Hong Kong

Last Updated: 2/7/2008

CENTRAL AUTHORITY FOR REPORTING

Joint Financial Intelligence Unit (JFIU)
Securities and Futures Commission (SFC)

ARE LAWYERS COVERED BY MONEY LAUNDERING LEGISLATION?

Lawyers are covered by Section 25 of the Drug Trafficking (Recovery of Proceeds) Ordinance.

NAME LAWS REGARDING ANTI-MONEY LAUNDERING PROCEDURES

IN ADDITION TO THESE LAWS, IS THERE ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS CURRENTLY IN PLACE?

The Hong Kong SFC has recently released a revised Prevention of Money Laundering and Terrorist Financing Guidance Note (the Revised Note) which became effective on 30 April 2006. The Revised Note has adopted a principle based approach (rather than a prescriptive one) to allow firms some flexibility to implement the provisions according to their own situations. The Revised Note does not have the force of law and should not be interpreted in any manner which would override the provisions of any law, codes, or other regulatory requirements applicable to the licensed corporation, associated entity or registered institution concerned. However, a failure to comply with any of the requirements of the Revised Note will, in the absence of extenuating circumstances, reflect adversely on the fitness of the entity.

UNDER WHAT CIRCUMSTANCES IS A LAWYER UNDER THE OBLIGATION TO REPORT?

Section 25 A (1) of DTRPO:

Under Section 25 A (1) DTRPO, where a person knows or suspects that any property represents, in whole or in part, directly or indirectly, the proceeds of drug trafficking or a serious crime or knows or suspects that any property was or is intended to be used in connection with drug trafficking or a serious crime, he is under a duty to disclose that knowledge or suspicion.

LAWYER RESPONSIBILITY/LIABILITY

Duty of disclosure

Lawyers are covered by Section 25 A of DTRPO to report to the JFIU. The maximum penalties for the offence of failure to disclose are a fine of up to HK$50,000 and three months imprisonment.

Importantly, section 25A (3) of both ordinances provides that a disclosure under section 25A shall not be treated as a breach of restrictions on the disclosure of information imposed by any contract, rules of conduct, enactment or other provision and that the person making the disclosure cannot be rendered liable in damages as a result of any loss arising in connection with the disclosure.

Defences

The duty of disclosure and the prohibition of dealing are interrelated as a person who deals in contravention of Seciton 25(1) of the DTRPO is also likely to have breached his duty of disclosure under Section 25A. However, if a person co-operates with the authorities and discloses his knowledge or suspicion, this can avail him of a defence to dealing as outlined below.

If a person deals with a property in contravention of section 25(1) and does not make a disclosure in accordance with Section 25A, it is a defence for him to prove that he intended to disclose his knowledge or suspicion and that there is a reasonable excuse for his failure to do so (Section 25(2).

If a person deals with property in contravention of Section 25(1) and subsequently makes a disclosure in accordance with Section 25A, he has not committed the offence dealing if the disclosure is made on his initiative and as soon as it is reasonable for him to do so (Section 25A(2) (b)).

Furthermore, a person may deal with proceeds after having made a disclosure if this is done with the consent of an authorised officer (Section 25A (2) (a)).

Tipping off

Under Section 25A (5) DTRPO it is an offence for a person who knows or suspects that a disclosure has been made under Section 25A(1) to disclose to any other person any matter which is likely to prejudice any criminal investigation conducted following the primary disclosure.

The maximum penalties for the offence of tipping off are a fine up to HK$500,000 and three years imprisonment.

It is a defence for the person accused of tipping off to prove that he did not know that his disclosure was likely to be prejudicial to a criminal investigation or to prove that he had lawful authority or a reasonable excuse for making that disclosure.

CLIENTS IDENTIFICATION AND VERIFICATION

The Law Society of Hong Kong has implemented a new measure, effective 1 July 2008, which imposes increased due diligence requirements for lawyers. The measure requires lawyers to obtain client and beneficial owner identification information prior to undertaking any transactions. The amount of information required may depend on the nature of the transaction. 1

The SFC Revised Note recommends a systemic approach to identifying suspicious transactions, involving the following four steps:

Step One: Recognition of a suspicious financial activity indicator or indicators
Step Two: Appropriate questioning of the customer
Step Three: Review of information already known about the customer in deciding if the apparently suspicious activity is to be expected from the customer, and
Step Four: Consideration of the first three steps to make a subjective decision on whether the customer’s financial activity is genuinely suspicious.

The four steps are outlined in more detail in Appendix C of the Revised Note. Appendix D gives a sample form that may be used when making a suspicious transaction report to the JFIU and Appendix E gives the appropriate contact details for making a report.

LAWYERS PROSECUTED FOR MONEY LAUNDERING OFFENCES

One barrister was arrested by the Organised Crime and Triad Bureau (the ‘OCTB’) of the Hong Kong police on 14th March 2002. At the time of the arrest, the barrister was in contravention of Section 25A(1)(a) of the OSCO. However, Judge Hartman in his judgement stated that the arrest was unlawful.

HAS THE FINANCIAL ACTION TASK FORCE (FATF) CONDUCTED A MUTUAL EVALUATION OF THIS COUNTRY, AND, IF SO, WHAT WERE THE FINDINGS CONCERNING LAWYERS’ COMPLIANCE WITH THE FATF 40+9 RECOMMENDATIONS?

The FATF released the Executive Summary of its Mutual Evaluation Report on Hong Kong on 1 July 2008. The summary specifically noted the weak or non-existent nature of Hong Kong’s regulations with regard to designated non-financial businesses and professions (“DNFBP”), which includes legal professionals, and categorized Hong Kong’s regulation of the sector as “Non Compliant.” It also highlighted the relative lack of suspicious transaction reporting by DNFBP’s, which the report notes may be an indication that the reporting system lacks effectiveness.

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Sources

Joint Financial Intelligence Unit (JFIU)

Securities and Futures Commission (SFC)

Law Society of Hong Kong, Press Release: A New Measure by the Law Society of Hong Kong to Fulfill International Obligations to Combat Money Laundering, 23 June 2008.