Spanish authorities recently raided the Madrid branch of Industrial and Commercial Bank of China (01398.HK) for alleged money laundering.
Five directors were detained. They are accused of sending funds to China without checking on their origin as required by law.
Last year, Spanish police started investigating money laundering via banks, involving around 40 million euros (US$44 million), by a Chinese criminal network.
The group is suspected of importing goods from China to Spain without declaring them on customs forms to avoid paying duty.
And the payments for the goods were allegedly transferred to China through ICBC’s Madrid branch.
Standard Chartered plc (02888.HK) and HSBC Holdings plc (00005.HK) paid huge fines in the United States in 2012 for money laundering.
These cases usually involve money laundering by criminals and terrorists.
International cooperation in fighting money laundering has been enhanced in recent years.
President Xi Jinping has deepened the war against corruption in China.
And the crackdown has rippled into Hong Kong and Macau.
On the 2015 Basel Anti-Money Laundering Index, China ranks 63rd among 152 jurisdictions, and Hong Kong is in 87th spot.
If a place is ranked lower, the risk of money laundering and terrorism financing is lower.
Iran has the highest ranking, while Finland is at the bottom.
Hong Kong has faced a greater risk of money laundering in recent years.
The number of suspicious funds and transactions reported soared to 42,000 last year, compared with 37,000 in 2014 and 20,000 in 2011.
The Financial Investigations Division and the Joint Financial Intelligence Unit in Hong Kong receive an average of 100 new reports of suspicious transactions every day, and they handle more than 1,000 cases of money laundering per year.
The authorities have added more staff to these organizations to crack down on money-laundering activity.
Many money-laundering cases involve banks and financial institutions.
Professionals like accountants, company secretaries, lawyers and trustees should assume their responsibility to combat money laundering.
One of the key measures is to know your client (KYC), the process of a business verifying the identity of its clients.
Companies must ensure they are following appropriate compliance procedures to meet the increasing regulatory demands.
For big sums or suspicious remittances or deposits, firms should ask about the origin of the funds to prevent criminals from using the banking system or companies to engage in money laundering.
Companies can develop KYC guidelines and build up KYC databases.
They should provide training programs for new and existing employees and be aware of the latest regulations and laws against money laundering.
Firms should collect and analyze the basic identity information of customers and verify their background information.
Also, they should determine the customer risk in terms of propensity to commit money laundering, terrorist financing, or identity theft for certain transactions.
In addition, they need to monitor a customer’s transactions to determine the origin of the funds and the actual owners.
Companies should also examine any person or entity connected with suspicious customers and check if there is any suspicious transaction.
If they find any suspicious transaction, suspicious identity, abnormal instructions or transaction requirements, they should report it to the Joint Financial Intelligence Unit.
And they should proceed with the transaction only after obtaining instructions from the authorities.
Allan Lee Ka-fai wrote this article, which appeared in the Hong Kong Economic Journal on March 4.
Translation by Julie Zhu
– Contact us at [email protected]