Source: 2007
Released by the Bureau for International Narcotics and Law Enforcement Affairs
Hong Kong is not a major transit/transshipment point for illicit drugs destined for the international market because of its efficient law enforcement efforts, the availability of alternate transport routes, and the development of port facilities elsewhere in southern China. Some traffickers continue to operate out of Hong Kong to arrange shipments from nearby drug-producing countries via Hong Kong and other international markets, including to the United States. The Government of the Hong Kong Special Administrative Region (HKSAR) actively combats drug trafficking and abuse through legislation and law enforcement, preventive education and publicity, treatment and rehabilitation, as well as research and external cooperation. The 1988 UN Drug Convention, to which the People's Republic of China (PRC) is a party, also applies to Hong Kong.
Hong Kong's position 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 the international market, including to the United States. In recent years, Hong Kong's role as a major transit/transshipment point has diminished due to law enforcement efforts and the availability of alternate routes in southern China. Despite the diminished role, some drugs continue to transit Hong Kong to the United States and the international market. Some drug-traffickers continue to use Hong Kong as their financial base of operations, including investors involved in international drug trafficking activity who reside in Hong Kong. Drug trafficking groups operating in Hong Kong are primarily transnational in nature.
Hong Kong law enforcement officials maintain very cooperative liaison relationships with their U.S. counterparts in the fight against drugs. According to HKSAR authorities, drugs seized in Hong Kong are smuggled mostly for local consumption and to a lesser extent for further distribution in the international market, including the United States. Hong Kong continued to experience an overall decrease in drug abuse in 2006. According to the Hong Kong Central Registry of Drug Abuse (CRDA), in the first six months of 2006 the total number of drug abusers continued to fall to 7941, a drop of 11.5 percent from 8969 during the same period in 2005. Ketamine (an livestock anesthetic abused by youth as a hallucinogen) was the most commonly abused psychotropic substance and the number of its abusers rose by 20.9 percent in the first half of 2006. (Hong Kong is one of the centers of abuse of Ketamine in Asia.) There was also a slight increase in the number of young drug abusers under age 21, rising from 1,396 to 1,451. Heroin remains the most popular drug of adult drug users and the number of overall heroin users slightly decreased in the first six months of 2006 when compared to the same period in 2005.
In 2006, the Hong Kong Government again gave a high priority to tackling psychotropic substance abuse. The Hong Kong Government has identified the continuing prevalence of psychotropic substance abuse and the growing trend of young people experimenting with drugs as their major area of concern in the battle against drug abuse and trafficking.
Policy Initiatives. Although there were no major policy changes in 2005 and 2006, the Hong Kong Government continued to work with existing counternarcotics policies and strategies in drug-prevention efforts. Minor policy changes included the replacement of the Action Committee Against Narcotics on Research by the Research Advisory Group (RAG). Apart from monitoring research, the RAG provides advice on interpreting drug abuse statistical trends and drawing together the latest research findings from both local and overseas narcotics-related studies.
Law Enforcement Efforts. Hong Kong's law enforcement agencies, including the Hong Kong Police and Hong Kong Customs and Excise Department (HKCED), place high priority on meeting the objectives of the 1988 UN Drug Convention. Their counternarcotics efforts focus on the suppression of drug trafficking and the control of precursor chemicals. The Hong Kong Police have adopted a three-level approach to combat narcotics distribution: at the headquarters level, the focus is on high-level traffickers and international trafficking; the regional police force focuses on trafficking across police district boundaries; and the district level police force has responsibility for eradicating street-level distribution. In 2006 Hong Kong Police stepped up license checking on entertainment premises in order to deter youngsters from visiting venues where drugs are more easily available. HKCED's Chemical Control Group, in cooperation with the U.S. DEA office in Hong Kong, closely monitors the usage of precursor chemicals and tracks the export of suspicious precursor chemical shipments to worldwide destinations with significant results impacting on several regions including the United States. HKCED continued to aggressively combat drug trafficking in 2006 and carried out numerous significant drug seizures, including the collective seizure with the U.S. DEA and Chinese Customs authorities of 142 kg of cocaine. Concurrent with the cocaine seizure, HKCED arrested eight defendants, three of whom are Colombian nationals. Results from this investigation corroborate increasing intelligence information that Colombian trafficking organizations are establishing closer working ties with Chinese traffickers and becoming actively involved in joint smuggling ventures of cocaine to the Asia region. Hong Kong police also made large narcotics seizures in the first nine months of 2006 to include record seizures of 151,200 and 550 kg of ketamine in January, February and September respectively.
