Hong Kong: Anti-Money Laundering Comparative Guide - Legal And Enforcement Framework

1. Legal and enforcement framework

1.1 Which legislative and regulatory provisions constitute the anti-money laundering, counter-terrorist financing and general financial crime prevention (collectively, 'AML') regime in your jurisdiction, from a regulatory (preventive/sanctions) and enforcement (civil/criminal penalties) perspective? Are there any legislative and regulatory requirements that apply below the national level (ie, at a state or regional level)?

Hong Kong's AML regime applies at a single, territory level. It comprises:

• legislation;
• guidelines issued pursuant to legislation (which do not constitute subsidiary legislation); and
• other guidance materials issued by Hong Kong regulators.

Legislation: The main AML-related legislation is:

• the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) (AMLO);
• the Drug Trafficking (Recovery of Proceeds) Ordinance (Cap 405) (DTROP);
• the Organised and Serious Crimes Ordinance (Cap 455) (OSCO);
• the United Nations (Anti-Terrorism Measures) Ordinance (Cap 575) (UNATMO);
• the United Nations Sanctions Ordinance (Cap 537) (UNSO); and
• the Weapons of Mass Destruction (Control of Provision of Services) Ordinance (Cap 526).

Subsidiary legislation exists for some of the legislation – in particular, regulations issued pursuant to UNSO which are the source of sanctions requirements.

Guidelines issued pursuant to legislation: The main AML-related guidelines are as follows.

Licensed money lenders (LMLs) are not regulated under AMLO. However, the Registrar of Money Lenders issued the Guideline on Compliance of Anti-Money Laundering and Counter-Terrorist Financing Requirements for Licensed Money Lenders with reference to the requirements in AMLO. LMLs are encouraged to comply with the guideline; non-compliance may cast doubt on whether:

• the licensee is fit and proper to carry on business as a money lender; and
• its officers are fit and proper to be associated with the business of money lending.

Other guidance materials: Regulators issue other guidance in the form of circulars, guidance papers and FAQs from time to time to:

• inform regulated entities of new legislative requirements and regulatory standards;
• provide updates on important AML developments; and
• provide practical guidance on implementing AML policies and controls.

Such materials are accessible from each regulator's website. Regulated entities and individuals are expected to comply with these guidance materials.

Throughout the following questions, the responses cover anti-money laundering and counter-financing of terrorism (AML/CFT) requirements only and not general financial crime prevention.

1.2 Which bilateral and multilateral instruments on AML have effect in your jurisdiction?

Hong Kong has been a member of the Financial Action Task Force since 1991 and a founding member of the Asia/Pacific Group on Money Laundering since 1997. As a member, Hong Kong implements recommendations promulgated by these bodies through locally enacted legislation and regulatory instruments and guidance.

1.3 Which public sector bodies and authorities are responsible for enforcing the AML laws and regulations? What powers do they have?

The relevant authority responsible for enforcing AMLO depends on the nature of the regulated entity. There are two types of regulated entities under AMLO:

• financial institutions (FIs); and
• designated non-financial businesses and professions (DNFBPs).

FIs include:

• authorised institutions;
• licensed corporations;
• authorised insurers;
• appointed insurance agents;
• authorised insurance brokers;
• stored value facility (SVF) licensees;
• money service operators; and
• the postmaster general.

DNFBPs include:

• solicitors;
• accountants;
• real estate agents; and
• trust and company service providers (TCSPs).

Under AMLO, the relevant authorities have powers of inspection and investigation, including requiring the production of documents and written answers to the regulator's questions. They may also apply for a court warrant to enter and search premises and remove records and documents believed to be relevant to their inquiries.

If a specified provision (defined in Section 5(11) of AMLO) has been contravened, the relevant regulator may take disciplinary action against the regulated entity.

In the event of a suspected criminal offence under OSCO, DTROP or UNATMO, the investigation is led by a multitude of law enforcement departments, including:

• the Hong Kong Police Force (usually in drug trafficking cases);
• the Customs and Excise Department (in smuggling cases);
• the Independent Commission Against Corruption (usually for fraud and corruption related matters); and
• the above relevant authorities.

1.4 Are there any self-regulatory organisations or professional associations? What powers do they have?

The following self-regulatory organisations or professional associations are responsible for formulating and implementing AML/CFT policies for their members:

• the Estate Agents Authority (EAA) for any 'estate agent';
• the Hong Kong Institute of Certified Public Accountants (HKICPA) under the oversight of the Accounting and Financial Reporting Council (AFRC) for any 'accounting professional'; and
• the Law Society of Hong Kong (LSHK) for any 'legal professional'.

The terms in quotation marks above are defined in AMLO Schedule 1, Part 2, Section 1.

The EAA has issued Guidelines on Compliance of Anti-Money Laundering and Counter-Terrorist Financing Requirements for the Estate Agency Sector (Circular 18-01) pursuant to Section 7 of AMLO. An estate agent's non-compliance with the guidelines may trigger the following provisions in the Estate Agents Ordinance (Cap 511):

• suspension or revocation of licence (Section 27);
• investigation (Section 28); and
• disciplinary actions (Section 30).

