Amendments to Hong Kong’s principal AML legislation were passed by the Legislative Council on 24 January 2018. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (previously “Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance”) (AMLO) will take effect on 1 March 2018. The amendments are part of the Hong Kong Government’s efforts to address perceived deficiencies in Hong Kong’s anti-money laundering and terrorist financing regime prior to a Financial Action Task Force review due this year.
The primary objectives of the amendments are to:
- apply statutory customer due diligence (CDD) and record-keeping requirements (together AML/CTF Requirements) to (i) solicitors and foreign lawyers, (ii) accounting professionals, (iii) estate agents, and (iv) trust or company service providers (TCSPs) (collectively called designated non-financial businesses and professions (DNFBPs)) when these professionals engage in specified transactions (as described below);
- introduce a licensing regime for TCSPs to require them to apply for a licence from the Registrar of Companies (Registrar) and satisfy a “fit-and-proper” test before they can provide trust or company services as a business in Hong Kong; and
- make amendments to the existing requirements relating to financial institutions.
In relation to TCSPs, specified transactions mean the provision of a “trust or company service” by way of business in Hong Kong. “Trust or company service” includes the provision of the following services: acting or arranging for another person to act as a trustee of an express trust or a similar legal arrangement, or as a nominee shareholder for a person (other than a corporation whose securities are listed on a recognised stock market). It also includes the provision of a registered office, business address, correspondence or administrative address for a corporation, a partnership or any other legal person or legal arrangement. It is immaterial whether the subject matter of a specified transaction is in Hong Kong or elsewhere.
The key implications of the new AMLO for corporate trustees are outlined below:
A trustee who, by way of business, provides a trust or company service in Hong Kong will be a trust or company service provider (i.e. a TCSP), and therefore must obtain a licence from the Registrar to carry out such service. Otherwise, the trustee commits an offence and would be liable on conviction to a fine of HK$100,000 and imprisonment for six months. The licensing requirement does not apply to the Government, an authorised institution, an SFC-licensed corporation that operates a trust or company service business that is ancillary to the corporation’s principal business, an accounting professional, a legal professional, or other persons prescribed by the Secretary for Financial Services and the Treasury. Therefore, a corporate trustee which is not an SFC-licensed corporation and which by way of business acts as the trustee of a unit trust in Hong Kong would be required to apply for and maintain a licence with the Registrar.
A licence may be granted to an individual carrying on business as a sole proprietor, a partnership or a corporation. In relation to a corporation, a licence is granted subject to the fit-and-proper test in respect of each director and the ultimate owner, as described below. Once a corporation is licensed, a person must not become a director or an ultimate owner without the Registrar’s prior approval.
An ultimate owner in relation to a corporation, means an individual who (i) owns or controls more than 25% of the issued share capital of the corporation, (ii) is entitled to exercise control of more than 25% of the voting rights at general meetings of the corporation, or (iii) exercises ultimate control over the management of the corporation.
As a transitional arrangement, a person who is carrying on a trust or company service business with a valid business registration certificate immediately before the commencement date of the new legislation will be deemed to have been granted a licence for a period of 120 days. If a deemed licensee applies for a licence during the 120-day period, his deemed licence will continue in force.
A licence and each renewal are generally valid for three years. The application fee for the grant of a licence is HK$3,440, plus HK$975 for each person who is subject to the fit-and-proper test. Notification on changes in particulars previously submitted to the Registrar in connection with the licensee’s application must be given within one month of such changes.
- Complying with AML/CTF Requirements
TCSP licensees are required to comply with AML/CTF Requirements set out in Parts 2, 3 and 4 of Schedule 2 to the AMLO. This means that they will need to conduct CDD to identify their customers, and keep records of the identification data, and account and business correspondence for a minimum of at least five years (originally six years under the previous AMLO). Where appropriate, simplified CDD may be carried out in place of full CDD.
Like financial institutions and other DNFBPs, a TCSP licensee is required to carry out CDD when a transaction with a pre-existing customer (i.e. a customer with whom the TCSP has established a business relationship before 1 March 2018) is unusual or suspicious, or is not consistent with customer’s business or risk profile known to the TCSP licensee, or there is a material change in the way the customer’s account is operated. Otherwise the TCSP licensee should terminate the business relationship with the customer as soon as reasonably practicable.
If a TCSP licensee fails to comply with the AML/CTF Requirements or a condition of the licence, the Registrar may exercise the power to publicly reprimand the TCSP licensee, order the TCSP licensee to take specified action, and impose a pecuniary penalty not exceeding HK$500,000.
- Duties extended to branches and subsidiary undertakings outside Hong Kong
A DNFBP, which includes a TCSP licensee, must ensure that its branches and subsidiary undertakings that carry on the same business as the DNFBP in a place outside Hong Kong, have procedures in place to ensure compliance with requirements similar to the AML/CTF Requirements of the AMLO.
- Sunset provision
To date under the AMLO, financial institutions have the flexibility to appoint a Hong Kong registered trust company (among other qualified persons) to act as intermediaries to carry out CDD measures until 31 March 2018. This time limit will be removed by the new legislative amendments, so financial institutions may continue to rely on Hong Kong registered trust companies (provided that it is a TCSP licensee) to carry out CDD measures. Likewise, TCSP licensees may also carry out CDD measures by means of an intermediary.
The Registrar has published guidelines for providing guidance in relation to licensing of TCSPs and compliance with AML/CTF Requirements by TCSPs, which can be accessible at the following website: https://www.tcsp.cr.gov.hk/tcspls/index.