Corruption. As a matter of government policy, the HKSAR government does not encourage or facilitate illicit production or distribution of narcotic or psychotropic drugs or other controlled substances, or the laundering of proceeds from illegal drug transactions. Similarly, no senior government official is alleged to have participated in such activities.
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. In addition, the UN Convention Against Corruption, which the PRC ratified on January 13, 2006, is applicable to Hong Kong.
Agreements and Treaties/International Cooperation. Hong Kong has "mutual legal assistance in criminal matters agreements" with the United States and many other countries. Hong Kong signed surrender of fugitive offenders' agreements with Finland, Germany and Korea in 2006 to bring the total number of countries with which Hong Kong has such agreements or treaties to 16, including the U.S. Hong Kong has also signed transfer of sentenced persons' agreements with eight countries, including the U.S. Hong Kong law enforcement agencies enjoy a close and cooperative working relationship with their mainland counterparts and counterparts in many countries. Last year Hong Kong's Joint Financial Intelligence Unit (JFIU) entered into a Memoranda of Understanding in respect to intelligence sharing with the financial intelligence units of Australia, Korea, Japan, Singapore and Canada. Hong Kong's reversion to China in 1997, and particularly adjustment to the unique "one country, two systems" environment in which Hong Kong currently operates, caused Hong Kong's law enforcement and customs operations around the time of reversion (July 1997) to operate less efficiently with their mainland counterparts than they do now. In the last few years, liaison information sharing and data-networking functions, such as customs information, have been formalized and have been successful in increasing the levels of inter-system cooperation and efficiency. Because intermittent drug trafficking through Hong Kong involving mainland China has been increasing, foreign law enforcement agencies in Hong Kong such as the U.S. DEA have also benefited from the increased level of PRC-Hong Kong cooperation. One example has been a strong emphasis on cooperative training seminars. In June 2006, an innovative cross-boundary intelligence sharing workshop hosted by the U.S. DEA and HKCED included officials from Mainland Chinese Customs and highlighted the open exchange of intelligence and the increasing level of cooperation among the participating agencies. The 1988 UN Drug Convention, 1961 UN Single Convention as amended by the 1972 Protocol, and the 1971 UN Convention Against Psychotropic Substances are all applicable to Hong Kong.
Cultivation and Production. Although Hong Kong police detected and destroyed several minor drug production and cultivation enterprises in 2006 including four small-scale crack cocaine production labs and three cannabis cultivation sites, Hong Kong is generally not considered a producer of illicit drugs.
Drug Flow/Transit. Some drugs continue to flow through Hong Kong for the overseas market, to destinations including Australia, Japan, Taiwan, and the United States. Traffickers use land routes through mainland China to smuggle heroin into Hong Kong. The heavy volume of vehicle and passenger traffic at the land boundary between PRC and Hong Kong continues to pose difficulties in the fight against the trafficking of drugs into Hong Kong. In an effort to curb Hong Kong's role as a transit/transshipment point for illicit drugs, the HKSAR maintains a database of information on all cargoes, cross-border vehicles, and shipping. The air cargo clearance system, the land border system and the customs control system are all capable of quickly processing information on all import and export cargoes, cross-border vehicles and vessels. The local Chinese population primarily dominates the Hong Kong drug trade. Contrary to common belief, there is not a significant and direct connection between Hong Kong narcotics activity and Hong Kong triads at the wholesale and manufacturing level. Therefore, drug investigations are not focused on known triad societies, but rather on the particular trafficking syndicates or individuals involved. In 2005 and 2006, the trafficking destined for mainland China by Southeast Asians became more prominent. As a result, seizures of ketamine have continued to spiral upwards and shipments of multi-kilo loads of ketamine have been intercepted. For example, a recent joint investigation between the U.S. DEA and Taiwanese authorities netted the seizure of 240 kg of ketamine believed to have originated from India and bound for Taiwan.
