The Basel Institute on Governance announced an international ranking of money laundering risk in 2014 in which Hong Kong was ranked 90th among 162 countries and regions worldwide.
The city was assessed to face a medium risk of money laundering.
China was ranked 70th, and Japan 76th.
In Hong Kong, the Financial Services and the Treasury Bureau is the overall coordinator of the government’s anti-money-laundering policy and is responsible for the implementation of the standards and requirements laid down by the Financial Action Task Force, an international organization against cross-border money laundering.
The Joint Financial Intelligence Unit (JFIU) of the Hong Kong police is in charge on the operational level, monitoring and analyzing any suspicious money transactions.
Information from the JFIU shows the number of suspicious transaction reports (STRs) filed rose to 32,907 in 2013 from 14,029 in 2004.
More than 80 percent were filed by banks (totaling 27,328), while 235 were filed by law firms, the highest among the designated non-financial businesses and professions.
The surge in the number of STRS filed can be attributed partly to the growing alertness to money laundering among the public and the banking sector.
Meanwhile, as Hong Kong is the gateway for capital flows into and out of the mainland, more criminals are probably engaged in money laundering in the city under the cover of trade and investment.
Financial institutions are the main gatekeepers against money-laundering.
The government enacted the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institution) Ordinance (Cap. 615) in April 2012, under which financial institutions are required by law to carry out customer due diligence plus detailed record-keeping regarding cross-border money transactions and to report any suspicious transactions.
The Monetary Authority has also issued detailed guidelines to financial institutions on taking precautionary measures against money laundering, such as the appointment of compliance and money laundering reporting officers, the formulation of a systematic mechanism for customer background checks and continued monitoring measures, and the relevant staff training.
However, while financial institutions are subject to strict requirements under the law, it seems some non-financial institutions, which are also supposedly responsible for reporting suspicious money transactions, don’t have any effective measures in place against potential money laundering.
As a result, their employees’ alertness to potential attempts at money laundering by their clients remains low.
For example, the Estate Agents Authority only requires estate agents to carry out simple verification procedures regarding the identity of their clients, but when it comes to the formulation and adoption of effective measures to prevent real estate transactions from being misused for money laundering purposes, it’s up to individual companies.
Although there might not necessarily be any connection between the low number of STRs filed by estate agents (only 12 in 2013) and the lack of a full-scale anti-money-laundering mechanism in the industry, the fact that only 12 suspicious transactions were reported among the 70,503 home sales that year obviously didn’t reflect the whole picture.
It’s beyond doubt that a lot more can be done within the estate agency business to crack down on money laundering using property transactions.
With international financial activities getting more vibrant and complicated, I have been urging the government to set up a statutory authority entirely independent of the existing bureaucratic structure to coordinate government efforts and measures against money laundering.
The authority should also be charged with strengthening the capacity of non-financial institutions to combat money laundering.
It is also worth looking to foreign countries, such as Britain, for reference, where such a statutory body is given law enforcement power, so that it can act as both supervisor and law enforcer in the fight against money laundering.
This article first appeared in the Hong Kong Economic Journal on May 20.
Translation by Alan Lee
[Chinese version 中文版]
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