Money Laundering Offences in Hong Kong YTL LLP Corporate

Introduction

As a member of the Financial Action Task Force (FATF), Hong Kong implements recommendations promulgated by this inter-government body to combat money laundering, terrorist financing and proliferation financing.

On 7 December 2022, the Legislative Council passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022. The amended ordinance came into effect in phases in the second quarter of 2023, including, the registration regime for dealers in precious metals and stones on 1 April 2023, and licensing regime for virtual assets providers on 1 June 2023. As a result of the passing of the amended ordinance, various regulators have amended as well as introduced new guidelines, including the Hong Kong Securities and Futures Commission, the Hong Kong Monetary Authority, and the Hong Kong Companies Registry.

This note sets out the main pieces of legislation that regulates money laundering in Hong Kong, and highlights the main laundering offences.

What is money laundering?

According to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO), money laundering means an act intended to have the effect of making any property –

(a) that is the proceeds obtained from the commission of an indictable offence under the laws of Hong Kong, or of any conduct which if it had occurred in Hong Kong would constitute an indictable offence under the laws of Hong Kong; or

(b) that in whole or in part, directly or indirectly, represents such proceeds,

not to appear to be or so represent such proceeds.

Extra-territorial jurisdictional offence

The definition of money laundering under the AMLCO expressly provides that if the relevant conduct would constitute an indictable offence if it had occurred in Hong Kong.

Offences – handling proceeds of crime

Generally speaking, the primary offences of handling proceeds of crime would involve:

Transfer or convert proceeds of an indictable offence;
Use, acquire or possess the proceeds of an indictable offence;
Enter into or become part of an arrangement, to use or control the property known or believed to represent proceeds of an indictable offence;
Conspiring to deal with property known or believed to represent proceeds of an indictable offence.

These offences would require either a knowledge or suspicion of money laundering. The prosecution would need to prove that the suspect new the property or money originated from the proceeds of an indictable offence. Furthermore, suspicion does not have to be clear, or related to specific facts – but must be more than fanciful.

It is worthwhile to note that proceeds of an indictable offence includes any gains or profits generated from the original indictable offence.

The various offences under various pieces of legislation in Hong Kong, not only cover the process of overt money laundering, it would also cover failure of carrying out proper customer due diligence, maintaining records, as well as failure to report suspicions of money laundering.

Offences – failure to report

Failure to report – a person working in a business that is subject to the ambit of the relevant legislation knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in an offence, but fails to report to the relevant officer and/or the relevant authorities.
Tipping off – a person knows or suspects that another person is involved in a money laundering related investigation or in contemplation of an investigation, but makes a disclosure to any person.

Main Legislation

In Hong Kong, the main pieces of legislation that are concerned with money laundering, terrorist financing and proliferation financing are the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP), the Organized and Serious Crimes Ordinance (OSCO), the United Nations (Anti-Terrorism Measures) Ordinance (UNATMO), the United Nations Sanctions Ordinance (UNSO) and the Weapons of Mass Destruction (Control of Provision of Services) Ordinance (WMD(CPS)O).

Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO) provides for the statutory requirements relating to customer due diligence and record-keeping for, among others, financial institutions, licensed corporation (including virtual asset services providers), trust or company services providers, money lenders, precious metals and stones dealers, designated non-financial businesses, and professionals.

Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405) (DTROPO) provides for the tracing, confiscation and recovery of the proceeds of drug trafficking, and creates offences relating to the handling of those proceeds or property representing those proceeds, and for incidental or related matters. DTROPO requires one to report suspicious transaction if one has knowledge or suspicion that proceeds of drug trafficking are involved in any transactions.

Organized and Serious Crimes Ordinance (Cap. 455) (OSCO) provides for the powers of investigation into organized crimes and the proceeds of crime of certain offenders; creating offences relating to the handling of proceeds of crime or property representing the proceeds of crime; and for ancillary and connected matters. OSCO requires one to report suspicious transaction if one has knowledge or suspicion that criminal proceeds are involved in any transactions.

United Nations (Anti-Terrorism Measures) Ordinance (Cap. 575) (UNATMO) provides for the implementation of the United Nations Security Council Resolution 1373 relating to measures for the prevention of terrorist acts. UNATMO requires one to report suspicious transaction if one has knowledge or suspicion that any property is terrorist property.

United Nations Sanctions Ordinance (Cap. 537) (UNSO) provides for the imposition of sanctions against places outside the People’s Republic of China arising from Chapter 7 of the Charter of the United Nations.

Weapons of Mass Destruction (Control of Provision of Services) Ordinance (Cap. 526) (WMDO) prohibits the provision of services that will or may assist the development, production, acquisition or stockpiling of weapons of mass destruction in Hong Kong or elsewhere.

Key Takeaways

With the continuing adoption of online payments and application of cryptocurrency, HK regulators are catching up by amending the existing legal and regulatory frameworks to combat money laundering. Awareness of the latest requirements in, identifying risks, enhancing its internal controls, methods in carrying out customers due diligence, reporting suspicious activities, and enhancing internal controls, is of paramount importance.

If you are facing investigations by the relevant regulatory authorities, or would like to review and enhance existing internal compliance procedures, please contact us.

Alfred Leung, Partner (E: alfredleung@hkytl.com; T: 852 3468 7202)