Hong Kong’s Battle Against Money Laundering: The Need for Swifter Information Sharing between Banks and Law Enforcement

In the digital age, financial centers, including Hong Kong, have adopted technology to modernize their services and offer a seamless customer experience. however, this progress has not gone unnoticed by criminals who are exploiting technology for digital fraud and money laundering activities. In this article, we discuss the increase in money laundering cases in Hong Kong and the need for swifter information sharing between banks and law enforcement agencies.

The Surge in Money Laundering Cases in Hong Kong

Hong Kong Monetary Authority (HKMA) received over 1,200 banking fraud complaints in 2023, more than double the number from the previous year [1]. The police reported over 33,000 deception cases in the first ten months, representing a 52% increase compared to the same period in 2022, with an estimated loss to victims of about HK$7.2 billion [1].

When criminals successfully deceive individuals into sending them money, they need to launder it to conceal its illicit origins and spend it without drawing attention. money laundering involves moving funds quickly through networks of mule accounts, often gained by luring people into handing over control [2]. The prevention and detection of financial crime necessitate swift cooperation between law enforcement agencies and financial institutions, particularly banks.

The Fight Against Money Laundering: Current Measures

The HKMA has collaborated with the Hong Kong Police and the banking sector to streamline intelligence sharing through initiatives such as the Fraud and Money Laundering Intelligence Taskforce (FMLIT), 24/7 stop-payment mechanism, real-time fraud monitoring systems, and the Anti-Deception Alliance [1].

Successes of Current Measures

In the last six years, FMLIT has restrained or confiscated approximately HK$1.1 billion in crime proceeds, and the 24/7 stop-payment mechanism has intercepted around HK$12.3 billion [1]. These initiatives have been successful in preventing and detecting money laundering activities and deception cases.

Limitations of Information Sharing

Despite these successes, the issue of mule account networks remains [2]. Criminals can quickly move funds through the banking system before they can be intercepted, and it can take time for the Police to share intelligence with banks, making it challenging to block accounts in real-time.

The Need for Swifter Information Sharing

Banks are increasingly skilled at identifying mule account networks but are limited in their ability to share information about customers with each other due to legal and contractual constraints [2]. HKMA Chief Executive, Eddie Yue, advocates for allowing banks to share information while ensuring appropriate safeguards to help prevent and detect crime and related money laundering activities [2].

Proposed Solutions: The Financial Intelligence Evaluation Sharing Tool (FINEST) and Information Sharing between Authorized Institutions

The Financial Intelligence Evaluation Sharing Tool (FINEST)

In response to the need for swifter information sharing, the Hong Kong Association of Banks, with the HKMA and the police’s support, launched FINEST in June 2023 [2]. This secure electronic platform enables the five major retail banks to share information regarding criminal activity and has successfully identified suspicious accounts, but it currently only covers corporate accounts [2].

Information Sharing between Authorized Institutions

To further battle financial crime in Hong Kong, the HKMA has issued a consultation document proposing that Authorized Institutions (AIs) can share information and receive legal protection [2]. Under this proposal, AIs would be allowed to share information when they identify potential criminal activity from their customers, accounts, or transactions and need to alert other AIs for interception of illicit funds [2].

The Importance of Swifter Information Sharing

By fostering a more integrated approach, banks, the police, and the HKMA aim to strengthen the fight against financial crime in Hong Kong while respecting privacy and confidentiality [2]. In the consultation document, Yue emphasizes the importance of feedback and invites the public to review the proposal and share their views [2]. The consultation period closes on March 29, 2024, with legislative amendments expected to follow depending on the response [2].

Conclusion

In conclusion, in today’s digital age, financial centers, including Hong Kong, have become prime targets for money laundering activities. Swifter information sharing between law enforcement agencies and financial institutions, particularly banks, is crucial in the fight against these criminal activities. The HKMA, along with the Hong Kong Police and the banking sector, have taken steps to improve information sharing and prevent money laundering, but more needs to be done to address the issue of mule account networks. The proposed information sharing between authorized institutions and the expansion of FINEST to include individual accounts are steps in the right direction.

[1] “HKMA and Police Statistical Release - Banking and Securities Services - December 2023” (Press release). Hong Kong Monetary Authority. December 2023. URL: https://www.hkma.gov.hk/media/eng/press/202312/pdf/231231_e.pdf

[2] Chan, Leslie. “Hong Kong banks push for information-sharing as money-laundering cases surge.” South China Morning Post. December 2023. URL: https://www.scmp.com/business/companies/article/3194981/hong-kong-banks-push-information-sharing-money-laundering-cases-surge