STR : Legal Obligations and Case Examples

1. STR : Legal Obligations and Case Examples Ricky WONG Joint Financial Intelligence Unit

2. Session Outline • Overview of current Laws in Hong Kong for (a) What Money Laundering (ML) and Terrorist Financing (TF) are ; (b) Disclosure,Protection and Restriction • Identify ML/TF activities; • Case Examples

3. ML and TF Laws in HK • The Drug Trafficking (Recovery of Proceeds) Ordinance, Cap 405 (DTROP) – drug proceeds • The Organised & Serious Crimes Ordinance, Cap 455 (OSCO) – extends to serious crime proceeds • United Nations Anti-Terrorism Measures Ordinance, Cap. 575 (UNATMO) – terrorist property

4. Money Laundering s.25(1) of OSCO/DTROP* Dealing with property known or having reasonable grounds to believe to represent proceeds of an indictable offence/ drug proceeds Penalty: 14-year Imprisonment and HK$5 Million Fine * Organized and Serious Crimes Ordinance, Cap.455 (OSCO) * Drug Trafficking (Recovery of Proceeds) Ordinance, Cap.405 (DTROP)

5. Key Features • Having “reasonable grounds to believe” is an objective and subjective test (e.g. CACC 555/2001 YAM Ho-keung, FAMC 26/1998 SENG Yuet-fong) • Indictable offence includes reference not only to a HK indictable offence but to conduct abroad which would constitute an indictable offence had it occurred in HK (e.g. CACC 4361997 LI Ching)

6. Key Features • Wide definition of “dealing” in property • Can be committed by the person who committed the underlying indictable offence himself, or by any other person. • Not necessary to prove the property is proceeds of an indictable offence. • The emphasis is on what the defendant knew or had reasonable grounds to believe.

7. Terrorist Financing – s.7 of UNATMO • “A person shall not provide or collect, by any means, directly or indirectly, funds- • (a) with the intention that the funds be used; or(b) knowing that the funds will be used, • in whole or in part, to commit one or more terrorist acts (whether or not the funds are actually so used). • generally refers to the carrying out of transactions involving funds that are owned by terrorists, or that have been, or are intended to be, used to facilitate the commission of terrorist acts

8. Terrorist Financing – s.14 of UNATMO Penalty:- • 14 years of imprisonment at maximum, but • Unspecified fine

9. Difference between ML & TF • In ML, the focus is on the handling of criminal proceeds, i.e. the source of funds matters. • In TF, the focus is on the destination or use of funds, which may have been derived from legitimate sources.

10. Disclosures s.25A OSCO / DTROP / s.12 UNATMO Any person who knows or suspects any property represents the proceeds of crime or terrorist property shall make a report to an authorized officer. Penalty: 3-months imprisonment & $50K fine

11. Key Features • DISCLOSURE is SUSPICIONbased • No Threshold Reporting (CTR) • PROSECUTION is based on REASONABLE KNOWLEDGE

12. Standard of Suspicion • “Suspicion” is a state of conjecture or surmise where proof is lacking. • The test is purely subjective.

13. Immunity from Prosecution for Dealing in the Property Benefits of Making an STR?

14. Statutory Defence to ML/TF s.25A(2) DTROP/OSCO, s.12(2) UNATMO If a person deals with property & STR relates to that act,that person has a defence to ML/TF, provided:- (i) STR made before act & act done with the consent of an authorized officer; or (ii) STR made- after the act - on his own initiative - as soon as reasonably practicable

15. ‘CONSENT’ Means you have our consent to carry on your normal business; ‘NO CONSENT’ Means if you deal you lose the Section 25(A)(2)(a) protection from an actual money laundering charge. CONSENT or NO CONSENT?

16. Statutory Protection s.25A(3) of DTROP/OSCO, s.12(3) of UNATMO (a) shall NOT be treated as a breach of any restriction upon the disclosure of information imposed by contract or by any enactment, rule of conduct or other provision; (b) shall NOT render the person who made it liable in damages for any loss arising out of- (i) the disclosure; (ii) any act done or omitted to be done in relation to the property concerned in consequence of the disclosure.

17. Tipping Off s.25A(5) of DTROP/OSCO, s.12(5) of UNATMO A person commits an offence if, knowing or suspecting that a disclosure has been made, he discloses to any other person any matter which is likely to prejudice any investigation which might be conducted following that first-mentioned disclosure Penalty: 3-years imprisonment & $500K fine

18. Accountants as Gatekeepers • expertise is required in moving criminal proceeds • have associations in many parts of the world give money launders a global reach • FATF Recommendations 13-16 • HKICPA’s Guidelines

19. How to identify ML/TF activities?

20. Use Your Common Sense

21. What makes a good AML system? • Knowledge of why there is a need to Disclose:- Self/Business Protection. Knowledge of the law/procedure; • How to Disclose :- Level of details; • Good KYC and Record Keeping Policy; • Good Sources of Information; • Good Awareness of Issues

22. JFIU • Established in 1989 • Jointly operated by Police and Customs • Housed within Police Headquarters • Primary function is to receive, analyze and disseminate STR to law enforcement agencies

23. STR Filing • Suggested format & content detailed in JFIU website (www.jfiu.gov.hk) • Email • Fax • Post • Verbal (urgency - follow-up by hardcopy)

24. STREAMS e-Reporting - STREAMS • Web based Platform – Suspicious Transaction Report and Management System (STREAMS) e-Acknowledge/Result e-STR JFIU Encrypted Internet e-form e-STR XML format

25. Feedback • Acknowledgement of Receipt • File Ref. • Contact Person Details • Consent / No Consent Letter • Arrest / Prosecutions / Convictions • STR Quarterly Analysis Report

26. ABC Company ABC Company Case Example 1– Good KYC/CDD  JFIU

27. Accountant ABC Company $60M Year-end Audit $60M + i Case Example 2– Good Audit  Buying IPO shares on ABC’s behalf Amount due from a director

28. Q & A

29. Contact us: • 2866 3366 • www.jfiu.gov.hk Thanks for your attention!