Source: 2008
Released by the Bureau for International Narcotics and Law Enforcement Affairs
I. Summary
Hong Kong is not a major transshipment point for illicit drugs destined for the international market, however can be seen as a transit point as some drugs flow through because it is a major shipping hub. Hong Kong is not a major transshipment point for drugs because of its efficient law enforcement efforts, the availability of alternate 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.
II. Status of Country
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 transshipment point has diminished due to law enforcement efforts and the availability of alternate routes in southern China and a diminished demand for Southeast Asian heroin in North America. 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. The 56th edition of the Hong Kong Central Registry of Drug Abuse for 2006, with a comparison of the first halves of 2006 and 2007, reported that the total number of reported drug abusers in recent years continued to decline from 18,513 persons in 2001 to 13,204 in 2006.
Though heroin is traditionally the most commonly abused drug in Hong Kong, the number of heroin abusers has been declining for years. In 2006, there were 8,101 (or 61.7 percent of drug abusers) reported heroin users. There was a general rising trend in the abuse of psychotropic substances as a whole between 1997 and 2006. The number of psychotropic substance abusers reached a record high of 7,368 in 2006. Among psychotropic substances, the more commonly abused types include Ketamine (23.2 percent of drug abusers), triazolam/midazolam/zopiclone (16.9 percent), MDMA/Ecstasy (11.6 percent), cannabis (7.4 percent), crystal methamphetamine (6.5 percent), and cough medicine (5.7 percent). The comparison of the first half of 2006 to that of 2007 showed a decrease in heroin abusers from 5,211 to 4,788, but an increase in psychotropic drug abusers from 4,054 to 4,410 with Ketamine being abused by almost half (approximately 2,150) of the abusers.
In 2006, the Hong Kong Government 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.
III. Country Actions Against Drugs in 2007
Policy Initiatives. Although there were no major policy changes in 2006 and 2007, 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 2007, the Hong Kong Police continued id checks on entertainment premises in order to deter young people from visiting venues where drugs are more easily available.
The 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. Due to an effective chemical tracking program, in March 2007, a significant chemical trafficker was identified as suspected of involvement in diverting large quantities of precursor chemicals to illicit uses through use of his licit pharmaceutical business. This individual had amassed over US$207 million dollars in cash which was seized. A related investigation by the HKCED and U.S. DEA identified bank accounts in Hong Kong totaling over US$10.1 million dollars being maintained by this same individual.
Corruption. The HKSAR government strongly opposes illicit production or distribution of narcotic or psychotropic drugs or other controlled substances, and the laundering of proceeds from illegal drug transactions. 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. Upon resuming the exercise of sovereignty over Hong Kong, China advised the UN Secretary General that the 1961 Single Convention and the 1972 protocol, the Convention on Psychotropic Substances, and the 1988 UN Drug Convention apply to Hong Kong. Also, the UN Convention against Transnational Organized Crime and the UN Convention against Corruption apply to Hong Kong. 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 and with Ireland in 2007 to bring the total number of countries with which Hong Kong has such agreements or treaties to 17, including the U.S. Hong Kong has also signed transfer of sentenced persons’ agreements with eight countries, including the U.S. In 2007 Hong Kong signed a mutual legal assistance agreement with Finland.
Hong Kong law enforcement agencies enjoy a close and cooperative working relationship with their mainland counterparts and counterparts in many countries. Hong Kong law enforcement agents cooperated with Japan to seize HK$18 million (apx. US$2.3 million) in drug proceeds and charge one person with money laundering. A joint investigation with New Zealand authorities resulted in two arrests for money laundering and HK$10.3 million (apx. US$1.3 million) seized.
Last year Hong Kong’s Joint Financial Intelligence Unit (JFIU) entered into Memoranda of Understanding in respect to intelligence sharing with the financial intelligence units of Australia, Korea, Japan, Singapore and Canada. In the ten years since Hong Kong returned to Chinese control, liaison information sharing and data-networking functions between Hong Kong and Chinese authorities, such as customs information, have been formalized and have successfully increased the levels of inter-system cooperation and efficiency. Training has also become an important element of cooperation between U.S. and Hong Kong law enforcement counterparts. In September 2007, the U.S. DEA and Hong Kong Customs Drug Investigation Bureau (CDIB) hosted a joint training workshop, which focused on enhancing the investigative and tactical capabilities of investigators in drug interdiction operations. The training workshop stressed the continued open exchange of information and increased international cooperation between the two participating agencies.
