Source: 2000
Released by the Bureau for International Narcotics and Law Enforcement Affairs
Hong Kong's law-enforcement efforts and the extensive development of port facilities in the People's Republic of China (PRC) have diminished Hong Kong's role as a narcotics transshipment/transit point. Hong Kong adopts a multi-pronged strategy to combat drug trafficking and abuse, covering legislation and law enforcement, treatment and rehabilitation, preventive education, research, and international cooperation. In November 2000 Hong Kong was removed from the U.S. Majors List of drug-transit points and downgraded to a country/economy of concern. The 1988 UN Drug Convention, to which the PRC is a party, applies to Hong Kong.
Hong Kong's position as a key port city in close proximity to the Golden Triangle and the PRC historically made it a natural transit point for drugs moving from Southeast Asia to international markets, including the United States. In recent years, however, Hong Kong's law-enforcement efforts coupled with rapid development of modern port facilities in southern China have reduced Hong Kong's role as a major narcotics transit center. Because no seizures of heroin transiting Hong Kong and destined for the United States had occurred since 1996 and because drug-transit patterns have shifted to ports in southern China, the U.S. removed Hong Kong from the Majors List of drug-transit points in 2000. Hong Kong law-enforcement officials continue to maintain a cooperative liaison relationship with U.S. counterparts on narcotics and related criminal activities.
The number of drug addicts in Hong Kong increased by 3.1 percent in the first half of 2000 to 10,607 from 10,291 in the second half of 1999. The slight increase was mainly due to the upward trend in abuse of psychotropic substances, such as ecstasy and ketamine. The number of registered abusers of these two substances rose sharply in the first half of 2000 to 1,518 compared to 296 in the second half of 1999. Heroin, used by 78.9 percent of all drug abusers, remains the most commonly reported drug of abuse in Hong Kong.
Policy Initiatives. In response to a decision by the United Nations Commission on Narcotics and Drugs to tighten control on remifentanil and dihydroetorphin in March of 2000, Hong Kong in May 2000 upgraded the two substances to Schedule 1 of the "Dangerous Drugs Ordinance." In light of the rapid increase in the number of reported ketamine abusers, ketamine was upgraded to Schedule 1 in December 2000.
The Hong Kong government, through the Control of Chemicals Ordinance, tightly controls the licensing of 24 chemicals that can be used as precursor chemicals in drug production. This ordinance allows the government to suspend the license of any applicants suspected of false representation and to seize any chemicals in the suspect's possession. In response to the UN's resolution on tightening control of norephedrine, norephedrine was placed on Schedule 2 of the Control of Chemicals Ordinance.
A new bill centralizing and standardizing the licensing of drug treatment and rehabilitation centers was introduced in the Hong Kong legislature in November 2000. The purpose of the new bill is to improve the quality of service and to protect patients' rights. Once the bill is passed, the Social Welfare Department of the Hong Kong government will be the sole authority for licensing drug treatment and rehabilitation centers throughout Hong Kong.
Law Enforcement Efforts. The Hong Kong law-enforcement agencies have continued to use a multifaceted strategy to inhibit the distribution of illicit drugs. With respect to traditional heroin distribution, the Hong Kong police have adopted a three-tier approach. At the headquarters level, the Narcotics Bureau targets domestic and international drug trafficking and high-level traffickers. The regional police force focuses on trafficking across police district boundaries. At the district level, the police aim to eradicate street-level distribution. Hong Kong works closely and cooperatively with U.S. law-enforcement agencies.
The evidence suggests that the passage of illicit drugs through Hong Kong destined for foreign markets has diminished. The vast majority of drugs reaching Hong Kong supply the domestic market. The Narcotics Bureau of the Hong Kong police concentrates on both aspects of the problem, international trafficking and domestic trafficking. The Narcotics Bureau cooperates with the PRC, Canada, Australia, the U.S., and countries throughout Southeast Asia. However, its resources are primarily focused on syndicates involved in the supply and distribution of drugs in the Hong Kong domestic market.
