. Criminal Violations

Money laundering is a criminal offense under:

  • Section 25 of OSCO
  • Section 3 of DTROP

A person commits a money laundering offense by dealing with property:

  1. Knowing or having reasonable grounds to believe such property represents proceeds of an indictable offense
  2. Without lawful authority or excuse

The elements of a money laundering offense include:

  • Dealing with property
  • Knowledge or reasonable grounds to believe
  • Proceeds of an indictable offense

3. Predicate Offenses

All indictable offenses are considered predicate offenses under section 25 of OSCO. Money laundering related to drug trafficking falls under DTROP. Indictable offenses, such as tax evasion, also serve as predicate offenses.

4. Extraterritorial Jurisdiction

The money laundering offense applies only to dealings in property within Hong Kong. Yet, the predicate offense need not occur in Hong Kong. Both residents and non-residents are subject to these laws.

5. Corporate Criminal Liability

Hong Kong law recognizes corporate criminal liability for money laundering offenses. A corporation can be held liable if its directing mind and will commit the offense.

6. Government Authorities

Key authorities responsible for investigating money laundering activities and enforcing money laundering laws in Hong Kong are:

  • Hong Kong Police Force
  • Customs and Excise Department
  • Independent Commission Against Corruption
  • Prosecution Division of the Department of Justice

7. Penalties

The maximum penalty for a criminal violation of money laundering upon indictment under OSCO or DTROP is:

  • A fine of HK$5 million
  • Imprisonment for 14 years per offense

There is no statute of limitations for money laundering prosecutions.

8. Civil Penalties

No separate civil penalty regime exists for violations of OSCO or DTROP. However, civil penalties may be imposed on certain businesses and professions for AML compliance breaches under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615).

9. Asset Forfeiture

During the investigation stage, proceeds of crime may be frozen or seized and used as evidence, as well as being subject to confiscation applications under OSCO and DTRPO. Proceeds of crime, including securities, real property, jewelry, and other valuables, may be frozen or seized upon conviction. Confiscation orders, treated as sentences, may be made in lieu of conviction if the defendant intentionally avoids service of court documents, has fled the jurisdiction, or has passed away. Hong Kong authorities may also apply for confiscation orders upon receipt of a valid request from foreign jurisdictions.

10. Regulatory Compliance

Financial institutions and designated non-financial businesses and professions (DNFBPs) are subject to AML/CFT requirements under Cap 615. Regulatory bodies that supervise these entities enforce AML/CFT Guidelines, such as:

  • The HKMA’s Guideline on Anti-Money Laundering and Counter-Terrorist Financing for Authorized Institutions
  • The SFC’s Guideline on Anti-Money Laundering and Counter-Terrorist Financing for licensed corporations and SFC-licensed virtual asset service providers

Contributors:

  • Carl Fernandes
  • Denise Fung
  • Kishore Bhindi
  • Shirley Au Yeung
  • Clara Hackney, Linklaters LLP.