HONG KONG STRENGTHENING MONEY LAUNDERING STATUTES

UNCLAS SECTION 01 OF 02 HONG KONG 000462 SENSITIVE SIPDIS STATE FOR EAP/CM E.O. 12958: N/A TAGS: ECON EFIN HK SUBJECT: HONG KONG STRENGTHENING MONEY LAUNDERING STATUTES REF: HONG KONG 289 ¶1. (SBU) Summary. Hong Kong's three financial regulatory agencies (the Hong Kong Monetary Authority, the Securities and Futures Commission and the Office of the Commissioner of Insurance) told Embassy Beijing Deputy Treasury Attache Jean Paul Duvivier on February 25 that Hong Kong's Financial Services and Treasury Bureau is drafting anti-money laundering (AML) legislation to provide statutory backing for AML guidelines issued by each agency (reftel). The regulators told Duvivier that their current AML guidelines are effective, but acknowledged that during Hong Kong's 2007 Mutual Evaluation, the Financial Action Task Force (FATF) recommended Hong Kong pass legislation to strengthen its AML regime. The three regulators provide AML training to their industry groups. They also rely on the banks, securities firms and insurance agencies to conduct their own industry and in-house training as well as to stay current on the existing guidelines and be conscientious. All three regulators welcome U.S. Treasury Department training/guidance both for the regulatory agencies themselves and for the banking, securities and insurance industry groups on AML issues. End Summary. ¶2. (SBU) Embassy Beijing Deputy Treasury Attache Jean Paul Duvivier met with Hong Kong's Securities and Futures Commission (SFC),the Office of the Commissioner of Insurance (OCI) and the Hong Kong Monetary Authority (HKMA) on February 25 to discuss anti-money laundering/counterterrorism finance (AML/CFT) compliance issues. Duvivier also explained the U.S. Department of Treasury's Office of Terrorism and Financial Intelligence priorities and programs (targeted financial sanctions, Patriot Act Section 311 actions and advisory bulletins). ¶3. (SBU) The SFC's Senior Director for Intermediate Supervision Stephen Po told Duvivier that the SFC licensed approximately 1,500 securities firms operating in Hong Kong, including 700 broker/dealers, 200 futures brokers, with the remainder being fund managers and advisors. Assistant Commissioner of Insurance Carol Hui stated that OCI licensed 174 insurance firms in Hong Kong, of which 47 are life insurance companies, the 10 largest controlling 80% of Hong Kong's market. HKMA's Head of Banking Policy Division Raymond Chan said that HKMA oversees over 200 firms in three categories - licensed banks, restricted license banks and deposit taking companies. ¶4. (SBU) Each agency currently issues AML guidelines for its sector. The Financial Action Task Force during its 2007 Mutual Evaluation of Hong Kong cited Hong Kong's lack of legislative backing for these agency AML guidelines as a weakness. Hong Kong's Financial Services and Treasury Bureau is drafting AML legislation to provide statutory backing, which it hopes to have passed into law by mid 2010. Additionally, Hong Kong is crafting AML regulations to cover non-financial businesses and professions, such as lawyers and accountants. Hong Kong is also working with other FATF members to establish an objective definition of "equivalent jurisdiction." All three regulators provide industry training, but also rely on the banks, securities firms and insurance agencies to conduct their own industry and in-house training as well as to stay current on the existing guidelines and be conscientious. They welcome U.S. Treasury Department training/guidance both to the regulatory agencies and banking, securities and insurance industry groups on AML. ¶5. (SBU) HKMA noted that it had revoked the license of one or two banks for AML/CFT violations, most recently shutting down Banco Delta Asia's Hong Kong affiliate Delta Asia Credit. SFC and OCI officials said that they have not executed any AML cases over the past several years. HKMA, SFC and OCI maintain contact with Hong Kong's Joint Financial Intelligence Unit, the agency that conducts investigations based on Suspicious Transactions Reports and Suspicious Activities Reports. ¶6. (SBU) Duvivier inquired about HKMA's efforts to address trade-based money laundering (TBML) concerns. HKMA's Chan responded that TBML is very hard to detect; however, they are planning to do thematic bank exams on trade finance activities with eight to ten Hong Kong banks. HKMA will look for common deficiencies and best practices, using a HONG KONG 00000462 002 OF 002 risk-based approach. Risk levels can be determined by analyzing the client background, the banks involved and the nature of the goods, as part of due diligence procedures. In special circumstances a bank can demand to see the trade documents and/or products. ¶7. (SBU) HKMA's Chan commented that there is significant interaction between HKMA and mainland China's People's Bank of China (PBOC) and China's Banking Regulatory Commission (CBRC) on financial issues. On AML/CFT issues, however, Hong Kong and mainland China do not have much interaction outside of international plenaries. ¶8. (U) Deputy Attache' Duvivier cleared this message. DONOVAN