AML in Hong Kong

Since the 1970s, Hong Kong has emerged as a significant source of financial and other services, contributing to the rapid and sustainable economic growth witnessed in Asia-Pacific countries. This growth has been fueled by industrial investments, industrialization, and foreign direct capital investments. Hong Kong has evolved into a hub for trade, transportation, and communication, connecting various parts of the world and serving as a regional focal point.

The favorable economic environment in Hong Kong has attracted foreign investors seeking to meet the financing needs of Asia-Pacific countries, as well as those desiring to provide various services and make direct capital investments in these nations. Over the past decade, Hong Kong’s financial markets have played a crucial role in the endeavors of regional countries to internationalize their financial systems. International financial institutions continue to establish a presence in Hong Kong, facilitating the exchange of products and services between the international financial markets in Hong Kong and those of countries in the region.

Similar to regions and countries worldwide, Hong Kong encounters threats related to money laundering and terrorist financing. Financial crimes have significant adverse impacts on financial systems. As a prominent financial center, Hong Kong has implemented effective AML laws and regulations to combat such illicit activities. Several legislations are in place in Hong Kong to address financial crime, including the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP), the Organized and Serious Crimes Ordinance (OSCO), the United Nations (Anti-Terrorism Measures) Ordinance (UNATMO), and the United Nations Sanctions Ordinance (UNSO). These laws have been established by the Hong Kong Financial Regulator to strengthen the AML framework and protect the integrity of the financial system.

Banks, financial institutions, insurance agents, and accounting firms operating in Hong Kong are required to comply with AML regulations and fulfill their AML obligations. These obligations encompass various measures, including “Customer Due Diligence” and “Record Keeping”. Customer Due Diligence procedures serve as controls that companies must implement when establishing a business relationship with a customer. These procedures involve conducting a risk assessment on the customer. To perform a customer risk assessment, companies first apply Know Your Customer procedures and gather relevant customer information. Once the accuracy of the customer information has been verified, the implementation of Customer Due Diligence procedures commences.

As part of the risk assessment controls, companies are required to conduct sanction, politically exposed persons (PEP), and adverse media screenings. Individuals mentioned in sanction, PEP, and adverse media databases represent high-risk customer profiles for companies. Therefore, companies must conduct checks against these databases before establishing a business relationship with a customer. Additionally, if any suspicious activity by customers is identified within financial institutions, these institutions are obligated to report such transactions through a suspicious transaction report in Hong Kong.