Domestic Programs. The Hong Kong Government uses a "five-pronged" approach to confront domestic drug problems, covering legislation and law enforcement; preventive education and publicity; treatment and rehabilitation; research; and external co-operation. In 2006, the Hong Kong Government's preventative education policy efforts continued to focus on youth and parents. The Hong Kong Government has provided a comprehensive drug prevention program throughout Hong Kong's education system. In 2006 the Hong Kong Police Narcotics Division stepped up publicity efforts to teach Hong Kong adolescents about the detrimental effects of commonly abused drugs like ketamine by using Announcements in the Public Interest through TV and radio broadcasts. The Hong Kong Government's Narcotics Bureau also partners with youth organizations and groups such as Junior Police Call, the Hong Kong Red Cross, and the Scout Association of Hong Kong to promote an anti-counternarcotics message to youths. In June 2004, the Hong Kong Government formally opened the Drug Information Centre (DIC), funded by the Hong Kong Jockey Club. The DIC is the first exhibition center in Hong Kong dedicated to counternarcotics education. Since the DIC's opening, it has received more than 73,000 visitors for various drug-prevention education activities. The Government also continued to commission nongovernmental organizations to assist in educating primary and secondary school children by sponsoring antidrug education programs in local schools and conducting antidrug seminars with parents, teachers, social workers and persons from various uniform groups. In July 2005, the Advisory Group on Professional Training for Anti-drug Workers was formed to educate social workers and peer counselors and provide them with certified antidrug training on treatment and rehabilitation.
The Hong Kong Government also continued to implement a comprehensive drug treatment and rehabilitation program in 2006. The fourth Three-year Plan on Drug Treatment and Rehabilitation Services was released in March 2006. The plan sets out the overall direction for enhancing Hong Kong's treatment and rehabilitation services and increases focus on early intervention efforts and focus programs that reach out to substance abusers. The Department of Health and the Social Welfare Department continued to operate seven residential drug treatment centers and five counseling centers for psychotropic substance abusers and the Department of Health continued its operation of a methadone treatment program. The Correctional Services Department continued to provide compulsory treatment for convicted persons with drug abuse problems.
Policy Initiatives. The U.S. Government and the HKSAR continue to promote sharing of proceeds from joint counternarcotics investigations. In May 2003, Hong Kong began participating in the U.S. Container Security Initiative (CSI), which U.S. law enforcement believes will increase the potential for identifying shipments of narcotics, even though its focus is on terrorism and weapons of mass destruction. Hong Kong is also an active participant in the International Law Enforcement Academy (ILEA) in Bangkok, Thailand. From 2003 to October 2005, Hong Kong Customs, Hong Kong Department of Health and the U.S. DEA launched a joint operation codenamed "Cold Remedy" to monitor the movement of precursor chemicals that are used in the production of methamphetamine and other drugs from Hong Kong to high-risk countries. The operation effectively decreased the frequency of these shipments and, through the high level of information exchange and timely international tracking, indicated strong cooperation between Hong Kong Government officials and their U.S. counterparts. To further strengthen international cooperation against trafficking of precursors used in the production of amphetamine and other amphetamine-type stimulants (ATS) drugs, Hong Kong secured an agreement with the U.S., Mexico and Panama to impose stringent controls on such shipments. Since the agreement's implementation in April 2005, no shipment of such products to Mexico or any other high-risk countries has been detected. Another cooperative chemical initiative was implemented in February 2006 and codenamed Amethyst Asia. This new program is designed much like Cold Remedy in which the U.S. DEA and Hong Kong Government monitor and track potassium permanganate shipments sourced from countries or territories in Asia, which transit through Hong Kong, and are destined to high risk countries. Potassium permanganate is a precursor chemical used in the manufacture of cocaine.
The Road Ahead. The Hong Kong Government has proven to be a valuable partner in the fight against drug trafficking and abuse. Hong Kong law enforcement agencies, among the most effective in the region, continue to cooperate closely with U.S. counterparts. The U.S. Government will continue to encourage Hong Kong to maintain its active role in counternarcotics efforts.