In 2000 the Hong Kong Customs and Excise Department continued to take a proactive approach toward drug trafficking at all levels through intelligence-based operations and international cooperation. The department's counternarcotics budget was increased by 10.5 percent in 2000 over 1999. Also, two additional patrol boats were commissioned in 2000 to strengthen maritime capabilities. Plans for future improvements include an enhanced drug-detecting canine unit, installation of two state-of-the-art vehicle x-ray scanning systems at container ports, acquisition of ion scanners, and narcotics and explosive detectors. A team of 280 investigators from the Customs Drug Investigation Bureau work around-the-clock on covert investigations of narcotics importation, manufacturing, and distribution.
According to the government's Narcotics Division, Hong Kong authorities seized 376.4 kilograms of heroin between January and October 2000, an increase from the 287.5 kilograms of heroin seized in 1999 and the 209.4 kilograms of heroin seized in 1998. From January through October, counternarcotics authorities seized 219.52 kilograms of cannabis, a significant increase over the 35.8 kilograms seized in 1999, but notably less than the 585.1 kilograms seized in 1998. Seizures of cocaine totaled 10.67 kilograms through October 2000, on par with the seizure of 16.7 kilograms in 1999, and well below the total of 167.7 kilograms seized in 1998. Authorities seized 89.97 kilograms of methamphetamines between January and October 2000, compared to 102.1 kilograms seized in 1999 and 232.7 kilograms seized in 1998.
Hong Kong law-enforcement agents made a total of 7,254 drug-related arrests between January and September 2000, compared to 8,733 arrests in 1999 and 10,773 arrests in 1998. They arrested 3,681 persons on heroin-related charges, compared to 5,641 arrests in 1999 and 7,086 arrests in 1998. They also arrested 2,334 persons on charges relating to psychotropic drugs, compared to 2,660 such arrests in 1999 and 3,151 arrests in 1998.
Corruption. There is no known narcotics-related corruption among senior government or law-enforcement officials. Hong Kong has a comprehensive anticorruption ordinance that is effectively enforced by the Independent Commission Against Corruption (ICAC), which reports directly to the chief executive.
Asset Forfeiture. Under the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP) and the Organized and Serious Crime Ordinance (OSCO) a court may issue a restraint order against a defendant's property at or near the time criminal proceedings are instituted. The property includes money, goods, real property, and instruments of crime. A court may issue production orders and search warrants for investigations of drug trafficking and money laundering and confiscate the value of a defendant's proceeds of illicit activities. Cash connected to drug trafficking that is imported into or exported from Hong Kong may be seized, and a court may order its forfeiture. The government has proposed to the legislature amendments to the restraint and confiscation provisions of the DTROP and OSCO. The proposed amendments would streamline the confiscation procedures and add a penal provision for those who contravene court-ordered restraint orders. Hong Kong does not have a civil forfeiture system. There is no express provision in Hong Kong law that provides for sharing confiscated assets with foreign jurisdictions. The law does allow for the assets confiscated from an external confiscation order to be put in a special account that enables sharing of assets. There is an administrative measure in place for the consideration on a case-by-case basis of asset sharing requests from foreign jurisdictions.
Agreements and Treaties. Hong Kong has Mutual Legal Assistance Agreements with the U.S., Australia, France, the United Kingdom, New Zealand, Italy, the Republic of Korea, and Switzerland. In addition, agreements are currently under discussion with Portugal, Canada, the Philippines, Israel, and India. Hong Kong has also signed Surrender of Fugitive Offenders Agreements with 12 countries, including the U.S., and Transfer of Sentenced Persons Agreements with three countries, including the U.S.
