Financial Crime World

Money Laundering in Hong Kong: A Comprehensive Overview

Hong Kong, known as one of the world’s leading financial hubs, has strict laws and regulations in place to prevent and investigate money laundering activities. In this article, we provide a comprehensive overview of the key aspects of money laundering legislation, investigation, and enforcement in Hong Kong.

In Hong Kong, the following pieces of legislation regulate money laundering:

  1. Drug Trafficking (Recovery of Proceeds) Ordinance
  2. Organized and Serious Crimes Ordinance
  3. United Nations (Anti-Terrorism Measures) Ordinance

[Link]

Elements of a Criminal Offence

To establish a criminal violation of the money laundering laws, the prosecution must prove several elements:

  1. Dealing with Property
  2. Indictable Offence
  3. Proceeds
  4. Mental Elements

For details:

Dealing with Property

  • Dealing includes but is not limited to receiving, acquiring, concealing, disguising, disposing of, converting, bringing to or removing from Hong Kong, or using property to borrow money or as security.

Indictable Offence

  • An indictable offence is any offence that can’t be tried summarily and generally covers all serious crimes.

Proceeds

  • Proceeds encompass any payments or rewards received, any property directly or indirectly derived or realised, and any pecuniary advantage obtained in connection with the commission of the offence.

Mental Elements

  • The “having reasonable grounds to believe” standard means the defendant must evaluate facts or circumstances personal and known to them and be aware that a reasonable person would suspect the property’s tainted nature.

Predicate Offences

  • All indictable offences can serve as predicate offences.
  • Tax evasion is also considered an indictable offence and a predicate offence for money laundering.
  • Drug trafficking under the Drug Trafficking (Recovery of Proceeds) Ordinance acts as the predicate offence for money laundering offences.

Extraterritorial Jurisdiction

  • The offence of dealing with proceeds of crime applies only to dealings in property located in Hong Kong.
  • The predicate offence need not take place in Hong Kong.
  • Both residents and non-residents are subject to these laws.

Corporate Criminal Liability

  • A corporation can be held liable for money laundering offences as it is considered a “person” under Hong Kong law.
  • The acts and states of mind of individuals representing the company’s directing mind and will will be attributed to the company.

Government Authorities

  • The Hong Kong Police Force and the Customs and Excise Department are responsible for investigating money laundering activities.
  • The Independent Commission Against Corruption investigates cases facilitated by bribery and corruption.

Government Agencies and Prosecutions

  • The Prosecution Division of the Department of Justice is primarily responsible for prosecuting money laundering offences.

Statute of Limitations

  • There is no statutory time limit for prosecutions of money laundering offences in Hong Kong.

Penalties

  • The maximum penalty for criminal violations of money laundering is a fine of HK$5 million and imprisonment for 14 years per offence.

Civil Penalties

  • Though civil penalties do not directly apply to money laundering offences, penalties may be imposed under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance on certain non-financial businesses and professions for compliance breaches.

Asset Forfeiture

  • During investigations, proceeds of crime can be frozen or seized and may subsequently be subject to confiscation orders upon conviction.
  • There are no value thresholds for asset forfeiture.

Civil or Non-conviction-based Asset Forfeiture

  • Hong Kong law currently requires proof of drug trafficking related offences on the balance of probabilities for civil forfeiture in relation to seized monies under the Drug Trafficking (Recovery of Proceeds) Ordinance. No similar scheme exists for the Organized and Serious Crimes Ordinance.

Anti-money laundering laws and regulations

  • The Anti-Money Laundering and Counter-Terrorist Financing Ordinance imposes anti-money laundering compliance requirements for financial institutions and other businesses.

Institution Coverage

  • AML rules apply to financial institutions such as:
    • Authorized institutions (banks)
    • Licensed corporations (financial services)
    • Insurers and insurance intermediaries
    • Money service operators (money changers and remittance service providers)
    • Stored value facility licensees
    • Virtual asset exchanges
  • Designated non-financial businesses and professions (DNFBPs) such as:
    • Legal professionals
    • Accounting professionals
    • Estate agents
    • Trust company service providers are also subject to AML rules.

Payment Services and Money Transmitters

  • Payment services and money transmitters are required to be licensed in Hong Kong and are subject to AML rules and compliance requirements.

Digital Assets

  • Since June 2023, virtual asset exchanges are subject to licensing requirements and AML rules.
  • Virtual assets are not subject to a separate set of AML regulations but financial institutions interacting with virtual assets must comply with ‘same risk, same rules’.
  • Guidance on AML requirements and reporting is provided in sector-specific guidelines for Licensed Corporations and SFC-licensed Virtual Asset Service Providers.

Specific Compliance Requirements

  • Covered institutions must establish and maintain effective systems and controls to manage and mitigate the money laundering and terrorist financing risks and ensure compliance with relevant legislation and guidelines.

Different Compliance Requirements for Different Institutions

  • Generally, institutions follow similar AML compliance requirements, but additional requirements apply in certain instances, such as:
    • Remittance transactions
    • Correspondent banking relationships
    • Sector-specific guidelines

Regulatory Agencies

  • Multiple agencies contribute to the examination and enforcement of AML compliance:
    • The HKMA, SFC, Insurance Authority, and Money Service Supervision Bureau for financial institutions
    • The Estate Agents Authority, Hong Kong Institute of Certified Public Accountants, Law Society of Hong Kong, and Companies Registry for DNFBPs.