anti-money laundering and counter-terrorist · pdf fileanti-money laundering and...

CompliancePlus Consulting Limited801, Two Exchange Square,

8 Connaught Place, Central, Hong Kong

Tel: (852) 3487 6903

www.complianceplus.hk

ANTI-MONEY LAUNDERING AND COUNTER-TERRORIST FINANCING IN HONG KONG

CompliancePlus 2013 Year End Training

18 December 2013

CompliancePlus Consulting

Disclaimer

2

The information in this presentation is CONFIDENTIAL. It is intended solely for use by

the person to whom it is given and may not be reproduced or redistributed. This

presentation is not for distribution to the general public but for intended recipients onlyand may not be published, circulated, reproduced or distributed in whole or part to any

other person without the written consent of CompliancePlus Consulting Limited.

In addition, this presentation is for informational and illustrative purposes only and should

not be construed as legal, tax, investment or other advice. This presentation does notconstitute an offer to provide legal and accounting services and opinion by

CompliancePlus Consulting Limited.

All Copyrights reserved.

Confidential


OV

ER

VIE

WMoney Laundering

It covers all kinds of methods used to change the identity of illegal obtained money(i.e. crime proceeds) so that it appears to have originated from a legitimate source.

3Confidential

Drugs Dealing Corruption/ Counterfeiting

Terrorism


OV

ER

VIE

WStages of money laundering

4Confidential

Placement

(Pre-wash)

• Introducing the proceeds into the financial system (e.g. Bank balance; Securities)

• Methods: Making many small deposits; Setting up a cash business; Using an underground bank man…..

Layering

(Main Wash)

• Passing the money through many transactions in order to confuse the trail and break the link with the original crime

• Methods: Telegraphic transfers; Secured loans; Shell companies; Credit cards…

Integration

(Spin dry)

• The money is brought back into the launderer’s possession from an apparently legitimate source and can be used openly

• Methods: Shell companies; Secretarial Co.; Lawyers/Accountants; Casino...


OV

ER

VIE

WTerrorist Financing

5

Carrying out of transactions involving funds that are owned by Terrorists, or that have been, or are intended to be, used to assist the commission of terrorist acts.

� Includes financing of terrorist acts, of terrorists and terrorist organizations

� It extends to any funds – legitimate or illegitimate


OV

ER

VIE

WWhy is AML & CTF important for you

6

• Devastating consequences to the whole community

• Both ML&TF are criminal offences in Hong Kong, you may involve in the conviction for the offences

HONG KONG’S AML/CTF LEGAL REGIME

Confidential 7


HO

NG

KO

NG

’SA

ML/C

TF

LE

GA

LR

EG

IME

Hong Kong’s AML/CTF Legal Regime

8

1

AMLO & the Guideline

2

The Drug Tracking(Recovery of Proceeds)Ordinance(

(DTROP)

3

The Organized and Serious Crimes

Ordinance

(OSCO”)

4

United Nations(Anti-Terrorism Measures)

Ordinance

(UNATMO)

5

Financial Action Task Force(“the FATF”)


HO

NG

KO

NG

’SA

ML/C

TF

LE

GA

LR

EG

IME

1) AMLO & the Guideline

9

• AMLO & The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (“AMLO”)

• SFC new Guideline on Anti-Money Laundering and Counter-Terrorist Financing (“the Guideline”)

Effective on 1st April 2012

• Codification of Customer Due Diligence (“CDD”) and Record-keeping Requirements

• Criminal liability imposed on financial institution for any violation of requirements under the law

• Penalty, such as court orders for remedial actions, public reprimands and fines


HO

NG

KO

NG

’SA

ML/C

TF

LE

GA

LR

EG

IME

1) Hong Kong’s AML/CTF Legal Regime

10

The AMLO makes ML a criminal offence

Where the FI contravenes:

• Liable to maximum term of imprisonment of 2 years

• fine of HK$1 million

Where the FI contravenes with intention to defraud RA:

• liable to a maximum term of imprisonment of 7 years

• fine of HK$1 million upon conviction


HO

NG

KO

NG

’SA

ML/C

TF

LE

GA

LR

EG

IME

2) The DTROP

11

Contains provisions for the investigation of property that are

known or suspected to associate with drug trafficking activities,

the freezing of property on arrest and the confiscation of the

proceeds upon conviction


HO

NG

KO

NG

’SA

ML/C

TF

LE

GA

LR

EG

IME

3) The OSCO

12

• Extends the government’s power to investigate the

activities of organized crime,

• Allows the confiscation of the proceeds of organized and

serious crimes,

• Creates an offence of money laundering

• Enables the Courts to receive information about the

offender and offence to determine the sentence


HO

NG

KO

NG

’SA

ML/C

TF

LE

GA

LR

EG

IME

4) The UNATMO

13

• Criminalizing the provision or collection of funds and making

funds or financial services available to terrorists or terrorist

associates

• Permitting terrorist property to be frozen and subsequently

forfeited

• The highest penalty is imprisonment for 14 years and a fine


HO

NG

KO

NG

’SA

ML/C

TF

LE

GA

LR

EG

IME

5) The FATF

14

• An inter-governmental body sets the international AML

standards

• 34 member countries and 2 observe regional organizations

（Hong Kong, Since 1991)

