Hong Kong Enhances Anti-Money Laundering And Counter-Terrorist Financing Requirements For Non-Financial Institutions

From 1 March 2018, a number of Hong Kong businesses and professions will be subject to enhanced customer due diligence and record-keeping obligations in light of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance. The amendment introduces changes to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO).

The amendment forms part of the Hong Kong government’s reforms to bring its legislation in line with the international standards set by the Financial Action Task Force (FATF). The FATF intends to commence an evaluation of Hong Kong’s regime towards the end of this year.

The effect of the amendment is that designated non-financial businesses and professions (DNFBPs) will be subject to the same customer due diligence and record-keeping requirements as financial institutions.

The amendment

The amendment comes after more than a year of public consultation. See our previous e-bulletins for more information about the initial call for consultation (here) and the conclusions that were reached (here).

What are DNFBPs?

DNFBPs are:

  • accounting professionals;
  • estate agents;
  • legal professionals; and
  • trust company service providers (TCSPs). The amendment also introduces a licensing regime for TCSPs. For a full discussion on this new scheme see our e-bulletin here.

In-house accounting and legal professionals are not captured by the amendment.

What are ‘specified transactions’?

This depends on the relevant DNFBP:

  • for accounting and legal professionals, specified transactions include where the professional carries out for a client one of a number of prescribed transactions, including, for example, managing client money, managing bank accounts, and the buying and selling of businesses; and
  • for estate agents, specified transactions include transactions concerning the buying or selling of real estate for a client.

What are the additional due diligence and record-keeping requirements?

DNFBPs engaging in specified transactions will be required to:

  • conduct client due diligence measures as specified in Schedule 2 of the AMLO, including, for example, before establishing a business relationship with a client or before carrying out occasional transactions involving HK$120,000 or more;
  • continuously monitor business relationships; and
  • maintain records (being documents, data and information obtained in connection with the transaction) for a period of five years.

What is the consequence of non-compliance?

The Hong Kong Monetary Authority and the Securities and Futures Commission have published circulars on the amendment. We anticipate that these entities will continue to investigate and enforce anti-money laundering and counter terrorist financing compliance by companies they regulate in Hong Kong.

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 lawyers, accountants and real estate agents will be investigated and offenders disciplined in accordance with the prevailing mechanisms applicable to each profession for professional misconduct; and
  • non-compliance by TCSPs will be dealt with under the government’s new proposed licensing regime.

Some professions, such as lawyers, are already subject to disciplinary action for failure to comply with existing anti-money laundering requirements (such as those contained in Practice Direction P). The amendment ensures consistent obligations across DNFBPs.

Relevant authorities may also publish guidelines in relation to compliance with the new requirements.

Comment

Although the reforms were proposed by the Hong Kong government more than a year ago, there is now only a short time until the amendments take effect. Since the new requirements are mandatory, and sanctions might be applicable for any non-compliance, DNFBPs would be well advised to ensure sufficient processes and controls are in place by 1 March 2018.

Authors: Kyle Wombolt, Robert Hunt, and Christine Cuthbert

Source: Herbert Smith Freehills LLP