HONG KONG MONETARY AUTHORITY RESPONDS TO UNSCR 1718

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 004270

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/CM AND EB
TREASURY FOR OASIA GKEOPKE
STATE PASS USTR
USDOC FOR 4420
NSC FOR DWILDER/KTONG

E.O. 12958: DECL: 11/01/2016
TAGS: ECON EFIN PGOV HK CH
SUBJECT: HONG KONG MONETARY AUTHORITY RESPONDS TO UNSCR 1718

REF: A. STATE 172816


B. HONG KONG 4214

Classified By: E/P Chief Laurent Charbonnet for Reasons 1.4 (b, d).


1. (C) Summary: In a written response to Ref A demarche, the
Hong Kong Monetary Authority (HKMA) described the Hong Kong
Government's (HKG) process for implementing UN Security
Council Resolutions and detailed its efforts to monitor
financial institutions in Hong Kong to ensure that they have
implemented adequate controls against dealing with agents of
"high risk" or sensitive jurisdictions and entities. HKMA
also elaborated on the establishment of an Industry Working
Group to share and develop industry standards and share best
practices on how to prevent money laundering and terrorist
financing. The full HKMA text is included below. Septel
will report how other HKG departments with responsibility for
implementing UNSCR 1718 have described their ongoing
legislative and regulatory procedures for implementations.
End summary.


2. (C) Begin HKMA Text:

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The Hong Kong Monetary Authority (HKMA) is fully committed to
counter money laundering and terrorist financing activities
including facilitation of WMD and missile proliferation.

The HKSAR has a mechanism to implement relevant UNSCRs in
Hong Kong, including UNSCR #1718. In general, when an UNSCR
is unanimously adopted by all UNSCR members, the
Administration in Hong Kong will start preparations to draft
subsidiary legislation under the United Nations Sanctions
Ordinance for implementing the UNSCR. The draft subsidiary
legislation will be put forward to the Legislative Council.
The mechanism involves the enactment of subsidiary
legislation in Hong Kong upon receiving a directive from the
Central People,s Government. While the HKMA is not directly
involved in the legislation process, the HKMA will promptly
issue a circular to alert Authorized Institutions (AIs) upon
the passing of the new subsidiary legislation and require AIs
to act accordingly. This may include freezing the assets of
designated entities and refraining from the conduct of any
financial transactions with such entities, as appropriate.

In fact, even before the enactment of new subsidiary
legislation for the implementation of UNSCR 1718, the Weapons
of Mass Destruction (Control of Provision of Services)
Ordinance already prohibits the provision of financial
services to WMD proliferators. The HKMA reminds AIs from
time to time to exercise extra caution in deciding whether to
deal with high risk or sensitive jurisdictions and entities.
The HKMA also examines regularly the adequacy of individual
AIs, controls against dealing with such jurisdictions and
entities.

Industry Working Group
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To help deal with money laundering and terrorist financing
issues from a practical perspective and reflect industry
concerns, the HKMA coordinated the establishment of an
Industry Working Group (IWG) in June 2006, which includes
representatives of some 20 AIs. So far the IWG has met
twice. The first IWG meeting (held in June 2006) led to the
formation of three user sub-groups to respectively consider:

- Specific issues relating to the application of customer due
diligence (CDD)to non-retail accounts (e.g. checking of
politically exposed persons and CDD on private banking and
trust accounts);

- General issues relating to the CDD process and other CDD
issues affecting retail banking operations (e.g. application
of risk-based approach and CDD on existing accounts); and

- Issues relating to the detection and monitoring of specific
types of banking transactions (e.g. correspondent banking,
terrorist financing and design of management information
systems for transaction monitoring).

The user sub-groups, consisting mainly of industry

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representatives, are responsible for studying the above
issues with a view to promoting and developing industry
standards and best practices. The user sub-group will update
the IWG on their work progress from time to time, and where
appropriate make recommendations via the IWG to the HKMA on
the relevant issues.

Other initiatives relating to prevention of money laundering
and terrorist financing:

Apart from those mentioned above, the HKMA has taken various
initiatives to further strengthen the controls of the banking
industry in this regard. In particular,

Circulars: The HKMA issued a circular on 25 September 2006
to remind AIs to take stringent measures to prevent the
transfer of financial resources for WMD proliferators. AIs
need to draw reference from the relevant designations by
overseas authorities, including the US Executive Order 13382
list, for identifying suspicious entities that may pose
higher risk to AIs in this regard. A circular was also
issued in November 2005 clarifying the HKMA,s supervisory
standard in this area and reminding AIs to take preventive
measures against WMD financing. In addition, the HKMA issued
a circular to AIs on 6 October 2006 setting out a framework
for formalizing the use of supervisory measures for effective
enforcement of the HKMA,s regulatory standards in this area;

Executive Briefing: The HKMA conducted two Executive
Briefing Sessions on 27 September 2006 to remind senior
executives of AIs to remain vigilant on money laundering and
terrorist financing issues and challenges, as well as guard
against WMD financing. In particular, the need for enhanced
scrutiny of business transactions against countries and
entities of higher money laundering/terrorist financing risk
was re-iterated;

FATF Special Recommendation (SR) VII: The HKMA consulted the
industry in the June 2006 on proposed amendments to the
HKMA,s guidelines regarding the FATF,s latest revision of
SR VII, which requires the ordering bank in a remittance
transaction to include some basic originator information
(e.g. date of birth, address) in the remittance message
starting form 2007; and

Supervision of AIs' Control: The HKMA has continued to
conduct tier-1 (general) and tier-2 (in-depth) examinations
of AIs on controls against money laundering and terrorist
financing, as well as related thematic examinations on
high-risk areas including correspondent banking and private
banking. The HKMA is also implementing a risk profiling
process for assessing AIs, inherent risks in this regard
(i.e. analyses of AIs, customers, product and geographical
locations etc.) and their risk mitigating controls, for
prioritizing the HKMA,s supervisory efforts in this area.

End HKMA Text.

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Cunningham