Hong Kong is a major international financial center. Its low taxes and simplified tax system, sophisticated banking system, the availability of secretarial services and shell company formation agents, and the absence of currency and exchange controls, facilitate financial activity but also make Hong Kong vulnerable to money laundering. The primary sources of laundered funds are tax evasion, fraud, illegal gambling and bookmaking, and intellectual property rights violations. Laundering channels include Hong Kong's banking system, and its legitimate and underground remittance and money transfer networks. The proceeds from narcotics trafficking are believed to be only a small percentage of illicit proceeds laundered. However, over the past two years, reportedly legitimate Hong Kong business entities and financial institutions have been playing an increasingly important role in the Black Market Peso Exchange (BMPE). The BMPE in Hong Kong is perpetuated by local Hong Kong business entities that either knowingly or unknowingly enter into business agreements with individuals directly associated with the BMPE process. The BMPE is a trade-based money laundering scheme used by Colombian drug cartels to launder illicit drug profits. Hong Kong is substantially in compliance with the Financial Action Task Force's (FATF) Forty Recommendations on Money Laundering, and has pledged to adhere to the revised FATF Forty Recommendations. It is a regional leader in anti-money laundering efforts. Hong Kong has been a member of the FATF since 1990.
Money laundering is a criminal offense in Hong Kong under the Drug Trafficking (Recovery of Proceeds) Ordinance (DTRoP) and the Organized and Serious Crimes Ordinance (OSCO). The money laundering offense extends to the proceeds of drug-related and other indictable crimes. Money laundering is punishable by up to 14 years' imprisonment and a fine of HK$5,000,000 (approximately $641,000).
Money laundering ordinances apply to covered institutions including banks and nonbank financial institutions, as well as to intermediaries such as lawyers and accountants. All persons must report suspicious transactions of any amount to the Joint Financial Intelligence Unit (JFIU). The JFIU does not investigate suspicious transactions itself, but receives, stores, and disseminates suspicious transactions reports (STRs) to the appropriate investigative unit. Typically, STRs are passed to the Narcotics Bureau or the Organized Crime and Triad Bureau of the Hong Kong Police Force, or to the Customs Drug Investigation Bureau of the Hong Kong Customs and Excise Department.
Financial regulatory authorities issued anti-money laundering guidelines reflecting the revised FATF Forty Recommendations on Money Laundering to institutions under their purview, and monitor compliance through on-site inspections and other means. The Hong Kong Monetary Authority is responsible for supervising and examining compliance of financial institutions that are authorized under Hong Kong's Banking Ordinance. The Hong Kong Securities and Futures Commission (SFC) is responsible for supervising and examining compliance of persons that are licensed by the SFC to conduct business in regulated activities as defined in Schedule 5 of the Securities and Futures Ordinance. The Office of the Commissioner of Insurance (OCI) is responsible for supervising and examining compliance of insurance institutions. Hong Kong law enforcement agencies provide training and feedback on suspicious transaction reporting.
Financial institutions are required to know and record the identities of their customers and maintain records for five to seven years. The filing of a suspicious transaction report cannot be considered a breach of any restrictions on the disclosure of information imposed by contract or law. Remittance agents and money changers must register their businesses with the police and keep customer identification and transaction records for cash transactions equal to or over HK$20,000 (approximately $2,564), and must retain these records for at least six years. Under a directive from Hong Kong's Monetary Authority, Hong Kong would reduce this threshold amount to HK$8000 (approximately $1000) effective January 1, 2007.
Hong Kong does not require reporting of the movement of currency above any threshold level across its borders, or reporting of large currency transactions above any threshold level. Hong Kong is examining the effectiveness of its existing regime in interdicting illicit cross border cash couriering activities. Reportedly, Hong Kong is deliberating ways of complying with FATF Special Recommendation Nine but does not intend to put in place the recommended "declaration system." Law enforcement agents in Hong Kong are already empowered to seize criminal proceeds at any place, including at the border.
