T K Lo & Co
Hong Kong CPA Firm
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Audit - News |
AML Overview
Corporate vehicles and legal structures are inherently
attractive for ML because:
(a) It looks more reasonable to move large sums of money
between companies without attracting attention;
(b) It takes time and multiple efforts to verify the
source of the funds or the alleged trade or business if fictitious invoices
or shipping documents are used;
(c) Corporate structures may hide beneficial owners or
persons who control the company;
(d) Commingling of legitimate and unlawful activity makes
it harder to distinguish companies’ assets from crime proceeds;
(e) Criminals may take advantage of the transactions with
reputable companies to minimise suspicions; and
(f)
Companies were often established to transfer crime proceeds from one
country to another, under the disguise of payments resulting from legitimate
business activities, such as imports and exports or other business
activities. The cross-jurisdictional camouflage of commercial activities, or
commingling of funds with those stemming from legitimate businesses, can
create numerous layers of funds as disguise.
The Government is committed to upholding a robust AML/CFT regime that:
(a) Fulfills the international AML/CFT standards;
(b) Deters and detects illicit fund flows in and out of the territory,
through the financial system or otherwise;
(c) Combats ML/TF and restrains and confiscates illicit proceeds
effectively;
(d) Reduces ML/TF vulnerabilities of both financial and non-financial
sectors in Hong Kong;
(e) Adopts a risk-based approach (“RBA”) in applying compliance obligations
to businesses
and individuals;
(f ) Fosters strong external and international collaboration to disrupt
global ML/TF threats;
and
(g) Promotes the awareness and builds the capacity of private sector
stakeholders in combatting ML/TF risks through engagements in AML/CFT
efforts.
HKPF
The HKPF is the primary LEA for ML/TF and predicate
offences investigation under the Police Force Ordinance, the OSCO, the DTROP
and the UNATMO. The Financial Investigation Division (under the Narcotics
Bureau of the HKPF) specialises in investigating ML and TF relating to drugs
and organised crimes, as well as tracing and confiscating proceeds under the
OSCO, the DTROP and the UNATMO. The Commercial Crime Bureau (“CCB”) is
responsible for investigating serious, complex and syndicated commercial
crimes and business fraud. Other crime investigation teams or units (at
headquarters, regional or district levels) also conduct ML investigations
during enquiries into predicate offences, or other serious ororganised
crimes.
C&ED
The C&ED has established the Financial Investigation Group
under the Syndicate Crimes Investigation Bureau to investigate ML cases with
predicate offences under the C&ED’s purview, e.g. smuggling,
intellectual-property and drugs offences, and to trace, restrain and
confiscate proceeds of such offences. The Financial Investigation Group
works closely with the Mainland Customs and overseas LEAs against
cross-border and transnational ML syndicates. The C&ED also safeguards the
certification and licensing systems, which are of vital importance to Hong
Kong’s trading integrity. The C&ED carries out cargo examination at control
points, factory inspections and consignment checks and is a member of the
Hong Kong Compliance Office set up to assist the Central People's Government
in implementing the Chemical Weapons Convention in Hong Kong through the
Chemical Weapons (Convention) Ordinance. As noted above, the MSSB under the
C&ED licenses and regulates MSOs under the AMLO.
The C&ED is the enforcement agency of the strategic trade
control system in Hong Kong instituted under the IEO and its subsidiary
legislation, the Import and Export (Strategic Commodities) Regulations. The
C&ED ensures that the licensing system is not abused by illegal imports and
exports by conducting intelligence-led inspections and verifications on
import and export of strategic commodities and investigating cases of abuse.
ICAC
The ICAC is primarily responsible for investigating
corruption complaints. The financial aspect of corruption or related
offences, including fund flow analysis and tracing of proceeds of crime, is
covered in investigation of the main offences. ML offences facilitated by or
connected with corruption are pursued if revealed in the course of
corruption investigations. The ICAC Proceeds of Crime Section was set up in
2010 to deal with the restraint and confiscation of assets under the OSCO. A
Forensic Accounting Group was formed in 2011 to support frontline officers
in handling complex corruption cases, ML and other offences.
