Source: 2001
Released by the Bureau for International Narcotics and Law Enforcement Affairs
Hong Kong's efficient law enforcement efforts, the availability of alternate transport routes, and the development of port facilities in southern China have diminished Hong Kong's role as a major transshipment/transit point for drugs destined for the United States and the international market. Traffickers continue to operate from Hong Kong, however, arranging for shipments from drug producing areas to such destinations as Australia and Canada. Hong Kong adopts a multi-pronged strategy in combating drug trafficking and abuse covering legislation and law enforcement, treatment and rehabilitation, preventive education, research, and international cooperation. Hong Kong plays an active role in international cooperation to combat illicit trafficking of narcotics drugs. In November 2000, Hong Kong was removed from the U.S. list of major illicit drug producing or major drug-transit points, although it remains a country/economy of concern to the United States. The 1988 UN Drug Convention, to which the PRC is a party, applies to Hong Kong.
Hong Kong's role as a key port city in close proximity to the Golden Triangle and Mainland China historically made it a natural transit/transshipment point for drugs moving from Southeast Asia to international markets, including the United States. In recent years, Hong Kong's law enforcement efforts and the rapid development of alternate transport facilities in southern China and other transport routes in Southeast Asia have reduced Hong Kong's role as a transit/transshipment center for narcotics. Nevertheless, limited amounts of drugs continue to transit Hong Kong to the United States and the international market.
Hong Kong law enforcement officials continue to maintain a cooperative liaison relationship with their U.S. counterparts on narcotics and related criminal activities. Hong Kong is not a producer of illicit drugs, and, according to Hong Kong authorities, drugs seized in Hong Kong are smuggled in mostly for local consumption.
The overall number of drug abusers in Hong Kong increased by 10.5 percent from the first half of 2000 (10,710) to the first half of 2001 (11,839). For persons aged 21 and under, an increase of 24.7 percent was recorded during the same period. The sharp increase was mainly driven by the upward trend of abuse in psychotropic substances, such as MDMA (ecstasy) and ketamine. Heroin, used by 71.8 percent of the registered abusers, remains the most commonly abused narcotic in Hong Kong.
Policy Initiatives. In response to a decision by the United Nations Commission on Narcotic Drugs to tighten control on gamma-hydroxybutyric acid (GHB) and 4-methylthioamphetamine (4-MTA), Hong Kong in October 2001 amended Schedule I of its Dangerous Drugs Ordinance to include these two substances. The Hong Kong government, under the guidance set out in the 1988 UN Drug Convention, tightly controls the licensing of 25 precursor chemicals through the Control of Chemicals Ordinance. This ordinance allows the government to suspend the license of any applicant suspected of false representation and to seize any chemicals in the suspect's possession.
Under the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP) and the Organized and Serious Crimes Ordinance (OSCO), a court may issue a restraint order against a defendant's property. Property includes money, goods, real property, and the instrumentalities of crime. In 2002, the Hong Kong government plans to reintroduce to the legislature amendments to strengthen the DTROP and OSCO. The proposed amendments would streamline confiscation procedures and increase the liability of financial institutions engaged in money-laundering activities. There is no express provision in Hong Kong law that provides for sharing confiscated assets with foreign jurisdictions. The law, however, does allow for assets confiscated from an external confiscation order to be held in a special account that enables sharing of assets. In September 2001 the U.S. government received over $3 million in proceeds from a joint U.S.-Hong Kong narcotics investigation.
A new bill centralizing and standardizing the licensing of drug treatment and rehabilitation centers was passed in April 2001. The Drug Dependent Persons Treatment and Rehabilitation Centers Ordinance has improved the quality of service and the protection of patients' rights. Under this law, the Social Welfare Department of the Hong Kong government became the sole authority for licensing drug treatment and rehabilitation centers throughout Hong Kong.
Law Enforcement Efforts. Hong Kong's law enforcement agencies accord high priority to the suppression of drug trafficking and the control of precursor chemicals. Hong Kong is not a drug producing territory. Drugs are smuggled into Hong Kong primarily for local consumption and only to a limited extent for onward shipment to the international market. The Hong Kong police take a three-level approach to combating narcotics distribution: at the headquarters level, the narcotics bureau targets 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 narcotics bureau of the Hong Kong police cooperates with the People's Republic of China, Canada, Australia, the United States, and countries throughout Southeast Asia in combating international drug trafficking. However, its resources are primarily focused on syndicates involved in supply and distribution of drugs to the Hong Kong domestic market.
The Hong Kong Customs and Excise Department (HKCE) continues to strengthen its counternarcotics efforts. In March 2001, HKCE established a 34-person task force, the Control Point Investigation Division, specifically aimed at combating smuggling and drug trafficking between Hong Kong and Mainland China. The main function of this new task force is to collect and analyze the latest smuggling and drug trafficking patterns and modus operandi of traffickers to assist frontline officers in targeting suspicious passengers, cargoes, and vehicles.
