Money laundering is the "cleansing" of dishonestly obtained money, such as earnings from drug sales or the proceeds of a fraud, so that it appears to have been obtained honestly. Hong Kong already had two pieces of legislation to control such activities: the Drug Trafficking (Recovery of Proceeds) Ordinance ("DTRPO"); and the Organised and Serious Crimes Ordinance ("OSCO")
Since September, 1995 amendments to these Ordinances have :
(a) extended the government's power to attack money laundering associated with drug trafficking and other serious offences; and
(b) imposed statutory duties on providers of financial and professional services to disclose and to make proper inquiries into suspicious transactions.
The new amendments make it an "dealing" offence for professionals such as bankers, lawyers or accountants to deal with property that they know or have reasonable grounds to believe represented, directly or indirectly, the proceeds of drug trafficking or an indictable offence (i.e. all offences triable by jury).
Dealing with property includes receiving, disposing, concealing or using it (for example, as security) to borrow money. The maximum penalty for the offence is 14 years imprisonment and/or a fine of HK$5 million.
It is also an offence if a person who knows or suspects that any property represents the proceeds of drug trafficking or of an indictable offence or that it may be used in connection with such an offence does not disclose that knowledge or suspicion to a police officer or a customs and excise officer ("an authorised officer").
Obviously, this means that the onus is very much on financial institutions and professionals to act as watchdogs and control systems have been established by many companies to ensure that they are fulfilling their responsibilities under the new amendments. However, no 'dealing' offence will have been committed if proper disclosure is made to authorised officer before the prohibited act occurs and the act is done with the consent of the authorised officer. Similarly, if disclosure is made to an authorised officer after the act has been committed, there is no offence if disclosure is made on the person's own initiative and as soon as it is reasonable for him to make it. It is an offence to disclose anything which is likely to prejudice an investigation into the suspected money laundering.
The issue of client confidentiality is one of serious concern to professionals. Addressing this, the new amendments ensure that disclosures will not be treated as a breach of any restriction imposed by contract (such as a bank's duty of confidentiality to its customers). Those making any disclosures will not be liable for any loss arising from the disclosure even if the suspicion is later shown to have been misfounded insofar as the suspicion is based on reasonable grounds.
Moreover, informants are not required to reveal in civil or criminal proceedings that they have made disclosures under the legislation.
The Hong Kong Monetary Authority, Hong Kong Stock Exchange and Securities and Futures Commission have also established guidelines for its members aimed at helping them to avoid facilitating money laundering.
The new legislation is of concern to professional advisers as well as financial institutions who are now under a positive obligation to be aware of and disclose suspicious circumstances relating to money laundering.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
If you would like partner advice, please contact David Ellis, Johnson Stokes & Master, 16th Floor, Prince's Building, 10 Chater Road, Hong Kong, Telephone No: 2843 4226, Fax No: 2845 9121, E Mail address: daellis @ asiaonline.net.