Measures to combat money laundering and terrorist financing

The establishment of a banking industry working group on anti-money laundering and counter-terrorist financing (AML/CFT) issues reflects a strong determination to guard against the abuse of Hong Kong's banking system.

There is a long history of close co-operation between the authorities and the banking industry in Hong Kong on AML/CFT issues. The most recent substantial revision of the Guidelines for authorized institutions on AML/CFT was undertaken in 2004 in collaboration with an Industry Forum comprising representatives of the HKMA, the Hong Kong Association of Banks and the DTC Association. Having the industry closely involved in the development of the Guidelines helped ensure that the Guidelines, and the Interpretative Notes issued with them, were practical, and gave clear guidance on implementing the requirements. It also helped ensure strong support from the industry for the new requirements - which is important since AML/CFT compliance costs the industry a lot of money.

The 2004 revision of the Guidelines, which put into effect the Forty Recommendations updated in June 2003 by the Financial Action Task Force on Money Laundering (FATF - established by the G-7 Summit in 1989), was notable because it made Hong Kong one of the first jurisdictions in the world to adopt the new and tougher AML/CFT standards.

But things have moved on since 2004. The focus on AML/CFT has shifted very much towards terrorist financing, given the rising concern about the activities of terrorists internationally, including the possible proliferation of weapons of mass destruction. At the same time, the techniques that money launderers and terrorists use to disguise their financial activities have become more innovative and sophisticated, making it necessary for the authorities and the financial institutions to strengthen their awareness of new methods for laundering money and upgrade their AML/CFT systems and controls.

To help deal with the very difficult AML/CFT issues from a practical perspective, and reflect business needs, the HKMA has recently co-ordinated the establishment of an Industry Working Group on AML/CFT, which includes representatives of some 20 authorized institutions. The Group has met twice, and three user sub-groups have been established to share experiences and consider the way forward on particular areas such as the so-called "PEPs" (politically exposed persons), terrorist financing, transaction monitoring systems and private banking issues.

The HKMA is also taking a number of initiatives to reinforce the focus on AML/CFT issues, including issuing circulars and guidance to authorized institutions on combating the financing of weapons of mass destruction, conducting in-depth examinations of institutions's AML/CFT controls, and setting out the practices expected in high-risk areas such as correspondent banking, private banking and remittances.

Occasionally, the AML/CFT measures that need to be introduced may cause some inconvenience to bona-fide customers. For example, customers may be asked to provide copies of identification documents or answer questions. While efforts are made to keep such inconvenience to a minimum, customers should understand that this is a necessary part of the AML/CFT process, and is being done to deter criminals, money launderers and terrorists, and to keep the Hong Kong banking system clean.

Realistically, nobody can guarantee that illegal funds, or funds destined for illegal purposes, will never pass through the local banking system. But a lot can be and is being done to make it more difficult and to maximise our chances of detecting it. Hong Kong has a good reputation for addressing AML/CFT issues. The authorities and the banking industry will continue to work closely together in this important area.

Simon Topping
19 October 2006

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