In 2001 HKCE also improved its narcotics detection capability. Two sets of mobile x-ray systems at a cost of U.S. $5.5 million were put into use at container terminals and border control points. These x-ray systems can scan a fully loaded 40-foot container within 20 minutes without off-loading the cargo. HKCE also completed its first narcotics canine training program in 2001. The narcotics canine unit now has 31 officers and 25 highly trained detector dogs, including five passive alert dogs. These dogs have been deployed at the airport, land border control points, and container terminals.
Corruption. There is no known narcotics-related corruption among senior government or law enforcement officials of Hong Kong, and there is no evidence that any senior Hong Kong officials engage in, encourage, or facilitate the laundering of proceeds from illegal drug transactions. 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.
Drug Flow/Transit. Although Hong Kong's role as a major narcotics transit/transshipment point has diminished in recent years, a limited amount of illicit narcotics continues to transit Hong Kong for the international market, including the United States. In January 2001, authorities in New Jersey seized a 58-kilogram heroin shipment that had transited Hong Kong. As several seizures in 2001 indicate, small quantities of drugs, usually weighing two to five kilograms, are still being sent from Hong Kong to the United States, either by courier service or through the postal system. 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. For example, in December 2001 Hong Kong authorities seized 30 kilograms of heroin destined for Taiwan.
In an effort to eradicate Hong Kong's role as a transport/transshipment point for illicit drugs, Hong Kong authorities have developed a database of information on all cargoes, cross-border vehicles, and shippers. The Air Cargo Clearance System (ACCS), the Land Border System (LBS), and the Customs Control System (CCS) are all capable--at the click of a button--of processing information on all import and export cargoes, cross-border vehicles, and vessels.
International Cooperation. The narcotics division of the Hong Kong Security Bureau and the Action Committee Against Narcotics (ACAN) jointly hosted a trilateral (Guangdong, Hong Kong, and Macau) conference on "Policy To Tackle Drug Abuse And Drug Trafficking" in November 2001. The purpose of the conference was to enhance counternarcotics cooperation among Guangdong Province, Hong Kong, and Macau officials. Over 350 people attended.
Hong Kong maintains close links with the United Nations, the World Health Organization (WHO), Financial Action Task Force (FATF), INTERPOL, and the World Customs Organization (WCO) as well as with individual governments around the world to combat narcotics trafficking and abuse. Hong Kong has mutual legal assistance agreements with the United States, Australia, France, the United Kingdom, New Zealand, Italy, Republic of Korea, and Switzerland. Hong Kong has also signed surrender of fugitive offenders agreements with 12 countries, including the United States, and transfer of sentenced persons agreements with three countries, including the United States. Hong Kong provides assistance to over 140 countries for the restraint and confiscation of proceeds from drug trafficking under the Recovery of Proceeds Ordinance. In addition, Hong Kong's law enforcement agencies maintain close liaison relationships with Mainland China and counterparts in many countries. Through their established liaison channels, they exchange operational intelligence on drug trafficking, money laundering, and control of precursor chemicals.
Domestic Programs (Demand Reduction). In 2001, Hong Kong's preventive education policy continued to focus on youth and parents. Hong Kong provides a comprehensive drug prevention program through its education system. In September 2001 the program was expanded to cover all English-speaking schools. In the first ten months of 2001, three NGOs commissioned by the Hong Kong Narcotics Division gave drug educational talks to over 87,000 students in more than 400 schools and technical institutes. During the same period there were over 70 programs aimed specifically at educating parents and employees of youth organizations on drug abuse. An exhibition hall on narcotics is being built in the newly opened Drug Infocenter in order to spur further interest in efforts to combat drug abuse in Hong Kong.
Cultivation/Production. Hong Kong is not a producer of illicit drugs.
U.S. Policy Initiatives/Programs. U.S. law enforcement officials continue to emphasize joint investigations with their Hong Kong counterparts to develop prosecutable cases--either in Hong Kong, the United States, or other jurisdictions. Hong Kong continues to be an active participant in U.S.-sponsored training programs on narcotics and money laundering. In 2001 over 30 Hong Kong officials attended programs at the International Law Enforcement Academy (ILEA) in Bangkok, Thailand. ILEA Bangkok's year 2001 curriculum included courses on airport programs and controlled deliveries, complex financial crimes, as well as a "Narcotics Commander" course and three supervisory criminal investigator courses dealing with regional drug and money-laundering issues. Also, in September 2001 ten ILEA-Bangkok graduates from Hong Kong attended a new advanced management course offered at the ILEA in Roswell, New Mexico.
The Road Ahead. The United States will continue to encourage Hong Kong to maintain an active role in combating narcotics and money laundering consistent with its international stature. The United States continues to emphasize the importance of close cooperation based on open, complete, and timely information exchange between Hong Kong and U.S. law enforcement agencies to strengthen, enforce, and implement existing laws and guidelines.
Hong Kong is a major international financial center. Its low taxes, sophisticated banking system, and absence of currency and exchange controls facilitate financial activity, but also make it vulnerable to money laundering. The primary sources of laundered funds are narcotics-trafficking, tax evasion, fraud, illegal gambling and bookmaking. Laundering channels include Hong Kong's banking, remittance, money transfer networks, and its underground banking system. Hong Kong is substantially in compliance with the Financial Action Task Force's (FATF) 40 recommendations and has developed a strong anti-money laundering regime, though improvements should be made. It is a regional leader in its anti-money laundering efforts and is serving as the 2001-2002 FATF President.