JFIU
The JFIU is a dedicated unit jointly operated by the HKPF
and the C&ED to receive, analyse and disseminate STRs filed by FIs, DNFBPs
and members of the public, and study typologies of ML and TF cases. On
receipt of each STR, the JFIU will examine and conduct intelligence analysis
in accordance with its risk-assessment mechanism, examining aspects of the
report, including its degree of suspicion, severity and level of risk.
Valuable intelligence from STRs is developed and/ or disseminated to
investigative units of LEAs or other agencies, enabling them to intervene
and disrupt ML/TF activities, assisting investigations and leading to
successful prosecutions.
Telephone deception
The modus operandi of telephone deception has
evolved in recent years, from “Detained Son” and “Guess Who” to “Pretend
Official”. In most cases, victims received demands, accompanied by threats
or inducements, to provide bank account numbers and passwords; remit money
to bank accounts in Hong Kong, Mainland China or overseas through local
banks or MSOs; or to pay cash locally to agents of the fraudsters. Telephone
deception may involve solely local syndicates, or transnational syndicates
based outside Hong Kong. They commonly employed stooges to open bank
accounts or use MSOs to remit proceeds.
Online fraud
Most of the online fraud cases were online business fraud,
email scam and social media fraud. In social media fraud, instead of using
bank accounts, perpetrators commonly use social media platforms and instant
messaging applications to pose as account holders and deceive their
relatives and friends into buying and paying for SVF or prepaid devices such
as online game tokens. The credit is deposited instantly to the
perpetrator’s account on the relevant platform. Proceeds in such cases flow
out of Hong Kong swiftly.
Investment fraud
Investment fraud commonly involves fraudulent investment
schemes with features such as high return, low risk and quick profit, in
which victims are lured to send their payments abroad. In this type of
predicate crimes, companies set up in different jurisdictions are commonly
used to project the false impression of investment activities. In a number
of ML cases involving external investment fraud, overseas ML syndicates have
used front companies to transmit crime proceeds between jurisdictions. The
commingling of funds helps to disguise proceeds of crime.
Drugs
Drugs are mostly manufactured outside Hong Kong and
smuggled into Hong Kong by air, sea or mail. The structure of drug
trafficking varies from retail-level traffickers to syndicates with layers
of management, such as brokerage, logistics and drug couriers. Some of the
drugs smuggled into Hong Kong are re-routed to other places, for example to
Asia-Pacific jurisdictions.
ML techniques
employed by local drug syndicates are comparatively simple. Proceeds are
often dealt with by the drug syndicates, their family members or associates,
either stored as cash or in family members’ or associates’ bank accounts, or
used to acquire real estate. International drug cartels, in addition to
using local bank accounts opened by stooges and shell companies to launder
proceeds, have also adopted trade-based money laundering (“TBML”) in Hong
Kong.
Loansharking
Loansharking is the criminal act of lending money at
exorbitant interest and adopting aggressive or illegal means to compel loan
settlements. Debtors in Hong Kong are often low-income individuals or
cash-strapped businessmen, who are unable to obtain a loan from banks or
other regulated FIs due to various reasons, or habitual gamblers who
incurred gambling debts in Hong Kong or Macao. In many cases, debtors who
could not pay their debts were recruited to open bank accounts for loan
sharks to collect repayments from other debtors. Some individuals may also
have sold their bank accounts to loansharking
Bookmaking and illegal gambling
With advances in mobile technology and the Internet, bets
can be received online by bookmaking syndicates operating outside the
territory. Bookmakers in Hong Kong usually take bets on horse racing and
football. Bookmaking on horse racing is largely confined to local events,
whereas football bookmaking normally involves matches outside Hong Kong.
Inter-bank transfers and personal bank accounts are commonly used to receive
proceeds. Proceeds placed in stock trading through banks or securities firms
as well as hidden as cash were also occasionally seen.
Corruption
Two-thirds of corruption complaints relate to the private
sector. As the Mainland market continues to grow, economic crimes including
corruption will continue to threaten processes across all businesses. Given
the close geographical proximity and economic linkage between Mainland China
and Hong Kong, there is a potential ML threat posed to Hong Kong by possible
corrupt activities in the Mainland. As an international financial centre
with a free and open economy, Hong Kong might also attract foreign business
entities and officials, seeking to launder proceeds of corruption.
