Hong Kong Official Calls For More Efficient Anti-Money Laundering Laws To Avoid FATF Blacklist

Mary Swire, Tax-news.com, Hong Kong

12 February 2001

Over the last four years almost 3000 investigations into money-laundering have resulted in a mere 49 convictions. Hong Kong must face up to the danger of being blacklisted by the Financial Action Task Force (FATF) if it does not tighten up its current laws that have allowed many money-launderers to get away with their criminal activities.

This warning came from Hong Kong's commissioner for narcotics, Clarie Lo Ku Ka-Lee, who told a Bills Committee meeting on a new money-laundering law last week that Hong Kong must improve its financial services laws to avoid the threat of sanctions from the FATF's parent organisation, the Organisation for Economic Cooperation and Development (OECD).

Mrs Lo argued: 'If we do not improve ourselves, there is a possibility we could be blacklisted some time in the future. Hong Kong is an international financial centre, the reason we can maintain our status must be based on the fact that we can combat money-laundering.'

In 1989 both the Hong Kong Police Force and the Customs and Excise Department were empowered to investigate drug-related money laundering cases. A Joint Financial Intelligence Unit (JFIU) of both departments was also established to facilitate the reporting of suspicious money laundering activities and to co-ordinate the investigation of these suspicious activities when warranted.

However, more is needed said Mrs Lo who accused financial institutions and workers such as accountants and lawyers of being lax in reporting suspicious transactions and urged the law-makers to strengthen existing legislation by allowing money-laundering allegations to be based on 'reasonable grounds' of suspicion. Currently anyone wishing to report a suspicious transaction must actually know that it took place or have proper reason to believe that it took place.

In 1999 the FATF carried out an assessment of the Hong Kong's Special Administrative Region which indicated that the jurisdiction's regulations were not quite up to par in the global fight against money-laundering. The multilateral cited Hong Kong's low tax system, sophisticated banking facilities and the absence of currency and exchange controls as 'susceptible' to money-laundering activities.

The report stated that, since the first evaluation in 1994, Hong Kong had taken a number of important steps in its anti-money laundering regime. The expansion of its anti-money laundering legislation under both the Drug Trafficking (Recovery of Proceeds) Ordinance (DTRoP) and the Organised and Serious Crimes Ordinance (OSCO), which include the extension of the money laundering offence from only drug trafficking to the proceeds of serious crimes and statutory mandatory suspicious reporting, have provided a solid foundation for penal action.

Although the report described the legislative steps taken by Hong Kong to be 'fundamentally sound' it raised concerns that the reporting of suspicious transactions mandatory for both drug offences and other serious crime were inadequate. The report stated: 'the number of reports received are still small, relative to the size of the Hong Kong financial markets and reporting levels in other jurisdictions ... the low number of suspicious transactions reports and of convictions for money laundering, suggests that the effectiveness of the system can be further improved.'

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