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presentation is not for distribution to the general public but for intended recipients onlyand may not be published, circulated, reproduced or distributed in whole or part to any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
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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.
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Drugs Dealing Corruption/ Counterfeiting
Terrorism
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WStages of money laundering
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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...
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WTerrorist Financing
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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
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WWhy is AML & CTF important for you
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• 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
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Hong Kong’s AML/CTF Legal Regime
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AMLO & the Guideline
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The Drug Tracking(Recovery of Proceeds)Ordinance(
(DTROP)
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The Organized and Serious Crimes
Ordinance
(OSCO”)
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United Nations(Anti-Terrorism Measures)
Ordinance
(UNATMO)
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Financial Action Task Force(“the FATF”)
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1) AMLO & the Guideline
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• 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
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1) Hong Kong’s AML/CTF Legal Regime
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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
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2) The DTROP
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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
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3) The OSCO
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• 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
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4) The UNATMO
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• 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
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5) The FATF
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• 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
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SFC’s Role in AML/CTF
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• 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
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Effective AML/CTF Control System
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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
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I. Senior Management Oversight
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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
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2. Appointment of Compliance Officer & Money Laundering Reporting Officer
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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
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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)
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4. Staff Screening
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• 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
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SCompliance with Hong Kong AML/CTF Laws
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I. Risk-based Approach
II. Customer Due Diligence (“CDD”)
III. Ongoing Monitoring
IV. Record Keeping
V. Suspicious Transactions Reports
VI. Staff Education and Training
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SI. Risk-based Approach(“RBA”)
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(1) General requirements
(2) Customer acceptance/Risk assessment
(3) Ongoing review of a customer’s ML/TF risk
(4) Documenting risk assessment
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S(1)General requirements
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(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
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S(2) Customer acceptance/Risk assessment
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Source: http://www.sfc.hk/web/doc/EN/intermediaries/supervision/prevention/Module6_20120330.pdf
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S(3) Ongoing review of a customer’s ML/TF risk
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Source: http://www.sfc.hk/web/doc/EN/intermediaries/supervision/prevention/Module6_20120330.pdf
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S(4) Documenting risk assessment
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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
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SII. Customer Due Diligence(“CDD”)
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(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
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S(1) Customer Identification and Verification Measures
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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)
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S(2) How to conduct Customer Due Diligence( (Para. 4.10 & 4.11)
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• 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
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S(3) Simplified CDD Procedure - Low Risks Situations (para. 4.10)
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Examples
of low risk
categories
Listed
companies
Investment
vehicle
Government
and public
bodies
Financial
institutions
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S(4) Enhanced CDD – High Risks Situations (Para. 4.11)
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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
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S(5) Enhanced CDD – Politically Exposed Persons (“PEPs”) (Para. 4.11)
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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)
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S(5) Enhanced CDD – Politically Exposed Persons (“PEPs”) (Para. 4.11)
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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
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S(5) PEPs Screening
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Cannot solely rely on the background information provided by
customers:
PEPs Screening
Making reference to publicly available
information
Screening against commercially available
databases
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S(6) Pre-existing Customers
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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
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S(7) Reliance on CDD performed by intermediaries
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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
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SIII. On-going Due Diligence
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• 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
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SRisk-based approach to monitoring
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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
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SIV. Record Keeping (Para. 8.2)
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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
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SIV. Record Keeping (Para. 8.2)
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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
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SV. Suspicious Transaction Reports (“STR”)
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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”
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SV. Suspicious Transaction Reports (“STR”)
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(1) The Offence of “Tipping-Off”
(2) Suspicious Transaction Reporting
(3) Suspicious Transaction Reports Procedures
(4) Consequences of not reporting
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S(1) The Offence of “Tipping-Off”
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• 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
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S(2) Suspicious Transactions Reporting
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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
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S(3) Suspicious Transaction Reports (“STR”) procedures
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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)
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S(4) Consequences of not reporting
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• 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
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SVI. Staff Education & Training
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• 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
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