Hong Kong Ramps Up Fight Against Money Laundering

Hong Kong is rebuffing its fight against money laundering as the threats of financial crimes escalate.

Hong Kong has long been known for good government and transparent finance, even if it lies in a region reportedly filled with corruption and illicit money transactions.

In a report that was published at the latter part of the previous month, Hong Kong rated its ability to ward off money-related crimes and illicit money flow as “medium-high,” attributing it to its strong legal system and political commitment to the issue, as well as the cooperation between the public and private sectors.

However, the openness to financial flows and the size of its banking system can also be considered as its vulnerabilities.

According to the government’s Hong Kong Money Laundering  and Terrorist Financing Risk Assessment Report, Hong Kong’s overall money laundering risk, threat, and vulnerability were rated “medium-high.” It added that the banking sector specifically faces “high” risk.

“We are alert to the fact that Hong Kong’s competitive advantages…could also make it attractive for criminals seeking to hide or move funds,” said Paul Chan, who is the financial secretary of Hong Kong, in the report.

According to the assessment, almost 200 banking institutions in Hong Kong had assets amounting to HK$22.7 trillion, or $2.89 trillion, by the end of 2017. This amount is nearly equivalent to nine times the size of the Hong Kong economy. This also highlights the important of finance to Hong Kong.

Keith Williamson is the managing director and head of disputes and investigations in Hong Kong and China for Alvarez & Marsal, a turnaround firm. Williamson said that authorities must keep the balance between the need for openness and accessibility and the regulation that is tight enough to discourage, and possibly deter, money launderers.

“It’s a difficult balancing act to perform,” said Williamson, who is known as an expert in forensic and investigative accounting.

Meanwhile, the so-called “suspicious transaction” reports have grown three times in the five years to 2017. This is partly due to the ramped-up monitoring, plus improved compliance since the implementation of local ordinance against money laundering and terrorist financing in 2012.

The report described the growth as a “challenge,” while analysts generally agree that the system is facing tougher difficulties.

Angus Young gives authorities high marks for the implementation of the anti-money laundering legislation and for their awareness of the so-called challenge. Young is a specialist in regulation, governance, and compliance. He also teaches at Hong Kong Baptist University.

However, Hong Kong still suffers from the lack of qualified specialists, specifically at non-banks like local securities firms and at regulators who are skilled in analyzing complex transactions in the wake of stricter compliance and risk requirements, according to Young.

The combination of the inadequacy to qualified specialist and the general weaknesses in compliance and training makes Hong Kong in a “vulnerable” state,” said Young.

“What I feel is that it underrepresents the true possibility of financial crimes, especially anti-money laundering,” Young said, referring to the government assessment.

He also added that while the move to profile money launderers can be successful, these people’s ability to adapt to and circumvent the system can also improve.

“So it’s basically like an air bubble under the carpet. Once you press down on one side of the carpet the air bubble moves to the other,” said Young to describe the situation.

On the other hand, the report also said that issues regarding terrorist financing are less of a concern. It described Hong Kong on this field at a “medium-low” risk level.

The report came in ahead of a visit by the Financial Action Task Force, a Paris-based global standard bearer for fighting money laundering and terrorist financing. The visit is planned for the latter part of this year.

In recent years, the United States has called for a stronger global initiative against money laundering and terror financing. It has also used sanctions and penalties to that end, said Williamson. This has caused governments to strengthen their financial defenses.

“So I don’t think it’s just a local reaction to the challenges that there are here,” he said referring to Hong Kong’s stand. “It’s clearly in line as well with an increased regulatory regime around this globally.”

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