There is no distinction made in Hong Kong between onshore and offshore entities, including banks, and no differential treatment is provided for nonresidents, including on taxes, exchange controls, or disclosure of information regarding the beneficial owner of accounts or other legal entities. Hong Kong's financial regulatory regimes are applicable to residents and nonresidents alike. The Hong Kong Monetary Authority (HKMA) regulates banks. The Office of Commissioner of Insurance (OCI) and the Securities and Futures Commission (SFC) regulate insurance and securities firms, respectively. All three impose licensing requirements and screen business applicants. There are no legal casinos or internet gambling sites in Hong Kong.
In Hong Kong, it is not uncommon to use solicitors and accountants, acting as company formation agents, to set up shell or nominee entities to conceal ownership of accounts and assets. Hong Kong registered 7,279 new international business companies (IBCs) in 2005. Many of the more than 500,000 IBCs created in Hong Kong are owned by other IBCs registered in the British Virgin Islands.
Many of the IBCs are established with nominee directors. The concealment of the ownership of accounts and assets is ideal for the laundering of funds. Additionally, some banks permit the shell companies to open bank accounts based only on the vouching of the company formation agent. In such cases, the HKMA's anti-money laundering guidelines require banks to verify the identity of the owners of the company, including beneficial owners. The bank should also assess whether the intermediary is "fit and proper." However, solicitors and accountants have filed a low number of suspicious transaction reports in recent years, and consequently have become a focus of attention to improve reporting through regulatory requirements and oversight.
The open nature of Hong Kong's financial system has long made it the primary conduit for funds being transferred out of China. Hong Kong's role has been evolving as China's financial system gradually opens. On February 25, 2004, Hong Kong banks began to offer Chinese currency- (renminbi or RMB) based deposit, exchange, and remittance services. Later in the year, Hong Kong banks began to issue RMB-based credit cards, which could be used both in mainland China and in Hong Kong shops that had signed up to the Chinese payments system, China Union Pay. In November 2005, Hong Kong banks were permitted modest increases in the scope of RMB business they can offer to clients.
The new provisions raised daily limits and expanded services. Making loans in Hong Kong in RMB, however, is still not permitted for any bank. This change brought many financial transactions related to China out of the money-transfer industry and into the more highly regulated banking industry, which is better equipped to guard against money laundering.
Under the Drug Trafficking (Recovery of Proceeds) Ordinance (DTRoP) and the Organized and Serious Crimes Ordinance (OSCO), a court may issue a restraining order against a defendant's property at or near the time criminal proceedings are instituted. Both ordinances were strengthened in January 2003, through a legislative amendment lowering the evidentiary threshold for initiating confiscation and restraint orders against persons or properties suspected of drug trafficking. 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 narcotics trafficking may be seized, and a court may order its forfeiture.
Legitimate businesses can be seized if the business is the "realizable property" of the defendant or one of the defendants. Realizable property is defined under the DTRoP and OSCO as any property held by the defendant; any property held by a person to whom the defendant has directly or indirectly made a gift; or any property that is subject to the effective control of the defendant.
Hong Kong Customs and Hong Kong Police are responsible for conducting financial investigations.
The Secretary of Justice is responsible for the legal procedures involved in restraining and confiscating assets. There is no time frame ascribed to freezing drug proceeds or the proceeds of other crimes.
Regarding terrorist property, a formal application for forfeiture must be made within two years of freezing. Confiscated or forfeited assets and proceeds are paid into general government revenue.
As of October 31, 2006, the value of assets under restraint was $178 million, and the value of assets under a court confiscation order, but not yet paid to the government, was $8.85 million, according to figures from the JFIU. It also reported that as of October 31, 2006, the amount confiscated and paid to the government since the enactment of DTRoP and OSCO was $55.4 million, and a total of 395 persons had been convicted of money laundering over that period. Hong Kong has shared confiscated assets with the United States.
In July 2002, the legislature passed several amendments to the DTRoP and OSCO to strengthen restraint and confiscation provisions. These changes, which became effective on January 1, 2003, include the following: there is no longer a requirement of actual notice to an absconded offender; there is no longer a requirement that the court fix a period of time in which a defendant is required to pay a confiscation judgment; the court is allowed to issue a restraining order against assets upon the arrest (rather than charging) of a person; the holder of property is required to produce documents and otherwise assist the government in assessing the value of the property; and an assumption is created under the DTRoP, to be consistent with OSCO, that property held within six years of the period of the violation by a person convicted of drug money laundering is proceeds from that money laundering.