Money laundering is a criminal offense in Hong Kong under the Drug Trafficking (Recovery of Proceeds) Ordinance (DtroP) and Organized and Serious Crimes Ordinance (OSCO). The money laundering offense now extends to the proceeds of drug-related and other indictable crimes. Money laundering ordinances apply to all persons, including banks and non-bank financial institutions, as well as to intermediaries such as lawyers and accountants. All persons must report suspicious transactions to the Joint Financial Intelligence Unit (JFIU). Financial institutions are required to record the identities of their customers and maintain records for five to seven years. Hong Kong law provides that the filing of a suspicious transaction report shall not be regarded as a breach of any restrictions on the disclosure of information imposed by contract or law. Statutes that came into effect in June 2000 require remittance agents and moneychangers to register and to keep transaction and customer identification records for cash transactions equal to or over U.S. $2,564 (HKD 20,000).
There is no distinction made in Hong Kong between onshore and offshore banks or insurers, and no differential treatment for non-residents, including on tax, exchange controls, or disclosure of information regarding the beneficial owner of accounts or other legal entities. Hong Kong classifies banks according to their scope of business, there are three tiers of deposit-taking institutions: fully licensed banks, restricted license banks, and deposit-taking institutions. The Hong Kong Monetary Authority (HKMA) regulates banks. The Insurance Commission and the Securities and Futures Commission regulate insurance and securities firms, respectively. All three impose licensing requirements and conduct background checks on business applicants. Legally established casinos or Internet gambling sites do not exist in Hong Kong.
In Hong Kong it is not uncommon to use solicitors and accountants to set up shell or nominee entities to conceal ownership of accounts and assets. The concealment of the ownership of accounts and assets is ideal for the laundering of funds. Solicitors and accountants have filed only a handful of suspicious transaction reports in recent years.
Under the DtroP and 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 confiscation orders at the value of a defendant's proceeds from illicit activities. Cash imported into or exported from Hong Kong that is connected to drug trafficking may be seized, and a court may order its forfeiture. Hong Kong law provides for an application to be made by the overseas jurisdiction to share in assets realized. Hong Kong's mutual legal assistance agreements provide for asset sharing. Hong Kong has shared confiscated assets with the United States.
The government reintroduced to the legislature, in November 2000, an amendment to strengthen the DtroP and OSCO. The amendment was designed to improve the chances of obtaining successful prosecutions by reducing the evidentiary threshold for money laundering offenses and suspicious transactions reporting. It would have increased penalties for money laundering offenses and strengthened confiscation provisions. The amendment did not pass due to opposition from the banking, accountancy, and legal sectors, and also legislator concerns that the lower evidentiary threshold might lead to conviction of innocent persons. The government intends to continue to pursue strengthened legislation in this area in 2002.
In 2001, the banking, securities, and insurance industries filed 6296, 65, and 29 suspicious transaction reports, respectively. From January to November 2001, there were 34 prosecutions for money laundering offenses and 5 convictions. The Hong Kong government reported no particular increase in financial crimes over the past year and has not found evidence to indicate narcotics proceeds are being used to fund smuggling activities.
Through the People's Republic of China, Hong Kong is subject to the 1988 UN Drug Convention, an active member of the FATF and the Offshore Group of Banking Supervisors, and also a founding member of the Asia/Pacific Group on Money Laundering. Hong Kong authorities cooperate with law enforcement agencies of other governments investigating narcotics-related financial crimes. Hong Kong has signed and ratified a mutual legal assistance agreement with the U.S., which came into force in January 2000. It has also signed mutual legal assistance agreements with Australia, France, the United Kingdom, New Zealand, Italy, the Republic of Korea, Switzerland, Portugal, the Philippines, Ireland, and Canada. Hong Kong has initialed such agreements with Israel, India, Argentina, Brazil, the Czech Republic, Germany, Poland, Singapore, and South Africa. These agreements provide for the exchange of information for all serious crimes, including money laundering. Hong Kong's banking supervisory framework has, in general, addressed all the areas covered by the 1997 Basel Committee Core Principles for Effective Banking Supervision. An amendment to the Banking Ordinance in 1999 allows the HKMA to disclose information to an overseas supervisory authority about individual customers subject to conditions regarding data protection. The JFIU is a member of the Egmont Group and is able to share information with its international counterparts.
Hong Kong should strengthen its anti-money laundering regime by establishing threshold reporting requirements for transactions exceeding specified amounts and put into place "structuring" provisions to counter evasion efforts. It should establish cross-border currency reporting requirements and encourage more suspicious transactions reporting by lawyers and accountants as well as business establishments, such as auto dealerships, real estate companies, and jewelry stores. Steps should also be taken to discourage the use of "shell" companies and other mechanisms that conceal the beneficial ownership of accounts. Hong Kong should consider more aggressive enforcement and strengthening of its laws on remittance agents and moneychangers.