April 25, 2013 / 8:16 AM / 5 years ago

Hong Kong banking regulator beefs up anti-money laundering push

HONG KONG, April 25 (Reuters) - Hong Kong’s banking regulator said on Thursday it was doubling the size of its anti-money laundering team to strengthen supervision amid intensifying scrutiny of monitoring and compliance systems at global financial institutions.

The Hong Kong Monetary Authority said it would increase its team to 22, just months after the city’s two largest money-laundering cases drew unwanted attention to banks in the Asian financial centre and its vast cross border money flows.

“Where we don’t see improvements, where we do see money laundering and terrorist financing risk, where we do see breaches of the legal and regulatory requirements we will be prepared to take tough actions,” Stewart McGlynn, the head of anti-money laundering supervision at the HKMA, told reporters.

The former British colony, governed under a “one country, two systems” principle since its return to Chinese rule in 1997 has its own financial system and acts as a facilitator for mainland Chinese money to escape strict capital controls, sometimes through money laundering and other types of fraud.

Bordering China, Hong Kong benefits from a surge of capital flows from the mainland that some groups say is one of the world’s biggest source of dirty funds. Nearby, Macau’s massive casino industry has also drawn fire for a murky financial underbelly that has ensnared it in money laundering scandals and sources of illicit financing for regimes such as North Korea.

Hong Kong’s new anti-money laundering (AML) ordinance came into effect last April, bringing stricter requirements for bank monitoring of customers and the reporting of suspicious transactions to authorities.

The new law empowers the HKMA, the de facto central bank, to prosecute or discipline banks for ignoring or assisting in money laundering, including fines of up to HK$1 million ($128,800) and revoking licences.

While the HKMA has faced criticism for never having taken any disciplinary actions against local banks for money laundering offences, the HKMA’s chief executive Norman Chan recently briefed the heads of 180 banks during a money laundering seminar, in which he stressed a need for tougher compliance.

While the public resources devoted to anti-money laundering in Hong Kong remain small compared with its vast financial services sector, some industry players expect the HKMA to be more aggressive toward supervision in future, similar to that of the city’s Securities and Futures Commission (SFC) that has successfully prosecuted bankers for insider trading.

“It (the regulator) will be keen to flex its muscles,” said Abdulali Jiwaji, a partner with law firm Simmons & Simmons and an expert in financial compliance and regulation.

Banks globally are reviewing monitoring systems after U.S. regulators handed heavy fines to HSBC Holdings and Standard Chartered, both of which have a strong presence in Hong Kong, for money laundering last year.

HSBC Holdings and its unit Hang Seng Bank, which was named in one recent Hong Kong laundering case, have both advertised for anti-money laundering jobs in the city recently.

Tackling corruption is a top priority for China’s new leader Xi Jinping, and Reuters reported that the country’s central bank was beefing up its anti-money laundering rules.


The Joint Financial Intelligence Unit (JFIU) - a police and customs anti-money laundering expert group - received 23,282 suspicious transaction reports in 2012, almost double the figure in 2003. 82 percent of the reports last year were made by banks.

Hong Kong authorities convicted 166 people of money laundering in 2012 and 37 people so far this year, according to data from the JFIU, which is responsible for analysing suspicious transactions and is the main channel for banks and other institutions to red-flag suspect transactions.

Two recent court cases in which a young delivery man from Guangdong province and a 61-year-old Hong Kong public housing tenant received jail terms of about 10 years for laundering billions of dollars have hit a nerve in the city, with some saying authorities are only targeting the small fry.

“To some extent, you need to rely on the minor players ... to assist the authorities to identify the major miscreants,” Hong Kong director of public prosecutions Kevin Zervos was quoted as saying in local media on Monday.

The public housing tenant was jailed in March for laundering more than HK$6.8 billion ($877 million) through Standard Chartered, Hang Seng Bank, Chiyu Bank, National Commercial Bank, Hua Chiao Commercial Bank, Dao Heng Bank, First Commercial Bank, Hua Nan Bank and Bank of East Asia between 2002 and 2005.

Her conviction came just after the 22-year-old delivery man was jailed for 10 and a half years for laundering HK$13.1 billion ($1.69 billion) in the late 2000s through a corporate account set up with Chiyu Banking Corp, a unit of Bank of China.

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