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 the 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 the 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;
  • Frequently Asked Questions (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.

 

A Securities and Futures Commission (SFC) licensed corporation shall comply with the legal and supervisory requirements set out in the 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 Entitie’;
  • 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.

 

Trust or company service provider -licensed trust companies are subject to requirements as outlined in the Guideline on Compliance of Anti-Money Laundering and Counter-Terrorist Financing Requirements for Trust or Company Service Providers.

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 the 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:
  • 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
  • does not include a middle-ranking or more junior official of any of the categories mentioned in subparagraph (1);

2.  a spouse, a partner, a child or a parent of an individual falling within paragraph (1), or a spouse or a partner of a child of such an individual; or

       3.   a close associate of an individual falling within paragraph (1).

 

Notes:

For the purpose of paragraph (2) of the definition of a PEP, the 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 (3) of the definition of PEP, the 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 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 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. If account opening documents are not executed in the presence of an employee, the signing of client agreements and sighting of related identity documents should be certified by qualified persons, or could adopt the use of certification services recognised by the Electronic Transactions Ordinance (Cap. 533) for client identity verification in an online environment.  Paragraph 5.1(b) of the SFC Code of Conduct sets out alternative procedural steps for identifying individual clients. In a circular issued in 2016, the SFC sets out additional permitted approaches in non-face-to-face situations, such as reliance on certain qualified overseas certification authorities, or government-maintained database. Further to another circular issued in July 2018, the SFC allows further additional alternative procedures in verifying individual clients’ identities online.

TCSP-licensed trust companies must conduct customer due diligence (CDD) prior to establishing business relationship or carrying out specified transaction for providing trust service, while CDD measures involve identifying and verifying the identity of the customer (including any beneficial owner and any person purporting to act on behalf of the customer), and also obtaining information on the purpose and intended nature of the business. In certain ‘high risk situations’, there are additional required enhanced CDD measures to obtain approval of senior management to establish the business relationship, and to take reasonable measures to establish the source of wealth and source of funds or take additional measures to mitigate the risk of money laundering or terrorist financing.   

Tax offence

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

In the 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, wealth manager or trust company as financial intermediary is required to identify, assess and understand 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 the 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 the 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 the AMLO, that person commits a criminal offence and is liable on conviction to a fine and imprisonment: (1) on conviction on indictment to a fine of HK$1 million and to imprisonment for two years; or (2) on summary conviction to a fine of HK$100,000 and to imprisonment for six months.

A TCSP-licensed trust company that contravenes the applicable AMLO requirements may be subject to disciplinary action by the Registrar of Companies, and may potentially be subject to public reprimand, order to take remedial action or to pay pecuniary penalty not exceeding HK$500,000 (failure to comply with a remedial action order is subject to a potential penalty of HK$10,000 for each day of non-compliance).  

Law stated date

Correct on

Give the date on which the information above is accurate.

June 2020.