Anti-money laundering and financial crime prevention

Requirements

What are the main anti-money laundering and financial crime prevention requirements for private banking and wealth management in your jurisdiction?

The following key legislation in Hong Kong deals with anti-money laundering and financial crime prevention:

  • Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap.615) (AMLO);
  • Drug Trafficking (Recovery of Proceeds) Ordinance (Cap.405);
  • Organised and Serious Crimes Ordinance (Cap.455); and
  • United Nations (Anti-Terrorism Measures) Ordinance (Cap.575).

Pursuant to AMLO, a ‘financial institution’ includes:

  • an authorised institution (as defined in the BO);
  • a licensed corporation (which is granted a licence by the SFC); and
  • an authorised insurer.

A private bank that is an authorised institution shall comply with the legal and supervisory requirements set forth in AMLO and the ‘Guideline on Anti-Money Laundering and Counter-Terrorist Financing’ (HKMA Guideline) issued by the HKMA.

The HKMA has also issued additional guidelines, FAQs and guidance papers to which authorised institutions should give full consideration:

  • ‘Guideline on Exercising Power to Impose Pecuniary Penalty’;
  • FAQs on Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance;
  • Guidance Paper on Transaction Screening, Transaction Monitoring and Suspicious Transaction Reporting;
  • Guidance Paper on Anti-Money Laundering Controls over Tax Evasion; and
  • FAQs on Customer Due Diligence.

An SFC licensed corporation shall comply with the legal and supervisory requirements set out in AMLO and the requirements of the ‘Guideline on Anti-Money Laundering and Counter-Terrorist Financing’ issued by the SFC (SFC Guideline).

The SFC has also issued the following guidelines and FAQs, to which licensed corporations should give full consideration:

  • ‘Prevention of Money Laundering and Terrorist Financing Guideline issued by the Securities and Futures Commission for Associated Entities’;
  • ‘SFC Disciplinary Fining Guidelines’ issued under the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance; and
  • FAQs on Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance.
Politically exposed persons

What is the definition of a politically exposed person (PEP) in local law? Are there increased due diligence requirements for establishing a private banking relationship for a PEP?

Under AMLO, a PEP is defined as:

  1. an individual who is or has been entrusted with a prominent public function in a place outside the People’s Republic of China and:
  2. includes a head of state, head of government, senior politician, senior government, judicial or military official, senior executive or a state-owned corporation and an important political party official; but
  3. does not include a middle-ranking or more junior official of any of the categories mentioned in subparagraph (i);
  4. a spouse, a partner, a child or a parent of an individual falling within paragraph (a), or a spouse or a partner of a child of such an individual; or
  5. a close associate of an individual falling within paragraph (a).
Notes
  • For the purpose of paragraph (b) of the definition of a PEP, AMLO also defines a ‘partner of an individual’ as: ‘if the person is considered by the law of the place where the person and the individual live together as equivalent to spouse of the individual’.
  • For the purpose of paragraph (c) of the definition of PEP, AMLO defines a ‘close associate of an individual’ as:
    • ‘an individual who has close business relations with the first-mentioned individual, including an individual who is a beneficial owner of a legal person or trust of which the first-mentioned individual is also a beneficial owner’; or
    • ‘an individual who is the beneficial owner of a legal person or trust that is set up for the benefit of the first-mentioned individual’.

There are increased due diligence requirements for establishing a private banking relationship with a PEP. An authorised institution should apply enhanced customer due diligence (EDD) procedures, including:

  • obtaining approval from its senior management;
  • taking reasonable measures to establish the customer’s or the beneficial owner’s source of wealth and the source of the funds; and
  • applying enhanced monitoring to the relationship in accordance with the assessed risks.
Documentation requirements

What is the minimum identification documentation required for account opening? Describe the customary level of due diligence and information required to establish a private banking relationship in your jurisdiction.

The following identification documents should be obtained as a standard requirement:

Natural persons
  • for Hong Kong permanent residents: an individual’s name, date of birth and identity card number should be verified by reference to their Hong Kong identity card;
  • for non-permanent residents: an individual’s name, date of birth, nationality and travel document number and type should be verified by reference to a valid travel document (eg, an unexpired international passport); and
  • proof of residential address.
Corporations
  • a copy of the certificate of incorporation and business registration (where applicable);
  • a copy of the company’s memorandum and articles of association that evidence the powers that regulate and bind the company;
  • details of the ownership and structure control of the company (eg, an ownership chart);
  • the names of all directors, verifying the identify of directors on a risk-based approach;
  • confirmation that the company is still registered and has not been dissolved, wound up, suspended or struck off;
  • independent identification and verification of the names of the directors and shareholders recorded in the company registry in the place of incorporation; and
  • verification of the company’s registered office address in the place of incorporation.

