According to the United Nations Office on Drugs and Crime, the estimated amount of money laundered globally in one year is two to five percent of the global GDP, or US$800 billion - US$2 trillion. The advances in technology and communications have greatly enhanced the agility of the financial infrastructure to allow money (in the form of symbols on computer screens) to move anywhere and anytime in the world with speed and ease. This makes combating money laundering even more challenging.
In the standard three-step process of a typical money laundering process - placement, layering and integration - lawyers are considered vulnerable to being defrauded by criminals in the layering and integration steps where legal assistance is needed to create an apparent legal origin for the “dirty” money. Lawyers must be constantly vigilant of the threat of being instrumentalised by criminals in their money laundering and terrorist financing activities.
Law societies and bar associations around the world are monitoring the development closely and alerting their members of the relevant ethical and professional risks. An example of an international collaborative effort is the publication of A Lawyer’s Guide to Detecting and Preventing Money Laundering jointly by the International Bar Association, the American Bar Association and the Council of Bars and Law Societies of Europe in 2014.
In 2007, the Hong Kong Law Society already put in place, through the implementation of Practice Direction P, a legal anti-money laundering (“AML”) mechanism which is binding and enforceable upon our members. The mechanism satisfies the international standards on customer due diligence and record keeping and is enforceable by sanctions that are effective, proportionate and dissuasive.
From 1 March 2018, the customer due diligence and record keeping requirements under Schedule 2 of the Anti-Money Laundering and Counter Terrorist Financing Ordinance (“AMLO”) have been extended to legal professionals. The Law Society has also been empowered, as the sole authority for enforcing the AMLO requirements for legal professionals, to exercise its discretion in promulgating guidelines and determine the content of Practice Direction P as guidelines relating to the operation of any provision in Schedule 2 of AMLO. Consequently in September 2018, the Law Society updated Practice Direction P.
Regular training courses on AML are conducted as part of the Law Society’s mandatory Risk Management Education Programme that applies to all solicitors, trainee solicitors and registered foreign lawyers working in Hong Kong law firms. There is also engagement with the relevant government bureau and law enforcement agencies to exchange updates on AML efforts. We regularly conduct seminars jointly with the Department of Justice and the Joint Financial Intelligence Unit (JFIU) on AML Update. Staffed jointly by the Police Force and the Customs and Excise Department, JFIU is responsible among other duties, for receiving and analysing Suspicious Transaction Reports (STRs). The legal sector has often been commended for submitting quality STRs. In 2018, JFIU received 73,889 STRs, out of which 416 (0.56 percent) were filed by the legal sector, compared to 22 (0.03 percent) by the accounting sector or 47 (0.06 percent) by the real estate sector.
One of the most prominent international bodies focusing on the combat against money laundering is the Financial Action Task Force (FATF). The FATF conducts peer reviews (“Mutual Evaluation”) of each member on an ongoing basis to assess how each jurisdiction is performing in preventing criminal abuse of the financial system. The assessment result is considered an important factor in evaluating a jurisdiction’s international reputation as a financial centre as it reflects the level of integrity of its financial system.
The Mutual Evaluation of Hong Kong took place in 2018. It was a very thorough and lengthy process and the Law Society team under the guidance of our AML Committee has put in substantial time and effort in seeing it through. Extensive exchanges and meetings have been held with the
relevant government bureau as well as the FATF assessment team
explaining the AML regulatory and operational measures that have been put in place for solicitors.
The Mutual Evaluation Report of Hong Kong was examined at the FATF Plenary on 20 June 2019. We were very pleased to learn that Hong Kong has been rated overall compliant by FATF. This is considered an achievement given that, out of the 25 jurisdictions that were evaluated in the fourth round of Mutual Evaluation by FATF, only seven (including Hong Kong) have been rated overall compliant and Hong Kong is the only Asian jurisdiction among the seven. Jurisdictions like Singapore, Malaysia, Australia, Canada and the United States have not been able to achieve this level of rating. The publication of the detailed Mutual Evaluation report of Hong Kong is expected to be in September 2019.
In the meantime, the Law Society is working on a proposal to streamline the regulatory framework in relation to trust and company services providers (“TCSPs”). It is common for law firms to provide trust or company services to their clients. Legal professionals as defined in the AMLO are not required to apply for a TCSP licence if they are sole proprietorships or partnerships in which all partners are legal professionals. Legal professionals are also not subject to the “fit and proper” test. It is also common for law firms to set up corporations to provide trust or company services to their clients. These corporations are however required to apply for a licence from the Registrar of Companies and are subject to the regulatory regime of the Registrar notwithstanding that they are wholly and beneficially owned and managed by legal professionals. At the same time, the directors who are legal professionals are subject to the regulatory regime of the Law Society. An unnecessary regulatory overlap arises. It is submitted that TCSPs wholly and beneficially owned and managed by legal professionals should be removed from the regulatory regime under the Registrar, so that they are subject to the regulation by the Law Society only to avoid any issue of double jeopardy. We will keep members posted on any further development.