The Financial Action Task Force’s Mutual Evaluation Report of Hong Kong, published on 4 September 2019, is significant. A little history might assist in order to understand its significance and what it is likely to mean for (among others) designated non-financial businesses and professions (“DNFBPs”) in Hong Kong.
The previous mutual evaluation report was in July 2008 (the 3rd) and, in effect, Hong Kong was put on notice that her behaviour had to improve. In light of certain deficiencies that were identified, Hong Kong was put on a regular follow up review process. The main FATF follow up report was in October 2012 and, in light of the substantial progress made, Hong Kong was taken off a regular follow up review process.
It is no coincidence that the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615) came into effect in April 2012. It was a game-changer and, in the main, the attitude of the financial institutions to anti-money laundering compliance fundamentally improved; aided by encouragement from and some tough enforcement by, for example, the Securities and Futures Commission.
However, the very name of the Ordinance at the time (“… Financial Institutions …”) suggested a missing link from the FATF’s point of view. In March 2018 the Ordinance was substantially amended, to become the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and some DNFBPs came within its scope. As a result, the Ordinance’s statutory customer (client) due diligence and record keeping obligations apply to lawyers, accountants and estate agents – albeit from a regulatory point of view they are supervised by their respective independent regulators.
Other significant related developments occurred in 2018. For example, companies incorporated in Hong Kong (except those listed on the Hong Kong Stock Exchange) were required to take reasonable steps to ascertain and identify those persons who had a significant control over the company and to maintain a significant controllers register. A licensing regime for trust and company service providers (“TCSPs”) came into effect.
These developments preceded the FATF’s Report in September 2019 (further to its 4th round of mutual evaluations). In short, this time around, Hong Kong’s anti-money laundering regime was given a general clean bill of health but room for improvement was identified. The following is an extract from the FATF’s website that introduces the 2019 Report*:
“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.”
The need to strengthen the anti-money laundering regime among certain DNFBPs is emphasised in:
• the Executive Summary of the Report; for example, the “Key Findings” (1(e) and at para. 28); and
• Chapter 5 of the Report (“Preventive Measures” – “Key Findings: DNFBPs”).
A fair interpretation of these provisions in the Report is that lawyers, accountants, estate agents and TCSPs as a whole need to do more as regards client due diligence and record keeping; generally and particularly with respect to higher risk situations.
If history is anything to go by (including, the experience of the financial institutions after the Ordinance in 2012) there will be more enforcement – both regulatory and in the courts. This is clearly one of the main lessons going forwards.
*FATF website – www.fatf-gafi.org/countries/#Hong Kong (China).