Hong Kong participates in Project Prism and Operation Cohesion, both managed by the International Narcotics Control Board, to control the illegal diversion of chemical precursors. Hong Kong also participates in joint tracking programs, which allow Hong Kong Customs and the U.S. Drug Enforcement Agency to target the movement of precursor chemical shipments exported from, transshipped or transiting via Hong Kong to high-risk countries. In addition to the monitoring of controlled chemical precursors, Hong Kong monitors the movement of ephedra, a raw material for the manufacture of ephedrine. The 1988 UN Drug Convention, 1961 UN Single Convention as amended by the 1972 Protocol, and the 1971 UN Convention Against Psychotropic Substances are 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 significant producer of illicit drugs.
Drug Flow/Transit. Some drugs continue to flow through Hong Kong for the overseas market, to destinations including Australia, China, Japan, Taiwan, Europe, and the United States. In July 2007, based on an aggressive container profiling program, the HKCED seized 160 kilograms of cocaine which was concealed within containerized cargo believed to be destined for European markets. The container was transiting through Hong Kong in order to disguise its origin. Traffickers use land routes through mainland China to smuggle heroin into Hong Kong. In 2007, Hong Kong Customs authorities arrested 14 Thai nationals at Hong Kong International Airport attempting to smuggle heroin into Mainland China.
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 and out of 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 cargo, 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 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. Trafficking destined for mainland China by Southeast Asians continues to be prominent.
Domestic Programs. The Hong Kong Government uses a five-pronged approach to confront domestic drug problems, including legislation and law enforcement; preventive education and publicity; treatment and rehabilitation; research; and external cooperation. 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 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. The Hong Kong Government also implemented a public awareness campaign to educate the public about the harmful effects of Ketamine and Ecstasy, the two most commonly abused drugs among youth. A HKG-sponsored Hip Hop Dance and Music Competition encourages youth to participate in healthy activities and reinforces a healthy drug-free lifestyle. The Hong Kong Government also launched a new drug education kit to disseminate counternarcotics messages in schools and publicizes the consequences of cross-boundary drug abuse.
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 100,000 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 counternarcotics education programs in local schools and conducting counternarcotics seminars with parents, teachers, social workers and persons from various uniform groups. For the 12 month period ending in August 2007, 163,000 school-age children participated in drug education programs provided by the government.
The Hong Kong Government also continued to implement a comprehensive drug treatment and rehabilitation program in 2007. 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. The Hong Kong Government will launch a pilot cooperation scheme in early 2008 to refer abusers to designated medical practitioners who will provide comprehensive health check-ups and motivational interviews, to alert abusers of any signs of health deterioration as a result of drug use, and to heighten abusers awareness of early treatment options.
IV. U.S. Policy Initiatives and Programs
Bilateral Cooperation. 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 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. This new program allows the U.S. DEA and Hong Kong Government to monitor and track other precursor chemical shipments sourced from countries or territories in Asia, which transit through Hong Kong, and are destined to high-risk countries.
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, 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 Hong Kong Special Administrative Region Government (HKSARG) considers the primary sources of laundered funds to be corruption (both foreign and domestic), tax evasion, fraud, illegal gambling and bookmaking, prostitution, loan sharking, commercial crimes, and intellectual property rights infringement. Laundering channels include Hong Kong’s banking system, legitimate and underground remittance and money transfer networks, trade-based money laundering, and large-ticket consumer purchases—such as property, gold and jewelry. The proceeds from narcotics trafficking are believed to be only a small percentage of illicit proceeds laundered.
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 U.S. $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, 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 have 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 (HKMA) 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 moneychangers must register their businesses with the police and keep customer identification and transaction records for cash transactions above a legal threshold for at least six years. A directive from Hong Kong’s Monetary Authority (HKMA) reduced this threshold amount from HK $20,000 (approximately U.S. $2,565) to HK $8,000 (approximately U.S. $1,000), effective January 1, 2007.
Hong Kong does not require reporting of the movement of any amount of currency across its borders, or 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 a “declaration system” and is instead considering a disclosure-based system. Law enforcement agents in Hong Kong are already empowered to seize criminal proceeds anywhere in the jurisdiction, including at the border.
Hong Kong does not make a distinction between onshore and offshore entities, including banks. Its financial regulatory regimes are applicable to residents and nonresidents alike. No differential treatment is provided for nonresidents, including with respect to taxation and exchange controls. The 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. Many of the more than 500,000 international business companies (IBCs) created in Hong Kong are established with nominee directors; and many are owned by other IBCs registered in the British Virgin Islands. The concealment of the ownership of accounts and assets is ideal for laundering funds. Additionally, some banks permit shell companies to open bank accounts, based only on vouching by 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 Hong Kong officials seek to improve their reporting through regulatory requirements and oversight.
Hong Kong’s open financial system has long made it the primary conduit for funds 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-based (renminbi or RMB) deposit, exchange, and remittance services. Later that 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 enrolled in 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 clients. The new provisions raised daily limits and expanded services. 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. Banks in Hong Kong are still not permitted to make loans in RMB.
