The annual "Anti-Money Laundering Seminar for Lawyers", was held at the Hong Kong Central Library, in front of a well-attended CPD/RME audience on Friday, 7 October 2016. We reflect on certain points that arose and invite some informed comment from the market.
Once again (see Industry Insights, November 2014), the Law Society of Hong Kong's annual "Anti-Money Laundering Seminar for Lawyers" proved good value (particularly, given that entry was free and the end of the CPD/RME year beckoned)*. As with previous years, the panel of speakers included the distinguished chairman of the profession’s AML Committee and senior representatives of Hong Kong's finest (the Police, Narcotics Division and DOJ).
A number of interesting points came out of the seminar, including the following.
While there are some mandatory aspects to Solicitors' Practice Direction P (AML), breach of which can lead to disciplinary action by the Law Society, the practice direction does not have the force of law (para. 11). In practice, three particularly thorny issues can arise.
First, what constitutes a timely suspicious transaction report (“STR”) (or, for that matter, any report to an "authorized officer") for the purposes of s. 25A of OSCO (Cap. 455), particularly for lawyers doing transactional work? Second, making a STR is likely to give rise to a conflict of interest with a client (Practice Direction P, para. 43), although this provision is part of an ongoing review of the practice direction. Third, there are concerns that the cost to some law firms of doing certain customer due diligence (“CDD”) is becoming prohibitive, such that it is in danger of hurting Hong Kong's free market traditions. Similar concerns have been expressed about the difficulty recently experienced by (for example) SME clients in opening bank accounts.
Commenting on this last point, Jason Carmichael (Partner of Smyth & Co in association with RPC) comments:
"The swing of the pendulum is rarely smooth and there is a general sentiment that certain CDD is at times too onerous. The relevant law enforcement agencies and regulators need to work together, in order to mitigate against the harm of too much regulation while keeping the markets clean. In this respect, these agencies may need to do some introspection".
As at 31 August 2016, the number of STRs made by the legal sector in Hong Kong is approximately 645 (compared with 894 in the whole of 2015 and 222 in 2014).
Commenting on this trend, Andrew Powner (Managing Partner of Haldanes) observes that:
“The level of reporting by the law firms in Hong Kong is rising appreciably, largely due to the increased awareness of AML issues. This is a good thing. While on the rise, it would be difficult to argue that there is over-reporting by the profession, given the number of solicitors and transactions handled. 'Intel' suggests that overall the Joint Financial Intelligence Unit thinks that the quality of STRs by solicitors is pretty good".
The relatively low level of reporting by accountants (six STRs in 2015) needs some context. Sammy Fang (Partner of DLA Piper, Hong Kong) comments that:
"Accountants do not do conveyancing or as much transactional work that requires them to hold money compared with (say) lawyers. That said, they need to keep in mind their AML reporting obligations when doing, for example, audit work, especially in some parts of the world".
As for any proposal to extend the CDD and record-keeping requirements of the AMLCTF (Financial Institutions) Ordinance (Cap. 615) to certain non-financial businesses and professions, including lawyers, another senior practitioner comments (off the record) that:
"The criminal sanctions that apply to the likes of banks cannot simply be applied as against lawyers. Lawyers are not banks. Lawyers' customers have a fundamental right to legal professional privilege, as widely understood post-Citic Pacific (No. 2). Any attempt to make inroads into this right (via the back door), by extending criminal sanctions to lawyers doing their job, should in my view be resisted. Any other response would be to risk the profession's independent regulatory function; it is doubtful that the government wishes this and lawyers in Legco are watching developments".
Hong Kong's next FATF mutual evaluation is in 2018-19 and there is much to reflect on, as she looks East and West to her international markets.
* Co-hosted with the Narcotics Division, Security Bureau of the Government of the HKSAR.