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Prevention of Money Laundering and Terrorist Financing

Prevention of Money Laundering and Terrorist Financing. 22 June 2005. Outline of our Legal Seminar. What is Money Laundering and Terrorist Financing The Legislation on money laundering in Hong Kong Basic policies to combat money laundering and terrorist financing

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Prevention of Money Laundering and Terrorist Financing

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  1. Prevention of Money Launderingand Terrorist Financing 22 June 2005

  2. Outlineof our Legal Seminar • What is Money Laundering and Terrorist Financing • The Legislation on money laundering in Hong Kong • Basic policies to combat money laundering and terrorist financing • The general trend and development in anti-money laundering in other jurisdictions (Break Time) • Guidelines for banking practice • Practices in other trades and industries • Case studies • Summary & Conclusion • Questions and Answers Session

  3. What is Money Laundering? • ‘Money Laundering’ covers all procedures which change the identity of illegally obtained money so that it appears to have originated from a legitimate source.

  4. 3 Stages of Money Laundering • Placement ( 使用 ) – physical disposal of dirty cash • Layering ( 分層 ) – series of transfers of funds to disguise the origin • Integration ( 混合 ) – use layered funds to purchase clean legitimate assets

  5. What is Terrorist Financing? • ‘Terrorist Financing’ refers to the carrying out of transactions involving funds or property that are owned or controlled by terrorists or transactions that are linked to terrorist activities

  6. The legislation on Money Laundering and Terrorist Financing in Hong Kong • Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405) 第405章販毒(追討得益)條例 • Organized and Serious Crimes Ordinance (“OSCO”) (Cap. 455) 第455章有組織及嚴重罪行條例 • United Nations (Anti-Terrorism Measures) Ordinance (“UNATMO”) (Cap. 575) 第575章 聯合國(反恐怖主義措施)條例 • United Nations Sanctions (Afghanistan) Regulation under the United Nations Sanctions Ordinance (“UNSO”) (Cap. 537) 第537章 聯合國制裁條例

  7. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • Provisions for investigating suspected assets, freezing assets on arrest and confiscation of proceeds from drug trafficking

  8. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • S.25 specifies a criminal offence if a person commits an offence if he “deals with” property knowing or having reasonable grounds to believe it represents a person’s proceeds of drug trafficking • Dealing includes: • receiving or acquiring the property • concealing or disguising the property • disposing of or converting the property • bringing the property into or removing it from HK • using the property to borrow money, or as security

  9. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • 處理”(dealing)，就“販毒”的定義中、第25條所提述的財產而言，包括 ─ (a) 收受或取得該財產 (b) 隱藏或掩飾該財產 (c) 處置或轉換該財產； (d) 把該財產運入香港或調離香港； (e) 以該財產借貸，或作擔保

  10. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • Max penalty • on conviction upon indictment - HK$5,000,000 fine and imprisonment for 14 years • On summary conviction HK$500,000 fine and imprisonment for 3 years

  11. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • In practice, it is likely to cover situations where one enters into/is otherwise concerned in an arrangement to facilitate the movement of the proceeds of drug trafficking/the obtaining of credit secured on those proceeds/assisting in the investment of those proceeds on behalf of that client

  12. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • S.25A(1) • imposes an obligation on a person who knows/suspects that any property represents proceeds from drug trafficking to disclose such knowledge/ suspicion to an “authorized officer” ( 獲授權人 ). • Max penalty • HK$50,000 fine and imprisonment for 3 months

  13. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • An authorized officer includes any police officer, any member of the Customs & Excise Department ( 海關 ). and Joint Financial Intelligence Unit (“JFIU”) ( 聯合財富情報組 ) • The JFIU has been established by and is operated by the Police and Customs & Excise Department. It functions as the local and international advisor on money laundering matters generally.