The HKMA expects that prior to establishing a private banking relationship, authorised institutions should carry out a more detailed customer due diligence than expected for normal retail banking. For each private banking customer, an authorised institution should obtain the following information:

  • purpose and reasons for opening the account;
  • business or employment background;
  • estimated net worth;
  • source of wealth (where possible and appropriate, corroboration of major economic activities that gave rise to the wealth);
  • family background, such as information on spouse, and where appropriate (eg, in the case of inherited wealth), parents;
  • source of funds (ie, description of the origin and the means of transfer for monies that are acceptable for the account opening);
  • anticipated account activity including nature and level of business and transactions; and
  • references (eg, introduced by whom and when and the length of relationship) or other sources to corroborate reputation information where available.

Pursuant to the newly revised paragraph 5.1 of the SFC Code of Conduct, licensed or registered persons are required to take all reasonable steps to establish the true and full identity of each of their clients. When account opening procedures are not conducted face to face, the licensed or registered person needs to adopt an approach that satisfactorily ensures the identity of the client. In June 2019, the SFC published on its website acceptable account opening approaches for non-face-to-face account opening. It includes:

  • certification by qualified persons;
  • certification by certification services recognised by the Electronic Transactions Ordinance (Cap 633) (ETO) or recognised certification authorities outside Hong Kong;
  • mail approach where non-corporate entities post to intermediaries physical copies of relevant documents and subsequent verification through Hong-Kong licensed bank accounts;
  • online onboarding of clients using a designated bank account in Hong Kong; and
  • specific procedures applicable to remote onboarding of overseas individual clients (see question 47).
Tax offence

Are tax offences predicate offences for money laundering? What is the definition and scope of the main predicate offences?

Under AMLO, ‘money laundering’ is defined as:

an act intended to have the effect of making any property:

(a) that is the proceeds obtained from the commission of an indictable offence under the laws of Hong Kong, or of any conduct which if it had occurred in Hong Kong would constitute an indictable offence under the laws of Hong Kong; or

(b) that in whole or in part, directly or indirectly, represents such proceeds,

not to appear to be or so represent such proceeds.’

‘Tax evasion’ under the Inland Revenue Ordinance is an indictable tax offence fulfilling the above ‘money laundering’ definition, which constitutes a predicate offence for money laundering in Hong Kong:

(1) Any person who wilfully with intent to evade or to assist any other person to evade tax-

  • omits from a return made under this Ordinance any sum which should be included; or
  • makes any false statement or entry in any return made under this Ordinance; or
  • makes any false statement in connection with a claim for any deduction or allowance under this Ordinance; or
  • signs any statement or return furnished under this Ordinance without reasonable grounds for believing the same to be true; or
  • gives any false answer whether verbally or in writing to any question or request for information asked or made in accordance with the provisions of this Ordinance; or
  • prepares or maintains or authorizes the preparation or maintenance of any false books of account or other records or falsifies or authorizes the falsification of any books of account or records; or
  • makes use of any fraud, art, or contrivance, whatsoever or authorizes the use of any such fraud, art, or contrivance,

commits an offence.

Compliance verification

What is the minimum compliance verification required from financial intermediaries in connection to tax compliance of their clients?

An authorised institution as financial intermediary is required to identify, assess and understand its money laundering risks. The risk assessment should take into account relevant risk factors, including the risk in relation to tax evasion during the account opening stage.

Liability

What is the liability for failing to comply with money laundering or financial crime rules?

If a financial institution (as defined in AMLO to include a licensed bank and a SFC licensed corporation) knowingly contravenes any specified provision in relation to client due diligence and record-keeping under Schedule 2 of AMLO, the financial institution commits a criminal offence. If a person who is an employee of a financial institution or is employed to work for a financial institution, or is concerned in the management of a financial institution knowingly causes or knowingly permits the financial institution to contravene any specified provision in relation to client due diligence and record-keeping under AMLO, that person commits a criminal offence and is liable on conviction to a fine and imprisonment:

  • on conviction on indictment to a fine of HK$1 million and to imprisonment for two years; or
  • on summary conviction to a fine of HK$100,000 and to imprisonment for six months.