Hong Kong actively cooperates with international organizations, such as the UN, the World Health Organization (WHO), the World Customs Organization (WCO), and the Financial Action Task Force (FATF) on drug-related issues. The Hong Kong government continues to seek cooperation with other countries, even in the absence of bilateral agreements. For example, in 2000 Hong Kong law-enforcement agencies provided operational intelligence on drug trafficking, money laundering, and control of precursor chemicals to their overseas counterparts through law-enforcement liaison channels. Hong Kong also provided assistance to over 140 countries on restraint and confiscation of proceeds from drug trafficking.
Cultivation and Production. Hong Kong is not a producer of illicit narcotics.
Drug Flow/Transit. Although illicit narcotics continue to transit Hong Kong, the known volume of traffic has decreased significantly in the past few years. In 2000 there were no seizures in Hong Kong of drugs destined for the U.S. market. Nevertheless, Hong Kong traffickers, using Hong Kong as a base, continue to control large portions of Southeast Asian narcotics traffic, using various routes and means throughout the region.
In an effort to eradicate Hong Kong's role as a transport/transshipment point for illicit drugs, the Hong Kong government has developed a database of information on all cargoes, cross-border vehicles, and shipping. The Air Cargo Clearance System (ACCS), the Land Border System (LBS) and the Customs Control System (CSS) are all capable--at the click of a button--of processing information on all import and export cargoes, cross-border vehicles, and vessels.
Domestic Programs. In 2000 the Hong Kong government's preventive education policy continued to focus on youth and parents. In response to the sharp increase in psychotropic substance abuse in 2000, the government has initiated aggressive public awareness programs, including:
The government utilizes the existing education system to spread the antinarcotics message to Hong Kong's youth. In the first ten months of 2000, the Narcotics Division, in partnership with three non-governmental organizations, made antidrug educational presentations to 85,000 students in over 450 schools. In addition, over 60 lectures on the dangers of drug abuse were organized for parents, employees, and members of youth organizations. The Narcotics Division also provided funds to community organizations to spur antinarcotics awareness.
Policy Initiatives. U.S. law-enforcement officials continue to emphasize joint investigations with their counterparts in Hong Kong law enforcement to develop prosecutable cases--either in Hong Kong or in the U.S.--against major traffickers based in Hong Kong.
Hong Kong continues to be an active participant in U.S.-sponsored programs on narcotics and money laundering. In 2000, 35 Hong Kong officers participated in training courses at the U.S.-Thai International Law Enforcement Academy (ILEA) in Bangkok, Thailand. In 2000 the ILEA curriculum included specialized courses covering "International Controlled Deliveries and Investigations" and "Integrity and Corruption," among other topics, as well as three Supervisory Criminal Investigator Courses covering a wide range of narcotics and crime issues. Also in 2000 five Customs and Excise Department officials attended a training course on airport interdiction, "Operation Jetway," sponsored by the Drug Enforcement Administration. In September the Internal Revenue Service's Criminal Investigation Division supported the participation of two Hong Kong law-enforcement officials in training in the U.S. covering suspicious transactions and financial-crimes investigations.
The Road Ahead. The U.S. government will encourage Hong Kong to continue playing an active role in combating narcotics trafficking and related criminal activities consistent with its international stature. Although Hong Kong has been removed from this year's Majors List, the U.S. continues to emphasize the importance of close cooperation based on an open, mutual exchange of information between the Hong Kong and U.S. law-enforcement agencies to strengthen, enforce, and implement existing laws and guidelines.
Hong Kong is an important international financial center and is vulnerable to money laundering through its traditional banking, remittance, and money transfer networks, as well as through the offshore financial services it offers and its extensive underground banking system. Narcotics trafficking, fraud, illegal gambling and bookmaking, alien smuggling, and tax evasion generate much of the illicit proceeds that are laundered in Hong Kong. Hong Kong has developed a strong anti-money laundering regime and is a regional leader in the area of financial regulation and supervision.