  14. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 JFIU contact details Joint Financial Intelligence Unit ( 聯合財富情報組 ) 16/F, Arsenal House West Wing, Hong Kong Police Headquarters, Arsenal Street, Hong Kong or GPO Box 6555 Hong Kong Post Office, Hong Kong Telephone : (852) 2866 3366 or (852) 2860 3404 Fax : (852) 2529 4013 Email : jfiu@police.gov.hk

  15. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • S.25A(2) provides that if a person who has made the necessary disclosure under S.25A(1) does any act in contravention of S.25(1) and the disclosure relates to that act he does not commit an offence if • the disclosure is made before he does that act and the act is done with the consent of an authorized officer or • the disclosure is made after the person does the act and the disclosure is made on the person’s own initiative and as soon as it is reasonable for him to make it

  16. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • S.25(A)(3) • Disclosure made under the Ordinance shall not be treated as a breach of any confidentiality obligations imposed by contract etc. Accordingly, no liability for damages will attach upon such disclosure

  17. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • S.25A(4) • Disclosure can be made by person in employment to appropriate person in accordance with procedures made by employer. Such disclosure is equivalent to disclosure to an authorized officer

  18. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • S.25(A)(5) • Person who knows or suspects that a disclosure has been made under S.25A(1) must not disclose to any other person any matter likely to prejudice any investigation. Otherwise, he commits an offence • Max penalty • on conviction upon indictment HK$500,000 fine and imprisonment for 3 years. • On summary conviction HK$100,000 fine and imprisonment for 1 year

  19. Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) (Cap. 405)第405章販毒(追討得益)條例 • S.26 • No witness in any civil or criminal proceedings shall be obliged to reveal the identity of the person making the disclosure except in proceedings for an offence under section 25, 25A and 26 of the DTROP, or where court takes the view that justice cannot be fully served without revealing the identity of the person making the disclosure

  20. Organized and Serious Crimes Ordinance (“OSCO”) (Cap. 455)第455章有組織及嚴重罪行條例 • S.25 • Extends the money laundering offence to cover the proceeds of all indictable offences in addition to drug trafficking • Examples of indictable offences ( 可公訴罪行 ) include any crime or offence for which a magistrate is authorized or empowered or required to commit the accused person to prison for trial before the court e.g. theft, robbery, kidnapping

  21. Organized and Serious Crimes Ordinance (“OSCO”) (Cap. 455)第455章有組織及嚴重罪行條例 • S.3 to S.5 • An authorized officer may apply to court for order requiring information material to be produced/ search warrant to be granted

  22. Organized and Serious Crimes Ordinance (“OSCO”) (Cap. 455)第455章有組織及嚴重罪行條例 • S.25, S.25A and S.26 • modelled upon S.25, S.25A and S.26 of DTROP • Reference to “drug trafficking” becomes reference to “indictable offences” • Same penalties apply as in DTROP

  23. United Nations (Anti-Terrorism Measures) Ordinance (“UNATMO”) (Cap. 575)第575章 聯合國(反恐怖主義措施)條例 • UNATMO is directed towards all terrorists. • UNATMO criminalizes the supply of funds and making funds or financial (or related) services available to terrorists or terrorist associates, permit terrorist property to be frozen and subsequently forfeited

  24. United Nations (Anti-Terrorism Measures) Ordinance (“UNATMO”) (Cap. 575)第575章 聯合國(反恐怖主義措施)條例 • “Terrorist” means a person who commits, or attempts to commit, a terrorist act or who participates in or facilitates the commission of a terrorist act • “Terrorist associate” means an entity owned or controlled, directly or indirectly, by a terrorist

  25. United Nations (Anti-Terrorism Measures) Ordinance (“UNATMO”) (Cap. 575)第575章 聯合國(反恐怖主義措施)條例 • “Terrorist act” is defined as the use or threat of action that would have the effect of: • causing serious violence against a person • causing serious damage to property • endangering a person’s life • creating a serious risk to the health or safety of the public or a section of the public • seriously interfering with or seriously disrupting an electronic system or • seriously interfering with or seriously disrupting an essential service, facility or system, whether public or private and

