Test For Anti-money Laundering (AML) And Counter Terrorist Financing (Ctf) In Hong Kong

Para. 3.5 of the SFC Guideline on Anti-Money Laundering provides that while there is no agreed upon set of risk factors and no one single methodology to apply these risk factors in determining the ML/TF risk rating of customers, relevant factors to be considered may include the following: Country risk, Customer risk, Product and service risk, Delivery and distribution channel risk.

SFC Guideline on Anti-Money Laundering and Counter-Terrorist Financing issued in July 2012 Chapter 5.1 states that an Financial Institution (FI) must continuously monitor its business relationship with a customer by: (a) reviewing from time to time documents, data and information relating to the customer and obtained pursuant to sections 2 and 3 of Schedule 2 to ensure that they are up-to-date and relevant; (b) monitoring the activities (including cash and non-cash transactions) of the customer to ensure that they are consistent with the nature of business, the risk profile and source of funds.

An unusual transaction may be in the form of activity that is inconsistent with the expected pattern for that customer, or with the normal business activities for the type of product or service that is being delivered.

Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, Cap. 615 (the AMLO) of the laws of Hong Kong makes it a criminal offence if a person who is an employee of an financial institution (FI) or is employed to work for an FI or is concerned in the management of an FI (1) knowingly; or (2) with the intent to defraud the FI or any Relevant Authority (RA), causes or permits the FI to contravene a specified provision in the AMLO.

If the person who is an employee of an FI or is employed to work for an FI or is concerned in the management of an FI knowingly contravenes a specified provision he is liable to a maximum term of imprisonment of 2 years and a fine of $1 million upon conviction.

If that person does so with the intent to defraud the FI or any RA he is liable to a maximum term of imprisonment of 7 years and a fine of $1 million upon conviction.

Under the SFC Guideline on Anti-Money Laundering and Counter-Terrorist Financing issued in July 2012, the MLRO should play an active role in the identification and reporting of suspicious transactions. Principal functions performed are expected to include: (a) reviewing all internal disclosures and exception reports and, in light of all available relevant information, determining whether or not it is necessary to make a report to the JFIU; (b) maintaining all records related to such internal reviews; (c) providing guidance on how to avoid “tipping off” if any disclosure is made; and (d) acting as the main point of contact with the JFIU, law enforcement, and any other competent authorities in relation to ML/TF prevention and detection, investigation or compliance.

The SFC Guideline on Guideline on Anti-Money Laundering and Counter-Terrorist Financing issued in July 2012 Chapter 7.2 states that filing a report to the JFIU provides Financial Institutions (FI) with a statutory defence to the offence of ML/TF in respect of the acts disclosed in the report, provided:

(a) the report is made before the FI undertakes the disclosed acts and the acts (transaction(s)) are undertaken with the consent of the JFIU; or

(b) the report is made after the FI has performed the disclosed acts (transaction(s)) and the report is made on the FI‟s own initiative and as soon as it is reasonable for the FI to do so.

Under Chapter 6.3 of the SFC Guideline on Anti-Money Laundering and Counter-Terrorist Financing issued in July 2012, these sanctions normally prohibit making available or dealing with, directly or indirectly, any funds or economic resources for the benefit of or belonging to a designated party.

SFC licensed corporations and associated entities should check the names in all of the related United Nation sanction lists against their records, and report any transactions or relationships they have or have had with the named persons or entities to the Joint Financial Intelligence Unit.

Spouse of a senior official in government may be treated as Politically Exposed Person (PEP).

Paragraph 4.13.16 of the SFC Guideline on Anti-Money Laundering issued in July 2012 states that if an individual is known to be a domestic PEP, the FI should perform a risk assessment to determine whether the individual poses a higher risk of ML/TF. Domestic PEPs status in itself does not automatically confer higher risk. In any situation that the FI assesses to present a higher risk of ML/TF, it should apply the enhanced due diligence process and monitoring procedures required under the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance.

In November 2013, SFC had highlighted some AML/CFT Compliance – Potential Weakness Areas as identified by the SFC that relate to politically exposed persons (“PEPs”) screening done by SFC licensed corporations that some of the SFC licensed corporations did not have adequate PEPs screening procedures and solely relied on the background information provided by the customers.

FIs must establish and maintain effective procedures (for example making reference to publicly available information and/or screening against commercially available databases) for determining whether a customer or a beneficial owner of a customer is a PEP. These procedures should extend to the connected parties of the customer using a risk-based approach.

All related documents and records should be kept throughout the business relationship with the customer and for a period of six years after the end of the business relationship.

Chapter 615 Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance Part 2 provides details on requirements Relating to Customer Due Diligence and Record-keeping.

SFC's Guideline on Anti-Money Laundering and Counter-Terrorist Financing issued in July 2012 Chapter 6.22 states that comprehensive ongoing screening of an Financial Institution (FI)'s complete customer base is a fundamental internal control to prevent terrorist financing and sanction violations, and should be achieved by: (a) screening customers against current terrorist and sanction designations at the establishment of the relationship; and (b) thereafter, as soon as practicable after new terrorist and sanction designations are published by the Relevant Authorities that these new designations, screening against their entire client base.

FI may rely upon an intermediary to perform any part of the CDD measures specified in section 2 of Schedule 2 of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, subject to the criteria set out in section 18 of Schedule 2. However, the ultimate responsibility for ensuring that CDD requirements are met remains with the FI.

Para 9.9 of the SFC Guideline on Anti-Money Laundering issued in July 2012 states that FI should monitor and maintain records of who have been trained, when the staff received the training and the type of the training provided. Records should be maintained for a minimum of 3 years.
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Referring to Chapter 4.10.1 of the SFC Guideline on Anti-Money Laundering issued in July 2012, Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, Cap. 615 (the AMLO) defines what Customer Due Diligence (CDD) measures are and also prescribes the circumstances in which an FI must carry out CDD.

Simplified Due Diligence (SDD) may apply to low risk rating customer of an FI who has conducted a risk assessment on the relevant customer. SDD means that application of full CDD measures is not required. In practice, this means that FIs are not required to identify and verify the beneficial owner. However, other aspects of CDD must be undertaken and it is still necessary to conduct ongoing monitoring of the business relationship. FIs must have reasonable grounds to support the use of SDD and may have to demonstrate these grounds to the relevant authorities.