Hong Kong’s anti-money laundering moves will not work without due diligence from firms

Alain Esseiva says government proposals to introduce legislation to prevent illicit transactions are welcome, but proactive action and vigilance by financial services firms are the best safeguard

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The HSBC and Standard Chartered buildings stand illuminated in Central, the commercial heart of Hong Kong, on February 13. Hong Kong’s financial services firms must step up self-policing if the city is to continue to grow and compete with other jurisdictions. Photo: Bloomberg

Published: 11:21am, 31 May 2017Updated: 6:06pm, 31 May 2017

Recent proposals put forward by the Hong Kong government indicate the city’s determination to catch up with rival jurisdictions, and make money laundering harder to carry out. Keen to satisfy the Financial Action Task Force evaluation early next year, and remove any perception that Hong Kong is a hub for illicit money, the government proposes legislation to increase due diligence requirements for corporate service providers and trust companies.

This is timely: according to the Joint Financial Intelligence Unit, 59,730 reports of suspicious financial activity were reported in the first nine months last year, an average of 200 per day – the most the unit received in a single year since it was set up in 1989.

Legislation alone will not eradicate money laundering, as criminals and disreputable banks and service providers will find a way around it

However, the number of people convicted of money laundering fell from 145 in 2014 to 122 last year.

Earlier this year, the government put out a consultation paper that sought to increase customer due diligence and record-keeping requirements for certain non-financial businesses and professions. A “fit and proper” test and new licensing requirements were also suggested, to be overseen by the Registrar of Companies. As a result, measures have been proposed that would require all trust and corporate service providers in the city to be licensed, with stricter anti-money laundering guidelines put in place. Service providers will require a licence – it will be a criminal offence to operate without one – and companies will need to conduct more effective due diligence. This will put Hong Kong more in line with similar jurisdictions and is a positive move that will improve its credibility.

However, legislation alone will not eradicate money laundering, as criminals and disreputable banks and service providers will surely find a way around it. The answer, though, is not more regulation, but proactive action taken by the financial services firms themselves.

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This starts with education, specifically staff training. Money laundering is a complex process, often involving a web of companies, “middlemen” and numerous financial layers. Frontline staff need to be able to spot even the subtlest signs of illicit money and understand why this could lead to an offence. Technology plays a role here. Advances in robotic process automation (RPA) mean a lot of the repetitive, box-ticking work can be automated, freeing up time and resources for proper due diligence. RPA vendors are starting to incorporate artificial intelligence and computer vision capabilities, vastly increasing the amount of data that can be processed, making complex money laundering attempts easier to spot.