HKMA tipped to step up AML enforcement

A wave of anti-money laundering (AML) actions is expected this year against financial institutions in Hong Kong as their regulator finally imposes sanctions under an unused ordinance, said consultancy EY.

Such a move by the Hong Kong Monetary Authority would be a new approach for tackling money-laundering cases in the city because law enforcement authorities’ standard approach has been to view such cases as criminal issues.

This had led prosecutors to invoke other ordinances such as the organised and serious crimes ordinance (Osco) or the drug trafficking recovery of proceeds (DTROP) ordinance.

But EY expects this year to be the first time that sanctions could be imposed on financial institutions under the anti-money laundering ordinance enacted in 2012. The AMLO, unlike the laws mentioned above, deals with regulatory issues, such as customer due diligence and record-keeping.

Retail banks are in the spotlight above all in this regard, but buy-side firms including fund managers and private banks have told AsianInvestor that AML will be a major focus for them this year.

The ordinance, which empowers the HKMA to impose sanctions ranging from a public reprimand to a HK$10 million ($1.29 million) fine, comes at a time when the city’s financial institutions have made global headlines over shortcomings, noted EY.

Most noticeable have been incidences where Hong Kong has been linked to money-laundering, such as Standard Chartered’s $300 million fine last August by the New York State Department of Financial Services.

“The HKMA is looking at how the industry should be stepping up in terms of [preventing money laundering], which is pretty much in line with the global landscape,” said Manhim Yu, partner for fraud investigation and dispute services at EY. “The trend is telling that there is increasing scrutiny by regulators as well as enforcement actions across the whole industry [by the HKMA]."

Most enforcement actions are resulting from criminal investigations, so the government and prosecution are relying on Osco as well as DTROP, but not on AMLO, said Yu. “So we see that HKMA is stressing that they will increase the chance of using AMLO to investigate some possible enforcement actions.”

This comes at a time when the Hong Kong government will be keen to improve the mediocre score it received in 2008 from the Financial Action Task related to the compliance level of its financial institutions. The intergovernmental body is expected to arrive in the city for its next on-site visit this coming March or April.

Hong Kong has also seen a fast-increasing number of potential money-laundering cases. By the end of 2014, an estimated 38,000 reports of suspicious transactions were filed to law enforcement authorities, more than doubling the 16,000 reported cases from 2009.

What the city’s banking watchdog will be most focused on under the ordinance will be to ascertain whether senior management have sufficient knowledge of their own compliance set-up and whether there is enough resources and manpower invested in their own internal system and processes, Yu noted.

Asked about EY’s predictions, an HKMA spokesperson declined to comment directly on the AMLO issue. He said: “The Anti-Money Laundering and Counter-Terrorist (Financial Institutions) Ordinance came into effect in April 2012, since when financial institutions have been required to comply with the customer due diligence and record-keeping stipulated therein.

“Due to its characteristics, it is widely recognised by financial regulators that private banking can represent an increased risk of money laundering. The risk in Hong Kong is no different from other international financial centres.”