Hong Kong’s last Financial Action Task Force (“FATF”) mutual evaluation was conducted in November 2018, with the report published in September 2019. Hong Kong had been on some sort of purported “probation” between approximately 2008 and 2012, in light of certain perceived deficiencies in tackling money laundering.
The year 2012 was a watershed moment with the passage of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615 – “AMLCTFO”). Since 2012, the Securities and Futures Commission (“SFC”) has led the way in showing other regulators how to regulate their markets from an anti-money laundering perspective. Indeed, in March 2018 the record-keeping and client due diligence requirements of the AMLCTFO were extended to lawyers, accountants and estate agents in Hong Kong and the Ordinance dropped the words in parenthesis in its title (“Financial Institutions”).
Hardly a month appears to go by without the SFC taking some disciplinary action against a licensed entity or a responsible officer or a regulated person with respect to breaches of anti-money laundering requirements by reference to (among other things) the provisions of the SFC’s Code of Conduct and the standards set out in its Guideline on AMLCFT – as recently revised to take effect, in the main, from 30 September 2021.
Designated Non-Financial Businesses and Professions (“DNFBPs”)
“Hong Kong, China has a sound regime to fight money laundering and terrorist financing that is delivering good results. However, it must enhance prosecution of money laundering involving crimes committed abroad and strengthen supervision of certain non-financial businesses.” [Source: FATF’s website, 4 September 2019 – emphasis added]
The three DNFBPs identified (including, solicitors and foreign lawyers in Hong Kong) largely kept their self-regulatory status with respect to the enforcement of anti-money laundering standards, following the coming into effect of the amended AMLCTFO in March 2018. The pertinent provisions are section 7 (“Guidelines for operation of Schedule 2”) and the mandatory requirements set out in Schedule 2 (namely, the “Customer Due Diligence Requirements” and “Record-keeping Requirements”) – as summarised in the legal profession’s Practice Direction P (“Guideline on AML”, revised in 2018), being the standard to which all lawyers and their staff in Hong Kong should adhere to.
For lawyers there is also s. 9A (1AA) of the Legal Practitioners Ordinance (Cap. 159) – enacted as part of the legislative amendments to the AMLCTFO in March 2018. A breach of the customer (client) due diligence and record-keeping requirements by a solicitor or a foreign lawyer is (among other things) a potentially serious matter of professional misconduct and the same is true for a solicitor or foreign lawyer who is a director of a corporation that is a Trust or Company Service Provider licensee.
In light of the above and the SFC’s increased activity in boosting its anti-money laundering efforts, in addition to inevitable comparisons with other DNFBPs, one can expect more regulatory focus on the legal profession. Such a development could – (i) bring a new perspective for law firms and sole proprietors regarding (for example) monitoring accountants’ visits and the appointment of inspectors (s. 8AA of the Legal Practitioners Ordinance); and (ii) have law firm employees reviewing their internal AML policies and revisiting s. 25A(4) of the Organized and Serious Crimes Ordinance (Cap. 455) – namely, the reporting of suspicious transactions and the so-called “employee’s defence”.
Law firm principals and sole proprietors should take note and ensure that their practices are Practice Direction P compliant.