| HONG KONG
HONG KONG Luo Juncheng, a delivery man and school dropout from China's Guangdong province, was 19 years old when he opened an account at Bank of China subsidiary Chiyu Bank in Hong Kong in mid-2009.
Over the next eight months, he moved more than HK$13 billion ($1.7 billion) through the account, making nearly 5,000 deposits and more than 3,500 withdrawals in the largest money laundering case on record in the territory.
Luo is now serving a 10-and-a-half-year jail sentence for illegal money transfers. But his conviction raises wider concerns - how he got away with it for so many months despite the red flags that should have been raised by his transactions, and why no other arrests have been made despite evidence at trial that he did not act alone.
His conviction is one of the few in Hong Kong for money laundering, despite the city's reputation as a hub in money transfers, both legal and illegal, carried out by wealthy Chinese. Experts estimate tens of billions of dollars are laundered in Hong Kong every year, much of it crime or drugs-related money funnelled from China or the gambling haven of Macau.
Another conviction was of Lam Mei-Ling, a 61-year-old illiterate public housing tenant, sentenced to 10 years for her role in a separate money laundering case.
"Lam and Luo were both just cogs in a much bigger money machine," said Steve Vickers, CEO of Steve Vickers and Associates, a specialist risk, risk mitigation and consulting organisation.
"Prosecuting these two for their roles, without any connection to a substantive criminal offence is well wide of the mark from a policy and legal point of view; it's just like killing two chickens in front of the monkey," he said, referring to a Chinese proverb about punishing the weak in order to frighten the powerful.
Hong Kong now has tough new legislation to go after people laundering money and banks that help them do it - the Anti Money Laundering Ordinance (AMLO) that came into effect one year ago. Prior to the AMLO, authorities did not have the power to launch criminal proceedings against banks for ignoring or assisting in money laundering.
That, coupled with the difficulty of proving complicity in laundering, has meant that Hong Kong's authorities have pursued individuals rather than financial institutions.
But successful prosecutions have so far only been brought against those, like Luo, at the bottom of the laundering chain, although Carson Yeung, a tycoon and owner of English soccer club Birmingham City, stands trial later this month.
"It seems that larger and larger sums are being converted in money laundering," said Judge Esther Toh, sentencing Luo for the record amount of money he 'cleansed'.
A Bank of China (Hong Kong) BOCHK.UL spokeswoman said in an e-mailed statement that the bank would not comment on individual cases but the group, which owns Chiyu Bank, "complies with all the relevant laws and regulations of Hong Kong".
The police department's Joint Financial Intelligence Unit (JFIU) and the Hong Kong Monetary Authority also would not comment on individual cases, but said they took the issue of money laundering seriously and would investigate reports of suspicious transactions and control failures.
The trials of the handful of people convicted of money laundering show they transferred large amounts of money, seemingly with little restriction, before they were nabbed.
An African man, who used various passports and names, was arrested in a jewellery shop in 2009 for using a false credit card. He was sentenced to 38 months' in jail for laundering HK$10 million through four bank accounts, court documents show.
Lam testified at her trial that she made transfers on behalf of an unidentified woman from her hometown of Dongguan in southern China who used to babysit her daughter before becoming a factory owner.
Lam laundered more than HK$6.8 billion through nine banks in 2002-05, recording some 39,500 bank transfers. Averaging around 30 deposits and withdrawals a day through nine Hong Kong banks, including the same Chiyu bank that Luo used, Lam received occasional monthly payments of HK$4,500 for her work.
"Those billions are a pittance compared with what is actually laundered through the city," said a senior Hong Kong law enforcement officer who specialises in commercial crime. He did not want to be named as he is not authorised to speak to the media.
Data on the amount of money laundered through Hong Kong each year is scarce, but the Washington-based Global Financial Integrity group estimated about $2.83 trillion flowed illicitly out of China from 2005-2011, with Hong Kong the largest recipient.
In 2011, the group estimates, total illicit outflows from China were $602.9 billion, of which 10 percent or $60 billion was in cash. Based on how much mainland investment flows legally into Hong Kong, that would mean about $22 billion worth of illicit Chinese funds are routed through the territory in cash alone each year.
In addition to cash deposit schemes such as in the cases of Luo and Lam, funds are also laundered through investment in financial assets and by the deliberate mis-invoicing of trade.
OUT OF REACH
Operatives like Luo and Lam are several layers removed from the source of illegal wealth. In between could be family members of both sides, or acquaintances, mostly on the mainland. These layers and the problem of jurisdiction make cracking down on the transfers difficult for Hong Kong's law enforcement system.
"What's really going on is that Macau, and Hong Kong in support, are assisting in a vast haemorrhaging of cash from the mainland using gaming junkets and underground banks," said Steve Vickers.
The mainland-based originators of Luo's scheme chose him precisely because of his youth, hoping to "throw ... banking staff off the scent", said Justice Toh.
The Luo scam involved opening a company called Ace Creation through a secretarial firm in Shenzhen and bringing the paperwork to Hong Kong to open the firm's bank account. Luo told the court at his trial that he had set up the account at the request of a family friend called Uncle Pan.
"The Hong Kong Monetary Authority (HKMA) will ensure that any control weaknesses identified in the court cases have been adequately rectified," an HKMA spokeswoman said in response to e-mailed questions on what action it would take in response to the recent cases.
Under the AMLO, banks and their employees can face criminal sanctions for failing compliance rules. Penalties can be as much as a fine of HK$1 million ($129,000) and seven years in jail. Banks can also face disciplinary action, from a public reprimand to enforced remedial action.
But it has yet to be used to apply any criminal sanctions to a bank for money laundering.
(Additional reporting by Grace Li, James Pomfret and Matt Miller; Editing by Ian Geoghegan and Raju Gopalakrishnan)