Forensic

1. Forensic Combating money laundering in the accounting profession Steve Rogerson, Senior Manager KPMG March 4, 2010 Advisory © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

2. Agenda • Background • FATF recommendations to accountants • Professional bodies’ guidance for accountants regarding ML • Hong Kong ordinances • Customer due diligence (CDD) and recordkeeping for accounting profession • Suspicious transaction reporting (STR) • Case examples © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

3. Background • Financial Action Task Force (FATF) is tasked with drawing up recommendations for combating money laundering and terrorist financing worldwide • Hong Kong as a FATF member is expected to implement the recommendations • To date, this has been achieved via Hong Kong ordinances and through professional standards and guidelines (for accountants HKICPA) • Last review (November 2007) and Mutual Evaluation report of FATF (June 2008) resulted in a number of recommendations currently under consideration by relevant Hong Kong government bodies – be prepared for changes © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

4. Background • Designated Non-Financial Businesses and Professions (DNFBPs) as defined by FATF are: • Lawyers • Accountants • Trust and Company Service Providers (TCSPs) • Real Estate Agents • Dealers in Precious Metals / Stones • Casinos © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

5. FATF recommendations to accountants

6. FATF recommendations to accountants • Core recommendations • Customer Due Diligence (CDD)/Know Your Customer (KYC) (Rec. 5) • Recordkeeping (Rec. 10) • Suspicious Transaction Reporting (STR) (Rec.13) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

7. FATF recommendations to accountants (cont’d) • The CDD and recordkeeping requirements apply to DNFBPs such as accountants when they prepare for or carry out transactions for their clients concerning the following activities: • buying and selling of real estate; • managing of client money, securities or other assets; • management of bank, savings or securities accounts; • organisation of contributions for the creation, operation or management of companies; or • creation, operation or management of legal persons or arrangements, and buying and selling of business entities • company secretarial services © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

8. FATF recommendations to accountants (cont’d) CDD: FATF recommendations: 5, 6, 8 and 9 • Identify and verify the customer’s identity using reliable, independent source documents, data or information • Identify the beneficial owner • Obtain information on the purpose and intended nature of the business relationship • On-going CDD on the business relationship to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer • Perform enhanced CDD for higher risk categories, e.g. Politically Exposed Persons (PEP) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

9. FATF recommendations to accountants (cont’d) Recordkeeping: FATF recommendations 10, 11 • All necessary domestic or international transaction records should be maintained for at least five (5) years • to enable compliance with information request from the competent authorities • N.B. The Consultative Paper indicates that this will be increased to six (6) years) • Keep records on the identification data obtained through the CDD (e.g. HKID, passports) for at least 5 years after the business relationship is ended © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

10. FATF recommendations to accountants (cont’d) Suspicious transaction reporting: FATF recommendations 13-15, 21 • Accountancy practices have the obligation to report promptly their suspicions to the Joint Financial Intelligence Unit (JFIU) if they suspect or have reasonable grounds to suspect that the transaction involved a criminal activity • implemented in law of HK through OSCO section 25A, (max. penalty : A fine of HK$50,000 and imprisonment for 3 months) • Under Hong Kong law, the requirement to report suspicious transactions should generally override any professional duty of client confidentiality • Those who report their suspicions in good faith are prohibited by law from disclosing the fact that a STR is being made (no tipping-off) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

11. FATF recommendations to accountants (cont’d) Suspicious transactions reporting (STR) – accounting profession • Each practice should appoint a person of sufficient seniority designated as a responsible money-laundering compliance officer to whom: • disclosures should be made internally in the first instance • Responsible for making disclosures to the JFIU in accordance with the Provisions • Keep a register of all disclosures made to him internally by employees • If staff suspect or know of any suspicious transactions, they should immediately report to the compliance officer in writing in a sealed envelope © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

12. FATF recommendations to accountants (cont’d) Suspicious transaction “red flags” for accountants • Client has cheques inconsistent with sales (i.e., unusual payments from unlikely sources). • Client has a history of changing bookkeepers or accountants yearly/frequently • Company carries non-existent or satisfied debt that is continually shown as current on financial statements. • Company is paying unusual consultant fees to offshore companies • Company records consistently reflect sales at less than cost, thus putting the company into a loss position, but the company continues without reasonable explanation of the continued loss. • Company is invoiced by organizations located in a country that does not have adequate money laundering laws and is known as a highly secretive banking and corporate tax haven. © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

