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Hong Kong Money Laundering And Terrorism Financing Reports Hit Record High

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Hong Kong Money Laundering And Terrorism Financing Reports Hit Record High

A backlog of suspicious financial transactions in Hong Kong’s banking industry was named as the reason for a dramatic upsurge in reports of money laundering and terrorist financing.

The Joint Financial Intelligence Unit (JFIU), a 50-member outfit comprising police and customs officials, received 59,730 reports of suspicious financial activity in the first nine months of this year. That’s an average of 200 reports every day.

It’s the most the JFIU has received in a single year since its establishment in 1989. It represents a 40 per cent increase from the 42,555 reports received during the whole of 2015, and dwarfs the 4,427 reports received in 1997.

Government sources with the knowledge of the unit’s operations said the rise stemmed from a flood of reports lodged by the banking industry after the Hong Kong Monetary Authority enhanced reporting and monitoring requirements.

“Bank and financial institutions are required to clear the backlogs and hence they have injected substantial resources in expediting the filing of suspicious transaction reports, which resulted in an upsurge of cases received by the JFIU,” one source said.

In a HKMA’s journal titled InSight, published October 31, Chief Executive Norman Chan Tak-lam said some banks applied only a single standard to vet customers with regards to anti-money laundering requirements. Some failed to meet the HKMA’s “risk-based approach” principle, and were not in line with the spirit of financial inclusion.

“I issued a notice in September requesting banks to review current procedures and ways of handling to ensure they meet the regulatory requirements of the risk-based approach and also strike a balance between risk avoidance and financial inclusion,” he said.

He said the HKMA is following up the issue and expects Hong Kong banks to implement the “risk-base approach” principle across their businesses.

The authority put banks on high alert in June last year when deputy chief executive Arthur Yuen Kwok-hang revealed some were being investigated for possibly failing to meet the city’s anti-money laundering requirements and faced fines of up to HK$10 million per breach.

With the power to impose penalties for breaches of the anti-money laundering law without prosecution, the HKMA wasted no time taking a major scalp. On July 31, 2015, the HKMA announced disciplinary action against the Hong Kong branch of the State Bank of India. The bank was fined HK$7.5 million.

Since then, some major financial institutions have moved swiftly to strengthen their anti-money laundering and counter-terrorism financing efforts.

HSBC Asia-Pacific vice-chairman and CEO Peter Wong Tung-shun in September said the bank had hired 7,000 compliance officers globally to handle the tighter vetting process.

A government source attributed the dramatic rise in JFIU reports to financial institutions’ enhanced manpower and efforts to “mitigate the risk of money laundering and terrorist financing” in order to avoid being penalised by the authority.

However, despite the upsurge in reports of suspicious financial activities, fewer people seem to be getting caught.

The number of people convicted of money laundering fell from 145 in 2014 to 122 last year. There were 138 people convicted of money laundering in 2013.

Meanwhile, according to the JFIU, assets worth HK$105 million were seized under the money laundering and asset confiscation laws in the first nine months of this year, down from HK$341 million in the whole of last year and HK$418 million in 2014.

Source: South China Morning Post

By Pathay Singh on 11/02/16