• Issued 40 Recommendations on Money Laundering and

adopted 9 additional Special Recommendations on Terrorist

Financing


HO

NG

KO

NG

’SA

ML/C

TF

LE

GA

LR

EG

IME

SFC’s Role in AML/CTF

15

• Guideline on Anti-Money Laundering and Counter-Terrorist

Financing issued in July 2012

- One of the supervisions of anti-money laundering

legislation in Hong Kong

- Guidelines on policies and procedures

• Frequent circulars posted on SFC websites

• FAQ issued by the SFC in April 2008 on identification of

PEPs

• On–site inspection of intermediaries

• Close liaison with Joint Force Intelligence Unit(“JFIU”),

Commissioner for Narcotics, Financial Services Bureau and

HKMA

EFFECTIVE AML/CTF CONTROL SYSTEM

Confidential 16


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IVE

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L/CT

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ON

TR

OL

SY

ST

EM

Effective AML/CTF Control System

17

1) Senior Management Oversight

4) Staff Screening and Training

3) Compliance and Audit Function

Effective

AML/ CTF

Control System

2) Appointment of

Compliance & Money

Laundering Reporting

Officer


EF

FE

CT

IVE

AM

L/CT

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ON

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OL

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I. Senior Management Oversight

18

Senior Management should

• Be satisfied that the FI’s AML/CTF systems are capable of

addressing the ML/TF risks identified

• Appoint a director or senior manager as a CO for

establishment and maintenance of the FI’s AML/CTF

systems

• Appoint a senior member of the FI’s staff as the MLRO for

suspicious transactions reporting


EF

FE

CT

IVE

AM

L/CT

F C

ON

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OL

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ST

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2. Appointment of Compliance Officer & Money Laundering Reporting Officer

19

The CO

• Oversee activities relating to AML/CTF• Ensure FI’s AML/CTF systems are effective and meet the

requirements• Support senior management in managing ML/TF risks

The MLRO

• All staff identify and report suspicious transactions to the MLRO

• Evaluate internal disclosures and exception reports and maintain records of such items

• Main point of contact between Joint Financial Intelligence Unit(“JFIU”) and similar authorities regarding ML/TF matter


EF

FE

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IVE

AM

L/CT

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ON

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3 Compliance and Audit Function

• Independent function

• Directly report to senior management

• Review AML/CTF systems periodically (according to the

risks of ML/TF and the size of the business, should seek

outsource review when necessary)

20Confidential


EF

FE

CT

IVE

AM

L/CT

F C

ON

TR

OL

SY

ST

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4. Staff Screening

21

• FIs must establish, maintain and operate appropriate

procedures that need to be satisfied of the integrity of any

new employees

COMPLIANCE WITH HONG KONG AML/CTF LAWS

Confidential 22


CO

MP

LIAN

CE

WIT

H H

ON

G K

ON

G A

ML/C

TF

LAW

SCompliance with Hong Kong AML/CTF Laws

23

I. Risk-based Approach

II. Customer Due Diligence (“CDD”)

III. Ongoing Monitoring

IV. Record Keeping

V. Suspicious Transactions Reports

VI. Staff Education and Training


CO

MP

LIAN

CE

WIT

H H

ON

G K

ON

G A

ML/C

TF

LAW

SI. Risk-based Approach(“RBA”)

24

(1) General requirements

(2) Customer acceptance/Risk assessment

(3) Ongoing review of a customer’s ML/TF risk

(4) Documenting risk assessment


CO

MP

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H H

ON

G K

ON

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ML/C

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LAW

S(1)General requirements

25

(Under the SFC Guideline on Anti-Money Laundering and Counter-Terrorist Financing (issued in April 2012))

Extent of controls & oversight depend upon customers:

• Extent of due diligence to be performed & measures to be taken to verify the identity of beneficial owner/any person purporting to act on behalf of the customer