13. FATF recommendations to accountants (cont’d) Suspicious transaction “red flags” for accountants • Offshore international activities • A customer who is introduced by an overseas agent, affiliate or other company that is based in countries where the production of drugs or drug trafficking may be prevalent • A customer who is based in Hong Kong and is seeking a lump sum investment and offers to pay by a wire transaction or foreign currency; • Formation of subsidiaries or branches in countries where these do not appear necessary to the business, and/or the manipulation of transfer prices with such subsidiaries or branches; and • Extensive and unnecessary foreign travel © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

14. FATF recommendations to accountants (cont’d) Suspicious transaction “red flags” for accountants • Businesses regarded as “higher risk” • Companies conducting business mainly in cash, e.g. restaurants and casinos; • Companies with weak internal controls, particularly with regard to segregation of duties and/or authorisation and approval of transactions e.g. owner-managed companies; • Companies with nominee directors/shareholders, particularly where financial, legal or other advisers provide their names as directors or trustees, with little or no commercial involvement; • Companies with a large volume of offshore transactions; • Companies or trusts formed with no apparent commercial or other purpose; and • Long delays in the production of company or trust accounts © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

15. FATF recommendations to accountants (cont’d) Internal Controls: FATF recommendation 15 • The accounting profession should develop programmes on AML/CFT, these should include: • to establish internal policies to prevent ML/ TF • ensure high standards in hiring employees • ongoing employee training programme © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

16. FATF recommendations to accountants (cont’d) New technology and non-face to face businesses: FATF recommendation 8 • Take measures to prevent the use of new or developing technologies in money laundering schemes as they may favour anonymity • Establish policies to address risks associated with non-face to face business relationships © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

17. FATF recommendations to accountants (cont’d) Complex / unusual transactions: FATF recommendation 11 • Pay special attention to all complex, unusual large transactions, which have no apparent economic or visible lawful purpose • Examine the background and purpose of such transactions © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

18. FATF recommendations to accountants (cont’d) Special attention to parties from non-compliant jurisdictions: FATF recommendation 21 • Among a range of factors, give special attention to business relationships and transactions with persons, from countries which do not apply the FATF Recommendations • However, be aware that a number of jurisdictions commonly used for company formation are found on this list. © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

19. Professional bodies’ guidance for accountants regarding ML HKICPA Code of Ethics • Custody of clients’ assets ¶270, 460, 410 • professional accountants in public practice should not assume custody of client monies or other assets unless permitted to do so by law • the holding of client assets creates self interest threats to professional behaviour / self interest threat to objectivity • they should be aware of threats to compliance with the fundamental principles through association with such assets • should consider their legal and regulatory obligations if the assets were found to derived from illegal activities © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

20. Professional bodies’ guidance for accountants regarding ML (cont’d) Hong Kong Standard on Quality Control • Engagement quality control review (A47-A50) • Sufficient and appropriate technical expertise • Consultation with engagement quality control reviewer • Objectivity of engagement quality control reviewer • Consideration for smaller firms • Engagement partners may, due to the size of the practice, be involved in selecting engagement quality reviewer • Suitably qualified external parties may be contracted © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

21. Professional bodies’ guidance for accountants regarding ML (cont’d) Hong Kong Standard on Quality Control • Confidentiality, safe custody, integrity, accessibility and retrievability of engagement documents (A56-59) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

22. Hong Kong ordinances Drug trafficking (Recovery of Proceeds) Ordinance (DTROP) Organized and Serious Crimes Ordinance (OSCO) United Nations (Anti-Terrorism Measures) Ordinance (UNATMO) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

23. Hong Kong ordinances (cont’d) Investigation and access to information • Person appears to be in possession or control of particular material . . . must produce it to authorized officer (DTROP §§ 2, 20-22; OSCO §3) • A person who hinders or obstructs an officer in the execution of a search warrant: offense, HK$250,000 fins and 2 years in prison (DTROP § 22; OSCO §5, 7) • If knows or suspects an investigation is taking place, and makes a disclosure likely to prejudice an investigation: offense, HK$500,000 fine and 3 years in jail (DTROP § 24) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

24. Hong Kong ordinances (cont’d) Dealing in proceeds of crime • Dealing with any property knowing or having reasonable grounds to believe that the property represents the proceeds of an indictable offense (DTROP and OSCO §25(1)) • Dealing in: • Receiving/acquiring property • Concealing/disguising property • Disposing/converting property • Bringing into/removing from Hong Kong • Using property as collateral/security/pledge (DTROP and OSCO §§ 2, 25(3) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

