At the time of writing, the Financial Action Task Force's mutual evaluation report for Hong Kong is due to be formally "delivered" in a plenary discussion (for publication later this summer), following its onsite visit in November of last year. Some of the key areas of focus are likely to include:
- the effectiveness of the regime in Hong Kong for reporting suspicious transactions (pursuant to s. 25A of the Organized and Serious Crimes Ordinance, Cap. 455, and the corresponding provisions of the other anti-money laundering and counter-terrorism legislation); and
- the different regulated sectors' compliance with the client/customer due diligence and record-keeping requirements of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615).
The reporting of suspicious transactions is particularly topical in light of the Law Commission of England and Wales' recent report and robust critique regarding the regime for reporting suspicious activities in the United Kingdom – "Anti-Money Laundering: The Suspicious Activity Reports Regime" (18 June 2019). The Law Commission's report calls for new guidance to improve the anti-money laundering regime and makes a number of key recommendations to improve the system. The Law Commission's website summaries part of the problem:
"Problems with the current system
The number of Suspicious Activity Reports (“SARs”) submitted has doubled over the last ten years and continues to rise. This has culminated in over 470,000 reports in 2018-19; a record number of reports received in a single year.
However, our research has found a significant number of these SARs are of low quality and can contain limited, or even no, useful intelligence. Time and money is wasted by reporters generating these reports and they hinder law enforcement’s ability to investigate and prosecute crime."
These concerns are not unique to the United Kingdom.
According to the Joint Financial Intelligence Unit's website, there were 73,889 "STRs" in 2018 and 92,115 in 2017 (a decline of approximately twenty percent). As of 30 April 2019, there have been 15, 219 so far this year. Therefore, after five years of an increasing number of STRs (2013-17), there is (for now) a downward trend.
In 2018, the combined number of STRs made by the legal, accounting and real estate sectors was less than 1 percent of the overall total – with the vast majority of that amount coming from the legal profession (namely, 416). The level of reporting by these non-financial businesses and professions is an issue. However, lawyers in Hong Kong must also have regard to their professional obligations, including (among other things) Practice Direction P, which includes the following passage:
"(36) In recognition of the LPP under common law, there are provisions in the DTRPO, OSCO and UNATMO exempting items subject to LPP from the disclosure requirements therein."*
While a person in Hong Kong can report their suspicion of money laundering as they see fit to the relevant law enforcement authority, the norm is to use the Joint Financial Intelligence Unit’s (JFIU) standard online reporting form. A report usually serves one of two purposes. First, the reporting of a suspicious transaction in Hong Kong of the type that banks and financial institutions make (and which may include, in practice, an element of "defensive reporting"). Second, the reporting of a transaction in order to obtain a relevant authorised officer's "consent to deal/transact".
To better understand the second purpose, the best people to speak to informally are often those lawyers that represent clients being investigated in connection with alleged financial crime (and that, for example, need to satisfy themselves as to the source of payment for their fees^) or that are instructed in connection with certain transactions – for example, real estate lawyers.
* See Section E (“Relevant legal issues”) on, among other things, legal professional privilege and client confidentiality.
^ If received, preferably to be held in a separate stakeholder account prior to “consent to deal”.