Combating Money Laundering in Hong Kong

Law and Public Policy

Photograph: Charlotte Chiu

In recent years, due to the increasingly rampant money laundering crimes, countries have begun to strengthen their crackdowns. The Basel Institute for Governance has published a ranking of money laundering risk assessments, in which Hong Kong ranks as a mid-range member: 90 out of 162 countries and regions.

The Financial Affairs and Treasury Bureau is currently responsible for coordinating Hong Kong’s overall anti-money laundering policy, including the implementation of the Financial Action Task Force standards. Implemented by the Joint Financial Intelligence Unit under the Police Department, the policy encompasses receiving, analyzing and publishing "suspicious transaction reports", managing suspicious transaction reporting mechanisms, and implementing effective measures to fight against money laundering.

According to the information provided by the Joint Financial Intelligence Unit, the number of suspicious transaction reports in Hong Kong has soared from 14,029 in 2004 to 32,907 in 2013, of which 80% were reports submitted by banks. The designated non-financial industry is the highest among law firms, which is likely due to the public’s increased awareness and understanding of money laundering. However, as an international financial hub, Hong Kong is also a door for Mainland China’s capital to leave the country. Funds flow in and out frequently, thus creating more opportunities for criminal activity. Hence, the risks associated with attempting to launder money in Hong Kong through international trade, investment, and even smuggling should not be underestimated.

Not only are financial institutions the main source of suspicious transaction reports, but they are also the gatekeeper in Hong Kong's fight against money laundering. In April 2012, the government enacted the Anti-Money Laundering and Terrorist Financing Ordinance to further specify anti-money laundering measures for Hong Kong financial institutions. It intended to assist them in conducting due diligence and record-keeping with the ultimate aim of optimizing catches of suspicious transactions and effectively combating money laundering in financing. The Monetary Authority has also issued comprehensive guidelines to assist authorized institutions to formulate effective control measures, including the appointment of senior supervisors and money laundering officers, the development of continuous monitoring measures, and staff training.

However, several non-financial institutions that also have monitoring and reporting responsibilities seem to lack a complete set of procedural guidelines. Consequently, the task of reporting money laundering has not received the attention of relevant companies and practitioners, and hence the results have been ineffective. For instance, the Real Estate Agents Authority only requires real estate agents to adopt simple procedures for verifying customer identity and file storage arrangements. As for the ways to establish an effective and standardized anti-money laundering control program, it is left to the management of the company to implement. Therefore, the current real estate agent's role is only to keep simple data records. The number of suspicious transaction reports from the real estate industry in Hong Kong continues to be low, with only 12 records in the year 2019. It is difficult to claim that it is entirely due to the inadequacy of the Hong Kong real estate agency industry in terms of customer due diligence and staff training. However, of the nearly 100,000 purchase and sale contracts for properties, there were only a dozen suspected cases of money laundering in the use of building transactions.

In the context of the increasing frequency and complexity of international financial activities, it is recommended that the government should establish a statutory body completely independent of the current structure to more effectively coordinate anti-money laundering policies and measures and strengthen the efforts of non-financial institutions in combating money laundering. The government may also consider referring to the British model and empowering this independent statutory body with powers to integrate law enforcement and overall supervision. From this, it can elevate the Joint Wealth Intelligence Unit, which is currently positioned as a coordination and data collection organization, to take on the role of a legal enforcer and policy promoter with power and responsibilities.