25. Hong Kong ordinances (cont’d) Indictable offence • Any offense defined in Crimes Ordinance, other than if can be tried summarily (Crimes Ordinance § 23A) “Knowing” • Objective: Grounds that a common-sense, right-thinking person would consider were sufficient to lead a person to believe that the property was linked to a serious offence; • Subjective: Then grounds were known to the Defendant • If deal in property and had reasonable grounds to believe, even if not know or believe himself, then liable • (DTROP & OSCO § 25) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

26. Hong Kong ordinances (cont’d) Defense: • if there was an intention to disclose knowledge/suspicion, and the delay in disclosure was reasonable • (DTROP & OSCO §§ 25(2), 25A(2)) Duty to disclose: • If believe property represents criminal proceeds • If believe that property used in connection with indictable offense • If believe that property is intended to be used criminally • (DTROP & OSCO § 25A(1)) Penalty for failure to disclose: HK$50,000 and 3 months in jail © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

27. Hong Kong ordinances (cont’d) Proceeds of an indictable offense • Payments or rewards received in connection with the offense • Property devised or realized from any of the payments or rewards • Any pecuniary advantage obtained in connection with the offense • Person may deal with criminal proceeds if the principal crime was committed outside Hong Kong • Pecuniary advantage: broad enough to include cost savings • (DTROP § 4; OSCO § 2) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

28. Hong Kong ordinances (cont’d) Reporting suspicious transactions and activities • Know or suspect property represents proceeds of criminal offense must disclose, as soon as reasonable • Failure to do so: HK$50,000 and 3 months in jail • Does not commit an offense by disclosure • Disclosure not treated as breach of contract • Offense to tip-off or disclose to any person if this would prejudice an investigation • (DTROP & OSCO § 25A) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

29. Member practices Member should appoint a money laundering compliance officer (CO) Officer should keep a register of all disclosures Employees should inform compliance officer if knowledge/suspicion that: • Property represents proceeds of an indictable offense • Property used in connection with indictable offense • Intention to be used in connection with indictable offense • Terrorist property Employee should inform the CO even if believe that the disclosure has been made by another person © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

30. Member practices (cont’d) Employees disclosure to Compliance Officer: knowledge or suspicion:* • Actual knowledge • Shut one’s mind to the obvious • Deliberately refrain from making inquiries, the content of which one might not like • Knowledge of circumstances which would indicate facts to an honest and reasonable person • Knowledge of circumstances which would put an honest person on notice, and failing to make such inquiries * Consultative Committee of Accountancy Bodies (UK, 03/2004). © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

31. Member practices (cont’d) Employees disclosure to Compliance Officer: knowledge or suspicion:* Suspicion is defined as: • Personal and subjective • Built on an objective foundation • More than speculation • Less than proof or knowledge * Consultative Committee of Accountancy Bodies (UK, 03/2004). © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

32. Member practices (cont’d) Staff should not be required to perform additional special tasks, other than those expected as part of their normal assignment Employees and professionals should be alert for indicia of money laundering, terrorist financing, and other potential criminal offenses Employees should be alert for irregular activities or the possibility that client is unknowingly dealing with property representing criminal proceeds © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

33. Member practices (cont’d) Employees should: • Report immediately if they have knowledge or suspicion • Report in writing • Report to engagement partner or senior member of the firm • Engagement partner reports to compliance officer; or, if no CO, then to an authorized officer • Seek permission from compliance officer before continuing to carry out duties and work for client © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

34. Member practices (cont’d) Compliance officer: • Compliance officer retains only copies of initial report • Written acknowledgement of employees’ reports • Responsible for evaluation • Responsible for reporting suspected cases to JFIU • Employees and compliance officer must ensure that a disclosure must not be revealed to the client or other person apart from engagement partner and compliance officer © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

35. Customer due diligence for accounting profession (KYC) • Pre-engagement procedures • Client Background Check • To look for the prospective client’s background to see whether they have any negative publicity or involved in any criminal activities • Reliable 3rd party sources to look for: • Google • Dow Jones Factiva (provides business and research information ) • ICRIS (Hong Kong Company Registry) • TOLFIN (contains high court actions on individuals and companies) • OneSource (provides business and research information ) • Entity’s own website • Regulatory website © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

36. Customer due diligence for accounting profession (KYC) (cont’d) • Pre-engagement procedures • Client and Engagement Acceptance • Factors to be considered may include: • Source of the prospective client • The prospective client’s background • Integrity of key management and principal owners of the entity • Financial condition of the entity • Independence and potential for real or perceived conflicts of interest • The level of risk the firm might face in serving the potential client © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