Laundering of corrupt proceeds can take different forms, depending on the
nature of the corrupt act. Local bank accounts and offshore companies set up
by locals, as well as corporate vehicles, trusts, and non-profit entities,
could be used to hide corrupt proceeds. Transnational and cross-border
corruption activities have presented a challenge to the ICAC in recent
years, resulting in the strengthening of liaison and exchanges with Mainland
China, Macao and overseas anti-corruption and law-enforcement agencies.
Apart from agency-to-agency law enforcement co-operation, the ICAC would
render MLA to overseas jurisdictions in corruption cases pursuant to
bilateral agreements with Hong Kong under the MLAO, as well as multilateral
agreements such as the United Nations Convention Against Corruption. For
cases involving Mainland China, effective co-operation is maintained under
the Mutual Case Assistance Scheme.
Tax evasion
In contrast, the ML threat from external tax evasion is
higher. The laundering methods for tax evasion in Hong Kong vary, depending
on the scale and technique of the culprits in other jurisdictions. From a
detected ML case involving proceeds of foreign tax evasion, it is noted that
the tax evasion scheme involved the use of complex corporate structures and
trusts to conceal ownership and control of proceeds of tax evasion.
Goods smuggling
Criminals have sought to smuggle prohibited and controlled
items into and out of Hong Kong, including dutiable commodities, narcotics,
endangered species, firearms, articles infringing intellectual property, and
goods with false trade descriptions. Given the differences in the tax
regimes of Mainland China and Hong Kong, syndicates have sought to smuggle
dutiable commodities, such as cigarettes and motor spirit, from the Mainland
to Hong Kong and high-value electronic goods, including mobile phones and
computer hardware, from Hong Kong to the Mainland. The C&ED regularly mounts
operations with their counterparts in Mainland China against smuggling
syndicates. Smuggling activities are cross-jurisdictional in nature, and the
impact on the ML threat is never restricted to a single jurisdiction. The ML
activities could be organised and sophisticated involving the use of
different techniques.
TBML
TBML requires intermingling of the trade and finance
sectors and practices vary in complexity. Given the large volumes of
financial transactions with trading partners, Hong Kong faces an inherent
threat of TBML. The most basic schemes are fraudulent trade practices (e.g.
under or
Rise of technology crime
In the past decade, technological advances and
globalisation have given rise to new opportunities for cross-border crimes
and ML. The Internet enables new forms of interaction, activities and
associations, and allows greater flexibility in operation in terms of hour
and location. It enables easier, faster and globalised commission of crimes.
International dimensions of the Internet, the ease with which users can hide
their locations, the difficulty of tracing the genuine identity, and the
simplicity with which hackers can divert browsers to fraudulent sites and
record payment card details have all contributed to very rapid growth of
Internet crimes. The local community is susceptible to an elevated scale of
sophistication and penetration of technology crimes. Criminals have taken
advantage of increased online business activities, rapid movements of money,
enhanced telecommunications and computer links. As a result, LEAs face a
more complex and sophisticated challenge from criminals who extend their
activities across different jurisdictions. Other types of
crime using technology (e.g. attacks on computer systems for ransom) could
lead to significant financial loss and generation of crime proceeds. The
majority of such cases also involve the use of bank accounts. Copyright
infringement and trademark counterfeiting are increasingly committed online
using auction sites and social media platforms.
Virtual Currencies
As in most jurisdictions, there is no specific regulation
over VCs, such as Bitcoin, which are regarded as virtual commodities but not
as a legal tender in Hong Kong. Transactions with VCs are in essence
bilateral contractual arrangements between service vendors and users for
bartering specific goods or services. Some VCs are highly speculative and
prices may fluctuate widely due to speculation. They may not be backed by
any physical item, issuers or the real economy and investors or consumers
may suffer significant monetary losses as a result of the volatile prices.
