Since 1 March 2018, the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance 2018 (the "Ordinance") extended the existing Anti-Money Laundering and Counter-Terrorist Financing Ordinance ("AMLO") as part of the Hong Kong government’s reforms to bring its legislation in line with international standards. These enhanced requirements cover solicitors, accounting professionals, real estate agents and Trust or Company Service Providers ("TCSPs"), collectively known as Designated Non-Financial Businesses and Professionals ("DNFBPs") and mandate that those engaging in specified transactions be regulated under the AMLO.
Specified transactions may vary depending on the DNFBP but are generally any transactions that may carry a certain degree of risk for money laundering or terrorist financing triggers, including real estate transactions, management of client money, securities or other assets, management of bank, savings or securities accounts, company formation and management, or buying and selling business entities. In these circumstances, DNFBPs will be subject to the same statutory customer due diligence and record-keeping requirements as financial institutions. These include identifying and verifying customer identification prior to on-boarding, continuous monitoring of business relationships, and maintaining records such as documents, data, account files, business correspondence and information obtained in connection with the transaction for a period of at least five years after the end of the business relationship.
For the TCSP sector, the Ordinance introduced a licensing regime for TCSPs which requires them to be licensed by the Registrar of Companies and satisfy a 'fit and proper' test, in order to operate a trust or company service business in Hong Kong. The Registrar of Companies will have the power to appoint an authorised person to conduct inspections on the business premises of TCSP licensees to ascertain whether licensees have complied with the AMLO.
Compliance with global anti-money laundering and counter-terrorist financing standards continues to be a key issue for the industry. The extension of customer due diligence and record-keeping requirements to include DNFBPs may have a significant operational impact, especially for those previously unaccustomed or not subject to these regulations. Processes for customer due diligence and record-keeping can be quite onerous but are critical to ensuring compliance.
Under the Ordinance, non-compliance with the noted requirements by DNFBPs may result in disciplinary sanctions imposed by the relevant authority or regulatory bodies. Although non-compliance with the AMLO by financial institutions may carry supervisory or criminal sanctions, the amendment does not impose any criminal sanctions for non-compliance by DNFBPs. Rather, non-compliance by solicitors, accounting professionals and real estate agents will be investigated and offenders disciplined in accordance with the prevailing mechanisms applicable to each profession for professional misconduct. Non-compliance by TCSPs will be addressed as appropriate under the new proposed licensing regime. As such, DNFBPs would be well advised to ensure they have sufficient controls and support in place.