Since legislation was adopted in 1994 mandating the filing of suspicious transaction reports (STRs), the number of STRs received by JFIU has generally increased. In the first nine months of 2006, a total of 10,782 STRs were filed, of which 1330 were referred to law enforcement agencies. This compares to a total of 13,505 STRs filed during all of 2005; 14,029 filed during 2004; and 11,671 during 2003.The JFIU plans to launch an electronic system for reporting STRs by registered users in late 2006.
The JFIU receives disclosures, conducts analysis, and in suitable cases distributes them to law enforcement investigating units. The JFIU can distribute cases to all Hong Kong law enforcement agencies, to similar overseas bodies and, in certain circumstances, to regulatory bodies in Hong Kong.
The JFIU also conducts research on money laundering trends and methods, and provides case examples (typologies) to financial and nonfinancial institutions in order to assist them in identifying suspicious transactions. The JFIU has no regulatory responsibilities.
The Hong Kong Police has a number of dedicated units responsible for investigating financial crime, but the Commercial Crimes and Narcotics Bureaus in the Police Headquarters are the primary units responsible for investigating money laundering and terrorist financing.
The JFIU analyzes STRs to develop information that could aid in prosecuting money laundering cases, the number of which has also increased since 1996, soon after the passage of OSCO (1994). There were 44 prosecutions for money laundering during the first 9 months of 2006, compared to 40 for the entire year of 2004 and 29 for 2003. Hong Kong Customs had a significant money laundering case in 2006, in which the mastermind of a local pirated optical disc syndicate was convicted of money laundering involving HK$ 27.4 million ($3.5 million). These proceeds accrued over a four-year period from piracy activities. In July 2002, Hong Kong's legislature passed the United Nations (Anti- Terrorism Measures) Ordinance criminalizing supplying funds to terrorists. On July 3, 2004, the Legislative Council passed the United Nations (Anti-Terrorism Measures) (Amendment) Ordinance.
This law is intended to implement UNSCR 1373 and the FATF Special Eight Recommendations on Terrorist Financing that were in place in July 2004. It extends the Hong Kong Government's freezing power beyond funds to the nonfund property of terrorists and terrorist organizations. Furthermore, it prohibits the provision or collection of funds by a person intending or knowing that the funds will be used in whole or in part to commit terrorist acts. Hong Kong's financial regulatory authorities have directed the institutions they supervise to conduct record searches for assets of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee's consolidated list and the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224.
The People's Republic of China (PRC) represents Hong Kong on defense and foreign policy matters, including UN affairs. After the PRC becomes a party to a UN terrorism treaty, the Hong Kong Government submits implementing legislation to Hong Kong's Legislative Council. After passage, the HKG executes the relevant UN treaty. Through the PRC, the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime], the UN Convention against Corruption, and the UN International Convention for the Suppression of the Financing of Terrorism are all applicable to Hong Kong. The PRC ratified the UN Convention against Corruption on 13 January 2006 and the UN Convention for the Suppression of the Financing of Terrorism on 19 April 2006.
To help deal with anti-money laundering (AML) issues from a practical perspective and reflect business needs, the Hong Kong Monetary Authority (HKMA) has recently coordinated the establishment of an Industry Working Group on AML, which includes representatives of some 20 authorized institutions. The Group has met twice, and three sub-groups have been established to share experiences and consider the way forward on issues such as PEPs (politically exposed persons), terrorist financing, transaction monitoring systems and private banking issues. The HKMA is also taking a number of initiatives on AML issues, including issuing circulars and guidance to authorized institutions on combating the financing of weapons of mass destruction, conducting in-depth examinations of institutions' AML controls, and setting out best practices for AML in high-risk areas such as correspondent banking, private banking and remittance.
The HKMA circulated guidelines in 2004 incorporating the FATF Special Eight Recommendations on Terrorist Financing which require banks to maintain a database of terrorist names and management information systems to detect unusual patterns of activity in customer accounts. The Securities and Futures Commission (SFC) and the Office of the Commissioner of Insurance (OCI) circulated guidance notes in 2005 that provided additional guidance on customer due diligence and other issues, reflecting the new requirements in the Revised FATF Forty Recommendations on Money Laundering, and Special Recommendations on Terrorist Financing. The Hong Kong government has modified its regulations in order to make them consistent with the revised FATF Forty Recommendations on Money Laundering. In 2006, the OCI and the SFC revised their guidance notes to take into account the latest recommendations by the FATF.