Hong Kong's banking system is a three-tier system of deposit-taking institutions: licensed banks, restricted license banks, and deposit-taking companies. As of October 2000, the Hong Kong Monetary Authority (HKMA) regulated 267 financial institutions. The Insurance Authority and the Securities and Futures Commission regulate the insurance and securities industries, respectively. All three groups impose licensing requirements and conduct background checks on applicants.
Hong Kong's offshore services include exempt companies in the form of registered, private, limited companies (PLCs). These companies can be formed using nominee shareholders and directors, but cannot issue bearer shares. Hong Kong allows public access to registers of corporate directors, managers, and members, but does not require disclosure of beneficial owners of the more than 470,000 such companies. PLCs generally are not taxed or required to file tax returns because Hong Kong taxes only income earned in Hong Kong. The HKMA requires authorized financial institutions to obtain written statements from company formation agents certifying that they have recorded and retained information that identifies the source of funds.
In 1989, Hong Kong criminalized money laundering related to drug trafficking through the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP), and in 1994, criminalized money laundering related to indictable offenses through the Organized and Serious Crime Ordinance (OSCO). In 1995, the GOHK passed amendments to the OSCO and the DTRPO that require banks, non-bank financial institutions, and financial intermediaries, such as lawyers and accountants, to file suspicious transactions reports (STRs). New legislation came into force in 2000 that requires remittance and money transfers agents to maintain records and identify customers for cash transactions equal to or greater than US $2,500.
Hong Kong also has implemented regulations that require financial institutions to record the identities of customers, or the identities of the customers' legal nominee, and to release this information to authorities upon request. Financial institutions are required to maintain these records for a minimum of five to seven years and to report suspicious transactions to the Joint Financial Intelligence Unit (JFIU) for review and possible investigation. The JFIU is a member of the Egmont Group and is able to share information with its international counterparts. Hong Kong law provides that the filing of an STR shall not be regarded as a breach of restrictions imposed by contract or law on the disclosure of information. The JFIU provides periodic feedback to financial institutions on STRs that they have filed and also makes available to financial institutions trend reports and sanitized case histories.
In the first ten months of 2000, the banking sector filed 4,969 suspicious transactions reports, the securities sector filed 24, and the insurance sector filed 11. Through November 2000, Hong Kong had prosecuted 13 money-laundering cases. Hong Kong reports that it has not detected an increase in financial crimes over the past year and has found no indications of narcotics proceeds funding smuggling activities.
In November 2000, Hong Kong reintroduced to the legislature amendments to the DTROP and the OSCO that would reduce the threshold for filing STRs. Under current law, financial institutions must file an STR if there are reasonable grounds to believe that money laundering is taking place. The proposed amendment to the DTROP, however, would require banks to file an STR when there are reasonable grounds to suspect money laundering. The amendment also would increase the maximum penalties for money laundering from 14 to 20 years in prison and for failure to report suspicious transaction from 3 to 12 months in prison. Bankers and accountants have expressed some reservations about this legislation, but its prospects for passage without major change reportedly are good.
Hong Kong is a party to the 1988 UN Drug Convention. It is a member of the Asia/Pacific Group against Money Laundering (APG) and the FATF. Honk Kong will assume the FATF's presidency in 2001. Hong Kong also is a member of the Offshore Group of Banking Supervisors. In January 2000, Hong Kong's treaty on mutual legal assistance with the United States came into force. Hong Kong has signed similar agreements with Australia, France, United Kingdom, New Zealand, Italy, the Republic of Korea, and Switzerland. Hong Kong has initialed agreements on mutual legal assistance with Portugal, Canada, the Philippines, Israel, and India that will provide for the exchange of information for all serious crimes, including money laundering.
Hong Kong could further strengthen its anti-money-laundering regime by requiring financial institutions to report transactions that exceed specified large amounts and by putting into place measures that would help prevent structuring of deposits. Hong Kong also should establish cross-border currency reporting requirements and encourage increased suspicious transaction reporting in the securities and futures industry. Moreover, Hong Kong should tighten offshore company registration procedures to discourage formation of shell companies.