CDD (KYC) controls are driving new money laundering investigations at several financial institutions in Hong Kong, according to a recent report from the South China Morning Post. The Hong Kong Monetary Authority is investigating whether financial institutions have in place sufficient procedures to assure the identity and veracity of information supplied by account holders.
According to Toh Han Shih, this is the first significant enforcement effort by the Hong Kong Monetary Authority after the passage two years ago of stricter AML/CTF laws in the city, the passage of which was strongly supported by international allies concerned about AML/CTF enforcement and criminal activity in Hong Kong.
The new laws give Hong Kong officials authority to supervise, investigate, and sanction institutions regarding their KYC (CDD) efforts and related AML controls. Penalties under the 2012 law can include fines, prison time, and the revocation of licenses to conduct financial transactions.
Hong Kong ranks as one of the global financial centers and has especially high numbers of foreign-exchange trading. While details are few, the current investigative focus is believed to be on the quality and implementation of internal controls regarding KYC (CDD), and one portion of the investigation is focused on Chinese PEPs (i.e. politically exposed persons).
According to various reports in the South China Post, Hong Kong is a preferred location for some money laundering operations due to the high number of banks and the historically relaxed approach to KYC(CDD).
According to court testimony offered in May by an Italian undercover journalist working to expose an Eastern European criminal operation, setting up front companies and opening bank accounts in Hong Kong is often simple. He described his own efforts using expired residency and identity documents, which the banking employee accepted without issue.
For institutions seeking to improve or update their KYC (CDD) practices, KYC (CDD) software solutions offer great promise, especially given the high-tech nature of many banking relationships. In addition to creating digital databases that are easily searchable and easily analyzed, CDD software solutions provide a permanent record of KYC(CDD) and can provide reminders for periodic review, expired documents, and so on.
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