37. Customer due diligence for accounting profession (KYC) (cont’d) • Pre-engagement procedures • Conflict check • To determine auditor’s independence requirements • To identify and manage potential conflict of interest, including cross border conflicts, with the proposed engagement © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

38. Suspicious transaction reporting Staff awareness • Importance of continuous training • Compliance generally • AML roles and responsibilities in particular • Customer and engagement acceptance process • Face-to-face and non-face to face transactions • Identification of high-risk accounts (PEPs, industries, jurisdictions, litigations, shell companies) • Monitor best practices in media • Indicia of suspicious activities © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

39. Suspicious transaction reporting (cont’d) Indicia of suspicious activities • Large or frequent cash transaction, either deposits or withdrawals • Suspicious activity based on transaction pattern • Account used as a temporary repository for funds; • A period of significantly increased activity amid relatively dormant periods • "Structuring" or "smurfing", i.e. many lower value transactions conducted when one, or a few, large transactions could be used. Seen particularly in incoming remittances from countries with value-based transaction reporting requirements, e.g. frequent remittances of just below A$10,000 (Australia), or US$10,000 (USA); • "U-turn" transactions, i.e. money passing from one person or company to another, and then back to the original person or company; and • Increased level of account activity on the first banking day after Hong Kong horse racing, normally Mondays and Thursdays, indicating possible illegal bookmaking. © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

40. Suspicious transaction reporting (cont’d) Indicia of suspicious activities • Involvement of one or more of the following entities commonly involved in money laundering: • Shelf/shell companies; • Companies registered in a known tax haven or off-shore financial centre;. • Company Formation Agents, or Secretarial Companies, as the authorized signatory of the bank account; • Remittance agents or money changers; or • Casinos. © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

41. Suspicious transaction reporting (cont’d) Indicia of suspicious activity • Transactions involving currencies, countries or nationals commonly associated with international crime or drug trafficking, or identified as having serious deficiencies in their anti-money laundering regimes • Countries or places which either do not or insufficiently apply the Financial Action Task Force (FATF) Recommendations • Customer refusing, or unwilling, to provide an explanation of financial activity, or providing false explanations • Activity not commensurate with that expected from the customer considering information already known about the customer and his previous financial activity. For personal accounts, the customer’s age, occupation, residential address, general appearance, type and level of previous financial activity will be considered. For company accounts, factors such as type and level of activity ought to be considered. © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

42. Suspicious transaction reporting (cont’d) Indicia of suspicious activity • Countries or nationals of countries commonly associated with terrorist activities or persons or organizations designated as terrorists or their associates identified on the latest consolidated list pursuant to the United Nations Security Council Resolutions 1267 (1999), 1333 (2000) and 1390 (2002) • Politically Exposed Persons (PEPs) PEPs are individuals holding or having held important positions in government or the public sector, as well as their close family, relatives and associates. It has been alleged that some PEPs in some overseas countries are involved in corruption and abuse of public funds. © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

43. Suspicious transaction reporting (cont’d) What to include on STR • Personal particulars (ID#, DOB, address, telephone #, bank account #) • Details of suspicious financial activity • Reason why transaction is suspicious • Explanation, if any, given by the person about the transaction How to evaluate whether to file an STR • Screen account for suspicious indicators • Ask customer appropriate questions, without arousing suspicions • Review information already known about customer and previous transactions (KYC) • Evaluate all information to decide whether to file and STR © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

44. Suspicious transaction reporting (cont’d) Suspicious transaction reports: JFIU • Mail • Fax • Electronic filing through Suspicious Transaction Report and Management System (STREAMS) © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

45. Case example

46. Case example • Mr. X was a senior government official of Jurisdiction A which has a major corruption problem • Through his corruption, he had a large amount of cash that he wanted to launder • Mr. X came to Hong Kong and asked a local accountancy firm to establish a limited company for him • After company bank accounts were opened, substantial deposits were made for the purchase of shares and real estates in Hong Kong • As a result, a total of US$10 million was laundered © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

47. Case example (cont’d) • Accountants should exercise great care to prevent politically exposed persons (PEPs) from abusing their professional services for money laundering purposes • Before forming business relationship with the client, enhanced CDD should be performed • If circumstances are suspicious, they should report the suspicious transactions to JFIU © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.

48. Presenter’s contact details Steve Rogerson KPMG +852 2140 2279 steve.rogerson@kpmg.com.hk www.kpmg.com.hk The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2010 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.