The fight against terrorist financing

Our Ref :

B10/1C

10 September 2002

To:

The Chief Executive
All Authorized Institutions

Dear Sir/Madam,

The fight against
terrorist financing

Since the 9/11 event a year ago there have been extensive calls
in the international community for financial institutions worldwide
to play a vigorous role in the fight against terrorist financing.
In this regard the Financial Action Task Force (FATF) issued
specific guidance on the detection of terrorist financing by
financial institutions in April this year. The HKMA has also from
time to time notified authorized institutions (AIs) of the lists of
terrorist suspects designated by various bodies to facilitate the
identification of suspicious accounts / transactions.

Action has been taken to implement in Hong Kong the various
United Nations resolutions against terrorism. These measures
include in particular the recent enactment of the United Nations
(Anti-Terrorism Measures) Ordinance, which makes financing of
terrorists a criminal offence and requires the reporting of
knowledge or suspicion of terrorist financing to the relevant
authorities.

Notwithstanding these efforts, it should be recognized that Hong
Kong is an international financial centre handling a large volume
of financial transactions on a daily basis. AIs therefore need to
keep up with and consistently apply the highest standards in
identifying suspicious accounts / transactions.

Against this background, it seems an opportune time for
institutions to take stock of the efforts that they have made to
combat terrorist financing over the last year, and to report on the
results of this review to the HKMA. We are therefore asking all AIs
to prepare a summary report on such efforts. This should
specifically address the following key issues:

1. Does your institution maintain a database of names and
   particulars of terrorist suspects which consolidates the various
   lists that have been published in Hong Kong and overseas¹ How timely is the process for updating the
   database?
2. To what extent is that database easily accessible by staff? Is
   it available to your overseas operations as well?
3. To what extent are the names of new customers checked
   against the database of terrorist suspects?
4. To what extent has your institution checked the names of existing customers
   against the database of terrorist suspects? What criteria were used
   for the purposes of this check?
5. To what extent has your institution checked to see whether
   existing customers conduct, or have conducted, business
   transactions with individuals or entities on the database of
   terrorist suspects? How was this check performed?
6. To what extent does your institution check the names of those
   parties involved in remittance transactions against the database of
   terrorist suspects? How is this performed?
7. Apart from the names of terrorist suspects that have been
   published in the various lists, has your institution established
   criteria for identifying customers that may pose higher risk from a
   terrorist financing point of view, e.g. in terms of where the
   customer comes from, where he does business, with whom he does
   business and how the account is operated?
8. Has your institution familiarised itself with the Guidance for
   Financial Institutions in Detecting Terrorist Financing published
   by the FATF which was copied to you in our circular of 7 June 2002?
   How have your staff been made aware of this?
9. Has your institution familiarised itself with its obligations
   and those of its staff under the anti-terrorism legislation in Hong
   Kong? In particular, how is your institution ensuring compliance
   with the newly enacted United Nations (Anti-Terrorism Measures)
   Ordinance?
10. Does your institution have arrangements in place to report
    suspicious transactions that may be associated with terrorist
    financing to the JFIU as well as the HKMA?

We are seeking as full a description as possible of the approach
that your institution has adopted in relation to these issues
rather than simply a yes/no answer. In some cases, institutions may
feel that, given the type of business they conduct and the type of
customers they have, the risk of involvement in terrorist financing
and money laundering in general is relatively low. Institutions are
free to reflect this in the replies they provide, but they should
note that a wide variety of institutions may be the conduit for
terrorist funds, and that terrorist financing may be difficult to
distinguish from seemingly conventional types of business
transaction. Institutions should not therefore automatically assume
that they are immune from risk.

We would be grateful if the chief executives of AIs would review
the report prior to submitting it to their institution's usual
contact in the Banking Supervision Department by 15 October 2002.
These contacts will also be available to answer any questions that
you may have on the contents of this letter.

Yours faithfully,

D T R Carse
Deputy Chief Executive

cc:

Narcotics Division (Attn: Mrs Clarie Lo)
Financial Services and the Treasury Bureau (Attn: Ms Kinnie
Wong)

¹ AIs should have particular regard to the lists of
terrorist suspects gazetted by the Hong Kong Government and the
lists of names designated under the US Executive Order dated 23
September 2001.