Other bodies governing segments of the financial sector are also active in anti-money laundering efforts. The Hong Kong Estates Agents Authority, for instance, has drawn up specific guidelines for real estate agents on filing suspicious transaction reports, and the Law Society of Hong Kong and the Hong Kong Institute of Certified Public Accountants are in the process of drafting such guidance.
In 2003, Hong Kong took part in the International Monetary Fund's Financial Sector Assessment Program (FSAP), which aims to strengthen the financial stability of a jurisdiction by identifying the strengths and weaknesses of its financial system and assessing compliance with key international standards. As part of the FSAP, a team of IMF and World Bank-sponsored legal and financial experts assessed the effectiveness of Hong Kong's anti-money laundering regime against the FATF Forty Recommendations on Money Laundering and the FATF Special Recommendations on Terrorist Financing. The team described Hong Kong's anti-money laundering measures as "resilient, sound, and overseen by a comprehensive supervisory framework." The Financial Investigations Division of the Narcotics Bureau has assisted the FBI in the investigation of the fugitives arrested in the United States in conjunction with the Bank of China case. In 2006, in a joint operation among the U.S. Immigration and Customs Enforcement (ICE), the U.S. Food and Drug Administration and Hong Kong Customs, a major mainland Chinese trafficker in counterfeit pharmaceutical drugs was identified. In September 2006, when the subject of the investigation arrived at a meeting in Hong Kong arranged by undercover agents, he was arrested by Hong Kong Customs officers under the Fugitive Offenders Ordinance.
Through the PRC, Hong Kong is subject to the 1988 UN Drug Convention. It is an active member of the FATF and Offshore Group of Banking Supervisors and also a founding member of the Asia Pacific Group on Money Laundering (APG). Hong Kong's banking supervisory framework is in line with the requirements of the Basel Committee on Banking Supervision's "Core Principles for Effective Banking Supervision." Hong Kong's JFIU is a member of the Egmont Group and is able to share information with its international counterparts. Hong Kong is known to cooperate with foreign jurisdictions in combating money laundering.
Hong Kong's mutual legal assistance agreements generally provide for asset tracing, seizure, and sharing. Hong Kong signed and ratified a mutual legal assistance agreement with the United States that came into force in January 2000.
Hong Kong has mutual legal assistance agreements with a total of 21 other jurisdictions: Australia, Canada, the United States, Italy, the Philippines, the Netherlands, Ukraine, Singapore, Portugal, Ireland, France, the United Kingdom, New Zealand, the Republic of Korea, Belgium, Switzerland, Denmark, Israel, Poland, Germany and Malaysia. Hong Kong has also signed surrender-of-fugitive- offenders agreements with 16 countries, and has signed Agreements for the transfer-of-sentenced- persons with eight countries, including the United States.
Hong Kong authorities exchange information on an informal basis with overseas counterparts, with Interpol, and with Hong Kong-based liaison officers of overseas law enforcement agencies. 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 HKMA has entered into memoranda of understanding with overseas supervisory authorities of banks for the exchange of supervisory information and cooperation, including on-site examinations of banks operating in the host country.
The Government of Hong Kong should further strengthen its anti-money laundering regime by establishing threshold reporting requirements for currency transactions and putting into place "structuring" provisions to counter evasion efforts. Per FATF Special Recommendation Nine, Hong Kong should also establish mandatory cross-border currency reporting requirements. Hong Kong should continue to encourage more suspicious transaction reporting by lawyers and accountants, as well as by business establishments such as auto dealerships, real estate companies, and jewelry stores.
Hong Kong should also take steps to stop the use of "shell" companies, IBCs, and other mechanisms that conceal the beneficial ownership of accounts by more closely regulating corporate formation agents. Particularly since Hong Kong is a major trading center, Hong Kong law enforcement and customs authorities should seek to identify trade-based money laundering.