Despite Hong Kong’s efforts to encourage capital shifts to the banking industry, Chinese capital controls impel entities in both Hong Kong and Mainland China to use underground financial systems to avoid restrictions on currency exchange. A well-publicized June 2007 raid by Chinese police on an underground bank in Shenzhen resulted in the detention of six suspects, including a Hong Kong-based businesswoman, accused of facilitating the transfer of RMB 4.3 billion (over U.S. $570 million) out of China since the beginning of 2006—including transfers by Chinese state-owned enterprises. Authorities believe the majority of these funds were used to purchase properties and stocks in Hong Kong. Media reports indicate that such underground exchange houses are rampant in Guangdong province and have transferred more than RMB 200 billion (U.S. $26.7 billion) out of China since 2006.
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. 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 a defendant. 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. 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. In July 2002, the legislature passed several amendments to the DTRoP and OSCO to strengthen restraint and confiscation provisions. These changes, effective January 1, 2003, lowered the evidentiary threshold for initiating confiscation and restraint orders against persons or properties suspected of drug trafficking, eliminated the requirement of actual notice to an absconded offender, eliminated the requirement that the court fix a period of time in which a defendant is required to pay a confiscation judgment, authorized courts to issue restraining orders against assets upon arrest rather than charging, required the holder of property to produce documents and otherwise assist the government in assessing the value of the property, and created an assumption under the DTRoP (to make it consistent with OSCO) that property held within six years of the violation by a person convicted of drug money laundering constitutes proceeds from that money laundering.
According to JFIU figures, as of September 30, 2007, the value of assets under restraint was $199 million, and the value of assets under a court confiscation order but not yet paid to the government was $9.85 million. JFIU also reported that, as of September 30, 2007, $56.5 million had been confiscated and paid to the government since the enactment of DTRoP and OSCO. Hong Kong has shared confiscated assets with the United States.
Hong Kong Customs and Hong Kong Police are responsible for conducting financial investigations. The Hong Kong Police has a number of dedicated units responsible for investigating financial crime, but the primary units responsible for investigating money laundering and terrorist financing are the Commercial Crimes and Narcotics Bureaus in Police Headquarters. There were 157 prosecutions for money laundering during the first 6 months of 2007. 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 (U.S. $3.5 million) accrued over a four-year period from piracy activities. This conviction was upheld on appeal in May 2007. The judge increased the sentence by 50 percent, in accordance with OSCO provisions. Hong Kong Customs arrested two individuals charged with copyright infringement and money laundering in 2007.
The JFIU receives and analyzes STRs to develop information that could aid in prosecuting money laundering cases and, in suitable cases, distributes reports to law enforcement investigating units. The JFIU can refer cases to all Hong Kong law enforcement agencies and, in certain circumstances, to regulatory bodies in Hong Kong as well as to overseas law enforcement bodies. The JFIU also conducts research on money laundering trends and methods and provides case examples (typologies) to financial and nonfinancial institutions to assist them in identifying suspicious transactions. The JFIU has no regulatory responsibilities. Since 1994, when OSCO first mandated the filing of suspicious transaction reports (STRs), the number of STRs received by JFIU has generally increased. In the first nine months of 2007, 12,308 STRs were filed, of which 1798 were referred to law enforcement agencies. This compares with 10,782 STRs filed for the same period in 2006, 13,505 STRs filed during all of 2005, 14,029 filed during 2004, and 11,671 during 2003. The JFIU launched an electronic system for reporting STRs by registered users in late 2006
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 in place in July 2004. It extends the HKSARG’s freezing power beyond funds to the property of terrorists and terrorist organizations. It also criminalizes 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. 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
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. The Group, which includes representatives of some 20 authorized institutions, has met twice. Three subgroups 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 subgroup on Customer Due Diligence (CDD) issued guidelines on issues related to PEPs in November 2007. The HKMA has also implemented 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 that 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 CDD and other issues, reflecting the new requirements in the Revised FATF Forty Recommendations on Money Laundering and Special Recommendations on Terrorist Financing. 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 engaged in advancing 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 for their members.
Hong Kong is an active member of the Financial Action Task Force’s FATF and Offshore Group of Banking Supervisors and was a founding member of the Asia Pacific Group on Money Laundering (APG).
In November 2007, the APG and FATF conducted a site visit as part of their joint mutual evaluation of Hong Kong. The mutual evaluation report will be discussed at FATF’s June 2008 Plenary
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 (MLAA) with the United States that came into force in January 2000. Hong Kong has MLAAs with 22 other jurisdictions. Hong Kong has also signed surrender-of-fugitive-offenders (extradition) agreements with 17 countries, including the United States, and has signed agreements for the transfer of sentenced persons with ten countries, also including the United States. Hong Kong authorities exchange information on an informal basis with overseas counterparts and with Interpol.
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 IX, 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 address trade-based money laundering.