  26. United Nations (Anti-Terrorism Measures) Ordinance (“UNATMO”) (Cap. 575)第575章 聯合國(反恐怖主義措施)條例 • the use or threat is: • intended to compel the Government or to intimidate the public or a section of the public and • made for the purpose of advancing a political, religious or ideological cause

  27. United Nations (Anti-Terrorism Measures) Ordinance (“UNATMO”) (Cap. 575)第575章 聯合國(反恐怖主義措施)條例 • “恐怖主義行為 ” 指 (A) 導致針對人的嚴重暴力； (B) 導致對財產的嚴重損害； (C) 危害作出該行動的人以外的人的生命； (D) 對公眾人士或部分公眾人士的健康或安全造成 嚴重危險； (E) 嚴重干擾或嚴重擾亂電子系統的；或 (F) 嚴重干擾或嚴重擾亂基要服務、設施或系統

  28. United Nations (Anti-Terrorism Measures) Ordinance (“UNATMO”) (Cap. 575)第575章 聯合國(反恐怖主義措施)條例 • A list of “terrorists” or “terrorist associates” is published in the Gazette from time to time pursuant to S.10 of the United Nations Sanctions (Afghanistan) Regulation and S.4 of the UNATMO

  29. United Nations (Anti-Terrorism Measures) Ordinance (“UNATMO”) (Cap. 575)第575章 聯合國(反恐怖主義措施)條例 • S.12(1) requires a person to report his knowledge or suspicion of terrorist property to an authorized officer who includes a police officer, a member of C&E, Immigration and ICAC • Failure to disclose will constitute an offence and attracts a fine of HK$50,000 max. and 3-months imprisonment • Similar to DTROP and OSCO, disclosure pursuant to the UNATMO shall not be regarded as breach of confidentiality obligations imposed by contract etc.

  30. United Nations Sanctions (Afghanistan) Regulation under the United Nations Sanctions Ordinance (“UNSO”) (Cap. 537)第537章 聯合國制裁條例 • UNSO provides for a prohibition on making funds available to “designated” terrorists

  31. Basic policies to combat money laundering and terrorist financing All relevant institutions should: • issue a statement of policies and procedures for dealing with money laundering and terrorist financing reflecting the current statutory and regulatory requirements • regularly review the policies and procedures on prevention of money laundering and terrorist financing to ensure their effectiveness • adopt customer acceptance policies and procedures which are sensitive to the risk of money laundering and terrorist financing

  32. Basic policies to combat money laundering and terrorist financing • conduct customer due diligence (“CDD”) depending on different types of customers, business relationships or transactions • ensure that the content of relevant industry Guidance Note is understood by all employees • promote employees’ awareness and vigilance to guard against money laundering and terrorist financing

  33. Basic policies to combat money laundering and terrorist financing Policies should cover the following aspects: • Communication of group policies on anti-money laundering and terrorist financing • Account opening and customer identification • Maintenance of records • Compliance with relevant legislation • Co-operation with relevant law enforcement authorities, including timely disclosure of information • Internal audit to ensure compliance with policies, procedures, and controls on anti-money laundering

  34. Systemic Approach to Identifying Suspicious Transactions recommended by JFIU • Step one: Recognition of a suspicious financial activity indicator or indicators • Step two: Appropriate questioning of the customer • Step three: Review of information already known about the customer in deciding if the apparently suspicious activity is to be expected from the customer • Step four: Consideration of Steps 1-3 above to make a subjective decision on whether the customer’s financial activity is genuinely suspicious or not

  35. Points to note on CDD • Client identification • Take all necessary steps to establish true identity of client • Individual/origin/background/profile • Corporations • identification of directors/searches/credit reference /identification of shareholders • beware of companies with nominee shareholders and bearer shares/ownership structures/place of incorporation/nature of business and activities • Determine risk profile of customers - PEPs, casinos, NCCT’s (details of which can be found on FATF website)

  36. Points to note on CDD • Client identification - to continue • Examples of low risk customers include: • financial institutions authorized and supervised by the HKMA, the Securities and Futures Commission and the Office of the Commissioner of Insurance • public companies subject to regulatory disclosure requirements • Trust accounts/Nominee accounts/Client accounts • Reliance on intermediaries for CDD • Periodic reviews of existing information

  37. Points to note on CDD • Additional CDD measures • obtain self-declarations and comprehensive profile • information re source of funds • anticipated account activity etc.