As regards accounting professionals, the HKICPA has issued Guidelines on AML/CFT for Professional Accountants (Chapter F of the Code of Ethics for Professional Accountants). The AFRC conducts investigations and disciplinary sanctions against accounting professionals, including with respect to failure to comply with AML/CFT requirements.

For legal professionals, the LSHK has issued Practice Direction P, which comprises guidelines on:

• client identification and verification;
• customer due diligence;
• record keeping; and
• suspicious transaction reporting.

Any law firm, solicitor or foreign lawyer that fails to comply with the mandatory sections of the practice direction may face disciplinary proceedings by the LSHK.

1.5 What is the general approach of the financial services regulators in enforcing the AML laws and regulations?

The financial services regulators – that is, the HKMA, the SFC and the IA – will generally carry out an investigation before taking enforcement action in a manner proportionate to the seriousness of the breach of AML/CFT laws and regulations.

In exercising their power to impose a pecuniary or other penalty, the HKMA, the SFC and the IA will have regard to certain factors to be considered as set out in specific guidelines on this topic.

1.6 What are the statistics regarding past and ongoing AML procedures in your jurisdiction?

The Joint Financial Intelligence Unit (JFIU) has published the following statistics on money laundering and asset confiscation from 2015 to 2022.

* Figures from the Police and Customs and Excise Department
# Figures from the Department of Justice
Source: www.jfiu.gov.hk/en/statistics.html

From 2015 to 2022, the HKMA imposed disciplinary actions against 12 authorised institutions, including two SVF licensees and ten FIs.

From 2005 to 2022, the SFC imposed 18 disciplinary actions against licensed corporations or officers of a licensed corporation.

From 2021 to 2022, the IA imposed one disciplinary action in January 2022.

With regard to the reporting of suspicious activities, the JFIU reported that each year since 2015, it has received between 42,000 and 93,000 suspicious transaction reports. In 2022, the JFIU received 68,538 suspicious transaction reports.

1.7 What reporting activities exist for reporting suspicious activities and/or transactions (SARs)? Are there any specific powers to identify the proceeds of crime or to require an explanation as to the source of funds?

Reporting suspicious activities and/or transactions: Under OSCO, DTROP and UNATMO, where a person knows or suspects that any property was used in connection with or represents proceeds of drug trafficking or an indictable offence, or that any property is terrorist property, a report must be made to the JFIU as soon as practicable. These obligations apply to any person, including a company and every officer of a company. Failure to report such knowledge or suspicion is a criminal offence that is liable on summary conviction to a maximum penalty of a fine of HK$50,000 and imprisonment for three months.

Specific powers to identify the proceeds of crime/require an explanation as to the source of funds: No specific powers are granted to the authorities by statute. However, a regulated entity should take appropriate steps to make further enquiries as part of its customer or transaction due diligence procedures if there are suspicions that funds are the proceeds of crime.

1.8 Is there a central authority for reporting (ie, a Financial Intelligence Unit (FIU) responsible for assessing SARs reported from relevant entities subject to AML requirements)? Does this authority work internationally?

The JFIU is the central authority for receiving suspicious transaction reports. The JFIU is a specialised unit jointly operated by the Hong Kong Police Force and the Hong Kong Customs & Excise Department.

The JFIU is a member of the Egmont Group of Financial Intelligence Units. It may exchange information with other jurisdictions' FIUs through the Egmont Group channel and pursuant to formalised channels with certain non-Egmont Group countries.

1.9 What relevant public or private corporate or other registers exist to assist with conducting and/or validating AML information, ultimate beneficial owners etc; and what details must be disclosed?

The Companies Ordinance (Cap 622) requires a company incorporated in Hong Kong to maintain the following registers which assist with validating AML/CFT information of companies and their connected persons:

• a register of members;
• a register of directors;
• a register of company secretaries; and
• a register of significant controllers who hold, directly or indirectly, more than 25% of the issued shares in the company.

The Companies Registry (CR) offers the following searches on companies registered in Hong Kong, which provide the following information.

• Company particulars search:
• • company registration number;
  • company name;
  • date of incorporation;
  • active status;
  • directors of the company;
  • date of dissolution/ceasing to exist and/or winding up mode;
  • name change history;
  • registered address of the company;
  • list of directors;
  • particulars of company secretary; and
  • particulars of receiver and manager/liquidator.
• Directors index search
• • list of all current and reserve directors of a company (company-based search);
  • list of companies of which a person is currently a director or reserve director (director-based search); and
  • particulars of a specified current director or reserve director of a company (director particulars search).
• Document index search.
• List of documents filed by a company and copies of specific documents.

Current information about members, directors and company secretaries are accessible at the CR through the above searches either physically or online. To enhance the protection of sensitive personal information, 'protected information' of individuals can only be accessed by specified persons. Protected information includes the usual residential address and full identification number of directors, company secretaries and other individuals such as liquidators and provisional liquidators. Specified persons i.e. a solicitor, foreign lawyer or legal professional, can access protected information following a one-time paper application to the CR or an online application for a special account with the CR.

The Register of Significant Controllers is only available for inspection by the CR and certain government departments, regulators and law enforcement agencies.

1.10 How do such registers interoperate with one another and do they do so internationally?

The information obtained from searches conducted on the CR database are obtained from company registers (as mentioned in the response to question 1.9) registered at the CR.

The company registers in Hong Kong are not interoperable with foreign registers.

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