7. Hong Kong
Hong Kong has been a member of the FATF since 1991.
Chinese authorities are cracking down on both legal and illegal methods of capital outflows. One popular method of illegal outflows is to smuggle cash out of China into Hong Kong through ‘smurfing’ and then exchange or transfer this cash with money changers. Hong Kong authorities have already called for enhanced suspicious transaction monitoring efforts.
However, Quartz reported that $175 billion left China through Hong Kong in the first quarter of 2016 compared to $165 million in the first quarter of 2015. Methods include fake invoicing and insurance as both foreign and domestic capital flee China as the anti-corruption drives intensifies amid slowing economic growth.
Noted US-based Brookings Institute testified before Congress on China’s economy on 27 April 2016 starting that ‘Money laundering and capital flight also go hand in hand’.
The Custom and Excise Department had updated its guidelines for the pecuniary penalty for money changers on April 2016, and the commendable part is that they do not seek to bankrupt the money changers with their pecuniary penalties. The drawback is that the April 2016 guidelines removed the maximum fine limit of three times the profit earned illegally as seen in the June 2012 guidelines.
In other words, Hong Kong money changers have to face greater financial risk for each offense, stopping just short of bankruptcy. This is Hong Kong’s method of turning up the heat after capital outflows hit a record high. It would not be surprising if the authorities pushed the punishments up another notch if the economy weakens further and anxious investors pulled their capital out through both legal and illegal means.
Part 1 defines money laundering as
And terrorism financing is defined as
(a) the provision or collection, by any means, directly or indirectly, of any property— (Amended 20 of 2012 s. 12) (i) with the intention that the property be used; or (ii) knowing that the property will be used, in whole or in part, to commit one or more terrorist acts (whether or not the property is actually so used); (Amended 20 of 2012 s. 12)
(b) the making available of any property or financial (or related) services, by any means, directly or indirectly, to or for the benefit of a person knowing that, or being reckless as to whether, the person is a terrorist or ter rorist associate; or (Amended 20 of 2012 s. 12)
(c) the collection of property or solicitation of financial (or related) services, by any means, directly or indirectly, for the benefit of a person knowing that, or being reck less as to whether, the person is a terrorist or terrorist associate. (Added 20 of 2012 s. 12)
Part 2 identifies Hong Kong money changers as a financial institution:
Section 6 lays out the penalty for money changers if they fail to comply with the law:
(a) on conviction on indictment to a fine of $1000000 and to imprisonment for 7 years; or
(b) on summary conviction to a fine of $500000 and to imprisonment for 1 year
Hence, Hong Kong money changers have to screen their clients properly to avoid the stiff penalty of 7 years jail and fine of HKD$1,000,000. A good investment in a proper commercial screening tool would address such concerns.