Supplement to the Guideline on Prevention of Money Laundering

1
Supplement to the Guideline on Prevention of
Money Laundering

• Hong Kong Monetary Authority
• 8 June 2004

2
Background (1)

• The current Guideline on Prevention of Money
  Laundering was issued in 1997 and updated in 2000
• Since then, a number of significant developments
  have taken place, including
• the Basel Committee on Banking Supervisions
  paper on Customer Due Diligence for Banks (Oct
  2001)
• the FATF Eight Special Recommendations on
  Terrorist Financing (Oct 2001)
• the revised FATF Forty Recommendations (June
  2003)
• the new anti-terrorism law in HK - United Nations
  (Anti-Terrorism Measures) Ordinance (July 2002)

3
Background (2)

• As a member of FATF, Hong Kong has a good
  reputation internationally as a financial centre
  that takes seriously the need to combat money
  laundering and terrorist financing
• The HKMA needs to keep its regulatory
  requirements in line with international standards
• The Supplement on the Guideline on Prevention of
  Money Laundering has been prepared
• In collaboration with the Industry Forum, a set
  of Interpretative Notes has also been developed
  to provide implementational guidance

4
Background (3)

• The Industry Forum comprised representatives from
  HKMA, HKAB and the DTCA
• The Forum met three times from May to September
  2003
• Three subgroups were formed on (i) Public
  Education, (ii) Correspondent Banking and (iii)
  Private Banking
• Following finalisation of the Forums proposals,
  consultation was undertaken with HKAB and the DTCA

5
Customer due diligence

• First priority is for banks to have effective
  systems for customer due diligence (CDD)
• This involves the following steps
• identify the direct customer
• verify the customers identity
• identify the person with beneficial ownership and
  control (if different from the direct customer)
• verify the identity of the beneficial owner
• conduct on-going due diligence and scrutiny
• The basic issue is whether it is safe for banks
  to establish a banking relationship with a
  customer

6
Customer acceptance policies

• Banks should develop policies and procedures to
  identify higher risk customers
• apply enhanced due diligence
• approve at senior management level
• Factors to be considered in risk assessment
• who the customer is
• what he does
• where he comes from
• where he does business
• how he operates the account

7
Risk-based approach (1)

• Higher risk customers should be subject to
  enhanced CDD process while lower risk customers
  may be subject to simplified CDD process
• Examples of higher risk customers
• politically exposed persons
• correspondent banks (particularly shell banks
  or those from non-cooperative countries and
  territories)
• corporate vehicles (particularly offshore
  companies where the objective may be to disguise
  the beneficial ownership)

8
Risk-based approach (2)

• Examples of lower risk customers
• domestic retail customers (identity data to be
  verified include name, number of Hong Kong
  Identity Card, date of birth and residential
  address)
• entities regulated by supervisory authorities
  (such as the SFC and the Insurance Authority)
• listed companies

9
Other specific types of customers

• The Supplement also sets out detailed due
  diligence process for the following types of
  customers
• customers introduced by intermediaries
• client accounts
• trust and nominee accounts
• non-face-to-face customers (such as internet
  accounts)

10
Existing accounts

• While the Supplement applies to new customers in
  general, banks are also to review existing
  accounts periodically in line with the new
  standards
• based on certain trigger events (e.g. a large or
  unusual transaction)
• a risk-based approach with focus on higher risk
  customers
• where necessary obtain additional evidence for
  verification of identity

11
Control measures for combatingterrorist financing

• Establish criteria for identifying high risk
  customers relating to terrorist financing
• Maintain database of terrorist names (or access
  commercially available databases) for name checks
  purpose
• Provide sufficient details of the originators
  information in the remittance messages
• Report suspicious transactions to both the JFIU
  and the HKMA

12
Implementation of the Supplement

• The Supplement should be read in conjunction with
  the relevant parts of the Guideline and the
  Interpretative Notes
• Locally incorporated authorized institutions
  should apply the Supplement on a group-wide basis
  (including overseas branches/subsidiaries)
• Implementation no later than 31 Dec 2004

13
Enforcement of the Supplement

• The Supplement and the Interpretative Notes are
  issued under s.7(3) of the Banking Ordinance
• The HKMA will monitor AIs compliance via
• self-assessment
• on-site examination
• off-site review (such as reviewing the number of
  suspicious transaction reports made to the JFIU)
• In our experience, AIs pay close attention to
  anti-money laundering matters and are
  co-operative in implementing anti-money
  laundering measures
• Supervisory actions may be taken in cases of
  non-compliance

14
Information leaflet

• To promote customers awareness, an information
  leaflet Fighting Crime and Terrorism How You
  Can Help was released in March 2004
• The leaflet, jointly developed by the HKMA, HKAB
  and the DTCA, is to explain to bank customers why
  AIs may require them to provide identification
  documents and how this can help combat money
  laundering and terrorist financing
• It covers identification documents required for
  both personal and business customers

15
Closing remarks

• Given Hong Kongs position as an international
  financial centre, it is important that we have
  anti-money laundering controls that meet the best
  international standards
• Hong Kong has a robust and effective framework
  for combating money laundering and terrorist
  financing. We need, however, to remain alert to
  new developments, and ensure that the legal and
  regulatory measures keep up to date
• At the same time, we need to ensure that
  customers are not unduly inconvenienced, and that
  we remain business-friendly