  38. Record Keeping • Keep records to enable a sufficient audit trail to be followed • Keep records for at least such periods prescribed by the relevant industry regulators i.e. HKMA and other relevant legislation • For each account • beneficial owner • volume, origin and destination of funds flowing through the account • person giving instructions

  39. Record Keeping • For selected transactions • origin of the funds • form in which funds were transferred • person giving instructions • destination of funds

  40. Procedures for disclosures • Coordinate through a central point, say, senior compliance officer • Keep register of reports made to compliance department and to JFIU

  41. Education and Training • Put programmes in place for training staff on an ongoing basis

  42. The General trend and development in anti-money laundering and terrorist financing The position in other jurisdictions: • 1988 - UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substance • 1989 - Establishment of FATF 33 members, 31 countries governments and 20 observers - Forty Recommendations drawn up in 1990 • 1996 - Recommendations were revised (1st Revised) FATF endorsed by 130 countries

  43. The General trend and development in anti-money laundering and terrorist financing • 1997 - DTROP S.25, UNSO • 8.9.97 Law Society - Money Laundering Guidance Notes for Solicitors - cir 97-280(SD) DTROP and OSCO • 2000 - OSCO • HKMA Guideline on Prevention of Money Laundering

  44. The General trend and development in anti-money laundering and terrorist financing • 2001 • September - 9.11 Event • October - expanding FATF mandate to terrorist financing • 2002 – UNATMO, DTROP Cap 405 (1.1. 2003)

  45. The General trend and development in anti-money laundering and terrorist financing • 2003 • Financial Action Task Force (Revised) FATF Forty Recommendations extending the effects to lawyers [Recognized by International Monetary Forum (IMF) and World Bank] • Money Laundering Cir 03-428 (SD) • 2004 - S25A DTROP • 22.10.2004 FATF further amendments

  46. The General trend and development in anti-money laundering and terrorist financing • 2005 • Law Society Money Laundering Cir 05-291 (SD) 30.5.2005 • Bill • OUR TALK ON 18 JUNE 2005

  47. Argentina Australia Austria Belgium Brazil Canada Denmark European Commission Finland France Germany Greece Gulf Cooperation Council Hong Kong, China Iceland Ireland Italy Japan Luxembourg Mexico Members of Financial Action Task Force • Netherlands • New Zealand • Norway • Portugal • Singapore • Spain • Sweden • Switzerland • Turkey • United Kingdom • United States

  48. Overview Drug Trafficking (Cap 405) Organized and Serious Crimes (Cap 455) United Nations (Anti-Terrorism Measures) Ordinance (Cap 575) United Nations Sanctions (Afghanistan) Regulation under the UNSO (Cap 537) Authorized Agent S25A – 做臥底,可以透 -不可露 S25A, S3 to 5 – Confidentiality or Professional Privilege Effect of the Laws/Regulations

  49. Other Indictible Offences in addition to drug trafficking S25 Drug Trafficking [DTROP] S25 [OSCO] Organized and Serious Crimes Ordinance in receipt of restraint Order or Property of a Reference of a defence under OSCO Terrorists and their Acts. Gazetted. [UNATMO] [UNSO] S12(1)

  50. Guidelines for Banking Practices • Hong Kong Monetary Authority Guidelines • Applies directly to all banking and deposit taking activities in Hong Kong carried out by authorized financial institutions

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