Under the AMLO, any person who operates a money service
business (i.e. money changing and remittance transactions) is required to
obtain an MSO licence from the Commissioner of Customs and Excise. This
requirement applies to VC operators if they are also involved in the money
service business. Under the PSSVFO, the HKMA is empowered to declare
something to be a medium of exchange and bring it into regulation if it can
be used as an SVF. Digital tokens that are offered or sold may fall under
the regulatory ambit of the SFC if they meet the statutory definition of
“securities” under the SFO. Various pieces of legislation provide sanctions
against ML, TF, fraud, cybercrimes and offer client assets protection in
general, whether or not VCs are involved.
AML
Legislation has been enacted in Hong Kong to address the problems associated with
money laundering and terrorist financing activities in the areas of drug
trafficking, organized and serious crimes, and terrorism. The main pieces of
legislation are:
l
Anti-Money Laundering and Counter-Terrorist Financing
Ordinance (AMLO)
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Drug Trafficking (Recovery of Proceeds) Ordinance
(DTROPO),
l
Organized and Serious Crimes Ordinance (OSCO)
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United Nations (Anti-Terrorism Measures) Ordinance
(UNATMO)
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United Nations Sanctions Ordinance (UNSO)
The principal offences are:
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Dealing in the proceeds of crime
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Reporting obligation on suspicious transactions
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Tipping-off information to prejudice
an investigation
Governing bodies of AML/CTF include FATF, JFIU, CR &
HKICPA, where:
FATF is an international
inter-government organization, which sets standards and develops and
promotes policies to combat money laundering and terrorist financing.
Hong Kong was admitted as a full member in March
1991 and is obliged to implement its recommendations.
JFIU is a unit run jointly by the
Hong Kong Police Force and the Customs & Excise Department to combat the
AML.
Money Laundering
It is a transaction or a series of transactions
effected with the aim to conceal or change the identity of criminal
proceeds, so that the money, after such processing, will appear to have
originated from a legitimate source. It covers all procedure to change,
obscure or conceal the ownership or audit trail of illegally obtained money
or property. Proceeds of many crimes, eg drug trafficking, are often
generated in the form of cash, and some do not involve cash, eg fraud, false
accounting & tax evasion.
The three common stages of money laundering:
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Placement
-
the physical disposal of cash proceeds derived from illegal activity into
the financial system;
l
Layering
- separating illicit proceeds from their source by creating complex
layers of financial transactions designed to disguise the audit trail and
provide anonymity; and
l
Integration
- the provision of apparent legitimacy to criminally derived wealth. If
the layering process has succeeded, integration schemes place the laundered
proceeds back into the economy in such a way that they re-enter the
financial system appearing to be normal business funds.
Terrorist Financing
It generally refers to the carrying out of transactions involving funds that are owned by terrorists, or that have been, or are intended to be, used to facilitate the commission of terrorist acts. “Terrorist” means a person that commits, or attempts to commit, a terrorist act or that participates in or facilitates the commission of a terrorist act.
Policies
We will take all
reasonable measures to mitigate the risk relating to AML/CTF and ensure the
requirements under the AMLO are complied with.
We will assess the risk of businesses, develop and
implement policies, procedures and controls on:
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risk assessment;
l
CDD measures;
l
ongoing monitoring of clients;
l
suspicious transactions reporting;
l
record keeping; and
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staff training
We must complete the CDD process before establishing any business
relationship or before carrying out a specified occasional transaction.
We will set up our procedures by reference to the latest guidelines and
bulletins issued by HKICPA and CR, including
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Guidelines on Anti-Money Laundering and Counter-Terrorist Financing for
Professional Accountants (HKICPA - Mar 2018)
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Anti-money Laundering Bulletin (HKICPA – AMLB1 Apr 2015 revised)
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Guideline on Compliance of Anti-Money Laundering and Counter-Terrorist
Financing Requirements for Trust or Company Service Providers (CR – Mar
2018)
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Guideline on Licensing of Trust or Company Service Providers (CR – Mar 2018)
We must not have any business relationship with
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any party which is subject to
financial sanctions under the UNSO
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any terrorist or terrorist
associate as defined under the UNATMO
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(Lists are available at the “Publications & Presentations” section
of www.tcsp.cr.gov.hk) |
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