• Level of ongoing monitoring

• Measures to mitigate risks identified


CO

MP

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CE

WIT

H H

ON

G K

ON

G A

ML/C

TF

LAW

S(2) Customer acceptance/Risk assessment

26

Source: http://www.sfc.hk/web/doc/EN/intermediaries/supervision/prevention/Module6_20120330.pdf


CO

MP

LIAN

CE

WIT

H H

ON

G K

ON

G A

ML/C

TF

LAW

S(3) Ongoing review of a customer’s ML/TF risk

27

Source: http://www.sfc.hk/web/doc/EN/intermediaries/supervision/prevention/Module6_20120330.pdf


CO

MP

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CE

WIT

H H

ON

G K

ON

G A

ML/C

TF

LAW

S(4) Documenting risk assessment

28

The documents related to the following things should be kept

from time to time:

a. How it assesses the customer’s ML/TF risk

b. The extent of CDD and ongoing monitoring is appropriate

based on that customer’s ML/TF risk


CO

MP

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WIT

H H

ON

G K

ON

G A

ML/C

TF

LAW

SII. Customer Due Diligence(“CDD”)

29

(1) Customer Identification and Verification Measures

(2) How to conduct Customer Due Diligence

(3) Simplified CDD Procedure

(4) Enhanced CDD-High Risks Situations

(5) Enhanced CDD-Politically Exposed Persons

(6) Pre-Existing Customers

(7) Reliance on CDD performed by intermediaries


CO

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ON

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LAW

S(1) Customer Identification and Verification Measures

30

a. Identify and verify the customer’s identityb. Identify and verify the beneficial owner who owns or

controls interest / voting right of:25% or more (normal)10% (high risk situations)

c. Identify and verify a person purporting to act on behalf of the customer

d. Understand the purpose and intended nature of

business relationship

(Para 4.6.2 obtain satisfactory information)


CO

MP

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H H

ON

G K

ON

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ML/C

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LAW

S(2) How to conduct Customer Due Diligence( (Para. 4.10 & 4.11)

31

• Simplified CDD (“SDD”) – full CDD measures are notrequired which means no need to identify and verify the

beneficial owners

• Enhanced CDD (“EDD”) – classification subject to approval by

senior management

Normal CDDEnhanced CDD

(Suspicious)More work

Simplified CDD

(No suspicion)Less work

New Clients


CO

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H H

ON

G K

ON

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ML/C

TF

LAW

S(3) Simplified CDD Procedure - Low Risks Situations (para. 4.10)

32

Examples

of low risk

categories

Listed

companies

Investment

vehicle

Government

and public

bodies

Financial

institutions


CO

MP

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H H

ON

G K

ON

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ML/C

TF

LAW

S(4) Enhanced CDD – High Risks Situations (Para. 4.11)

33

In any situation that by its nature presents a higher risk of

ML/TF, FIs must take additional measures to mitigate the risk

• Obtaining additional information of clients and updating

more regularly its profile including identification data

• Obtaining additional information regarding the intended nature of business relationship, source of wealth and funds

• Obtaining the approval of senior management to commence or continue the relationship

• Conducting enhanced monitoring of the business relationship


CO

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H H

ON

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ON

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ML/C

TF

LAW

S(5) Enhanced CDD – Politically Exposed Persons (“PEPs”) (Para. 4.11)

34

A PEP is:

i. Senior government official, head of state, senior politician, judicial or military official, senior executive of a state-owned enterprise, an important political party official

ii. A spouse, partner, child or parent of (i)

iii. A person with close business relationship with (i)

iv. A person who is a beneficiary owner of a legal person / trust which is set up for the benefit of (i)


CO

MP

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CE

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H H

ON

G K

ON

G A

ML/C

TF

LAW

S(5) Enhanced CDD – Politically Exposed Persons (“PEPs”) (Para. 4.11)

35

If FIs discover a particular customer or beneficial owner is a PEP, it must apply the following measures:

• Obtain approval from its senior management

• Take reasonable measures to establish the client’s or the beneficial owner’s source of wealth and the source of the funds

• Apply enhanced monitoring to the relationship in accordance with the assessed risks

If PEPs are assessed to present a higher risk, they will be subject to a minimum annual review


CO

MP

LIAN

CE

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H H

ON

G K

ON

G A

ML/C

TF

LAW

S(5) PEPs Screening

36

Cannot solely rely on the background information provided by

customers:

PEPs Screening

Making reference to publicly available

information

Screening against commercially available

databases


CO

MP

LIAN

CE

WIT

H H

ON

G K

ON

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ML/C

TF

LAW

S(6) Pre-existing Customers

37

FIs are required to perform CDD in respect of pre-existing

clients only when there is an unusual, suspicious transaction

that is inconsistent with the client’s existing risk profile


CO

MP

LIAN

CE

WIT

H H

ON

G K

ON

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ML/C

TF

LAW

S(7) Reliance on CDD performed by intermediaries

38

Third parties can perform any part of the CDD measures,

however the ultimate responsibility remains with FIs

The FIs must obtain written confirmation from the intermediary:

• It agrees to perform the role; and

• It will provide without delay a copy of any document or

record obtained in the course of carrying out the CDD

measures on behalf of the FIs upon request


CO

MP

LIAN

CE

WIT

H H

ON

G K

ON

G A

ML/C

TF

LAW

SIII. On-going Due Diligence

39

• Reviewing from time to time the relevant documents, data

and information of the customer

• Monitoring the activities(including the cash and non-cash

transactions) of clients to ensure the consistency

• Identifying transactions which may indicate ML/TF


CO

MP

LIAN

CE

WIT

H H

ON

G K

ON

G A

ML/C

TF

LAW

SRisk-based approach to monitoring

40

Additional measures need to be taken when posing a higher

risk:

• Whether adequate procedures or management information

systems are in place to provide relevant staff

• How to monitor the sources of funds , wealth and income

and how any changes will be recorded


CO

MP

LIAN

CE

WIT

H H

ON

G K

ON

G A

ML/C

TF

LAW

SIV. Record Keeping (Para. 8.2)

41

a. Records for identification and verification of the identity of the customers or beneficial owners

b. Information on the EDD or ongoing monitoring

c. Data for the purpose and intended nature of the business relationship

d. The records of customer’s account

e. Relation the transactions records


CO

MP

LIAN

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H H

ON

G K

ON

G A

ML/C

TF

LAW

SIV. Record Keeping (Para. 8.2)

42

Retention periods of the documents as follows:

• All necessary records on transaction, both domestic and

international at least 6 years

• Records on client ID, account file & business

correspondence at least 6 years


CO

MP

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H H

ON

G K

ON

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ML/C

TF

LAW

SV. Suspicious Transaction Reports (“STR”)

43

Section.25A of DTROP and OSCO

“A person who suspects that any property

represents the proceeds of drug trafficking or any indictable offence shall report this to a Police Officer”


CO

MP

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ON

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ON

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ML/C

TF

LAW

SV. Suspicious Transaction Reports (“STR”)

44

(1) The Offence of “Tipping-Off”

(2) Suspicious Transaction Reporting

(3) Suspicious Transaction Reports Procedures

(4) Consequences of not reporting


CO

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ON

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ML/C

TF

LAW

S(1) The Offence of “Tipping-Off”

45

• Another offence set under Section 25A(5) of the DTROP

,the OSCO and Section 12(5) of the UNATMO

• “Tipping off “occurs when a person, knowing or suspecting

that a disclosure has been made , to disclose to any other

person any matter likely to prejudice any investigation which

might follow


CO

MP

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ON

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ON

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TF

LAW

S(2) Suspicious Transactions Reporting

46

Mandatory Requirements:

• Require LCs to report any property where an LC knows or

suspects that such property represents the proceeds of

crime or terrorist property

• Report to the Joint Financial Intelligence(JFIU),Police Force

or Customs& Excise Department


CO

MP

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H H

ON

G K

ON

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ML/C

TF

LAW

S(3) Suspicious Transaction Reports (“STR”) procedures

47

Staff

Identity

suspicious

transactions

Review of

exception reports

product

MLRO

Assessment by

MLRO

No report

filed to JFIU

Report filed

to JFIU

Maintain record

of all internal

reports made to

the MLRO,

results of

assessment & all

disclosures made

to JFIU

Post

reporting

matters

(Para 7.33-

7.38)


CO

MP

LIAN

CE

WIT

H H

ON

G K

ON

G A

ML/C

TF

LAW

S(4) Consequences of not reporting

48

• Reputation RISK- Criminals can out compete honest business

- Dirty Money drives out clean money

- Adverse publicity may cause a loss of confidence in the

integrity of your firm

• Operational RISK- Unenforceable contracts

- Risk in financial failure as a result of being defrauded

• Criminal and regulatory SANCTIONS- Possible large monetary fines and forfeiture provisions

- Possible imprisonment


CO

MP

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H H

ON

G K

ON

G A

ML/C

TF

LAW

SVI. Staff Education & Training

49

• Training policies and procedures in place

• Ensure the staff aware of their roles in AML/CTF

• Training records need to be kept for a minimum of 3

years

• Frequency of training should be sufficient to maintain

the AML/CTF knowledge and competence of staff

END

Confidential 50

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