T K Lo & Co

Hong Kong CPA Firm

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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;


(g) Promotes the awareness and builds the capacity of private sector stakeholders in combatting ML/TF risks through engagements in AML/CFT efforts.


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.


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.


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.


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 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 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 syndicates.

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.


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. Hong Kong joined the Inclusive Framework on Base Erosion and Profit Shifting in June 2016. The Inland Revenue Ordinance (“IRO”) was amended in 2016 to implement the AEOI, a new international standard designed to enhance tax transparency and combat cross-border tax evasion, through the exchange of financial account information between jurisdictions. Amendments to the IRO were enacted by LegCo in January 2018 providing the legal framework for Hong Kong to implement the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, thereby allowing more effective implementation of the AEOI arrangements. After completion of the necessary legislative and administrative procedures, we will ride on the Multilateral Convention to conduct AEOI with other relevant jurisdictions on a multilateral basis starting from September 2018.

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 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 over-invoicing, multiple invoicing of goods and services, under- or over-shipment of goods or provision of services, etc.)95. Crime proceeds from overseas drugs and local or overseas fraud have been laundered via TBML, for example as payment for genuine or purported sales of products, or by issuing letters of credit. Considering the complexity of international trade and the absence of any system cross referencing trade and trade finance data globally, TBML is difficult to detect.

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.

 (Source: Government's risk assessment report)     Abbreviations



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)

l   Drug Trafficking (Recovery of Proceeds) Ordinance (DTROPO),

l   Organized and Serious Crimes Ordinance (OSCO) 

l   United Nations (Anti-Terrorism Measures) Ordinance (UNATMO)

l   United Nations Sanctions Ordinance (UNSO)

The principal offences are:

l   Dealing in the proceeds of crime

l   Reporting obligation on suspicious transactions

l   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:

l   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. 


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:

l   risk assessment;

l   CDD measures;

l   ongoing monitoring of clients;

l   suspicious transactions reporting;

l   record keeping; and

l   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

l   Guidelines on Anti-Money Laundering and Counter-Terrorist Financing for Professional Accountants (HKICPA - Mar 2018)

l   Anti-money Laundering Bulletin (HKICPA – AMLB1 Apr 2015 revised)

l   Guideline on Compliance of Anti-Money Laundering and Counter-Terrorist Financing Requirements for Trust or Company Service Providers (CR – Mar 2018)

l   Guideline on Licensing of Trust or Company Service Providers (CR – Mar 2018) 

We must not have any business relationship with

l   any party which is subject to financial sanctions under the UNSO

l   any terrorist or terrorist associate as defined under the UNATMO

(Lists are available at the “Publications & Presentations” section of www.tcsp.cr.gov.hk)