May 24, 2019

Hong Kong urges greater AML and KYC effort after Panama leak


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secrecy-640x410By Monira Matin From International Adviser

Banks and financial institutions in must “strictly comply” with existing money laundering laws requiring them to disclose the identities of their customers and what they intend to do with their money.

The move comes after the city was named the “top centre for secretive offshore financial services” in the leak earlier this month.
More than 11 million documents were leaked from Panamanian law firm Mossack Fonseca, revealing how individuals and companies set up offshore firms to avoid paying tax.
The centre for offshore advice
The leaked data, analysed by The International Consortium of Journalists (ICIJ), found 2,212 intermediaries in Hong Kong worked with Mossack Fonseca in offering to set up offshore shell companies for wealthy clients looking to shelter money – by far the highest in the world.
In a letter picked up by the local media, Hong Kong’s secretary for financial services and the treasury, professor Chan Ka-keung, said banks and other financial institutions must record their customer’s “objectives” and verify beneficial owners to tackle money laundering as outlined in the existing Anti-Money Laundering () and Know Your Customer () laws.
“Financial institutions must strictly comply with the requirements of customer due diligence and record keeping to ascertain the objectives and business information of customers and apply reasonable measures to identify and verify the beneficial owners of customers for mitigating the risk of money laundering and terrorist financing in accordance with the anti-money laundering and counter-terrorism legislation,” he said.
“Hong Kong has a role and responsibility to tell the international business community and foreign governments that Hong Kong is not a tax haven nor a centre for money laundering”.
The written statement was in response to questions posed by local lawmaker Kenneth Leung, who said that Hong Kong had “a role and responsibility to tell the international business community and foreign governments that Hong Kong is not a tax haven nor a centre for money laundering”.
However, Chan argued that setting up trusts in offshore tax havens was not illegal in Hong Kong.
“There is no law in Hong Kong prohibiting companies or commercial entities from setting up companies in jurisdictions outside Hong Kong,” he said.
Criminal investigations
Meanwhile, Chan also urged individuals and institutions to report any property or wealth obtained illegally by filing suspicious transaction report (STR) or by filing a complaint Joint Financial Intelligence Unit (JFIU).
New figures disclosed by the city’s legislative council showed the number of cases referred by the JFIU for criminal investigation soared to 42,500 last year, compared with 37,200 in 2014 – with the majority of cases reported by banks.
“Deliberate lack of due diligence”
Chan’s comments come as research by Accuity, a firm that provides sanctions screening software to banks and other financial institutions around the world, identified 24 wealthy individuals in Malaysia, China and Cambodia named in the Panama Papers for their links to tax evasion.
Of those identified, nine had been previously red-flagged for similar offences – a fact described by Accuity’s global head of strategic affairs, Henry Balani, as a “deliberate lack of due diligence” of some Asian financial centres.
“The reputation of these countries are subsequently damaged when these practices are exposed and high net worth individuals are affiliated with these countries,” he told International Advsier.
Increasing transparency
Last week, The South China Morning Post reported that former civil service minister Joseph Wong Wing-ping said Hong Kong had no choice but to follow the global trend to improve transparency as a result of the scandal.
The leak led to several nations announcing measures aimed at increasing transparency and tackling tax evasion.
A week after the scandal broke, British prime minister David Cameron revealed that all crown dependencies and overseas territories will now provide company ownership data to UK tax and law enforcement authorities. He also unveiled a new tax evasion law, making companies criminally liable for employees who aid tax evasion.
The Isle of Man and Gibraltar also joined Europe’s five largest economies — Germany, Britain, France, Italy and Spain — and 17 other jurisdictions in signing up to a confidential beneficial ownership register which would automatically share information on the ultimate owners of companies
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