26 September 2001
The Chief Executive
All authorized institutions
Dear Sir/Madam,
Prevention of Money Laundering
Events of the last two weeks have led to a greater focus on the international fight against money laundering.
Hong Kong has a very good international reputation in respect of its anti-money laundering efforts, which are recognised by international bodies such as the Financial Action Task Force on Money Laundering. Equally, there are always improvements that can be made, and the HKMA will be reviewing how the policies and procedures to deal with money laundering in Hong Kong can be enhanced, taking into account both international and domestic developments.
In the meantime, authorized institutions ("AIs") should be particularly vigilant to detect accounts and transactions which may be related to possible terrorist activities. The HKMA will do its best to provide, or draw attention to, information which will assist in this effort.
AIs should, however, be equally careful to ensure that they do not become involved in other types of money laundering either by accident or through the possible collusion of their staff.
The surest way to avoid such involvement is through the strict application of "know your customer" principles. While this may seem an obvious point, it is fundamental to the fight against money laundering.
This means that AIs should obtain satisfactory evidence of the identity and legal existence of persons applying to do business with them on the basis of reliable documents or other sources. It is also essential to understand the business of customers (including particularly those who may have significant cash transactions) in order to establish that transactions passing into and out of accounts are consistent with the nature and scale of the underlying business of the companies concerned.
However, while a close focus on cash transactions is clearly essential, AIs should not disregard other means of funds transfer. In particular, transfers passing through temporary accounts such as suspense accounts and account payable accounts should be properly authorised and regularly checked.
Suspicious transactions should be reported promptly to the Joint Financial Intelligence Unit (JFIU). If necessary, feedback should be sought from the JFIU on the progress of an investigation. Where fresh suspicions in relation to transactions over a particular account arise after an initial report, AIs should make a further report to the JFIU in respect of such transactions.
AIs should ensure that internal audits or inspections of individual branches pay close attention to the effective operation of controls against money laundering and that proper checks and balances are in place. Senior management should also commission regular reviews (at least annually) to check compliance with the HKMA's Guideline on Prevention of Money Laundering. The terms of reference and conclusions of such reviews should be documented for the HKMA's reference if necessary.
AIs should bear in mind the consequences that can arise from failure to take appropriate measures to combat money laundering:
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individual members of management and staff can lay themselves open to criminal prosecution;
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the HKMA may conclude that the chief executive or one or more directors of the AI concerned are no longer fit and proper to hold their positions. Moreover, depending on the particular circumstances, the HKMA may, in the worst case scenario, come to the view that the AI engages in business practices which would be likely to prejudice the interests of Hong Kong as an international financial centre. You should be aware that this is a ground for revocation of the authorization of an AI under paragraph 20 of the Eighth Schedule to the Banking Ordinance;
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the reputation of the AI and of Hong Kong itself may be damaged.
I hope that we can rely on the cooperation of all AIs in Hong Kong in maintaining high standards in the fight against money laundering. The HKMA will be offering further guidance on this issue and will continue to follow up on implementation of its advice in the course of its normal supervision and through the use of targetted examination of individual AIs' controls against money laundering.
Please get in touch with your usual contact at the HKMA if you have any questions on the contents of this letter.
Yours faithfully,
(D T R Carse)
Deputy Chief Executive
