In AML Surveillance

Information Sharing

As financial crime rates reach peak historical levels in 2016, a global trend has emerged that has seen several countries reach out to their global counterparts to advocate for increased international cooperation, as well as to request the sharing of advanced intelligence on financial crime. These moves have been made in an attempt to limit the scope of money laundering and other illegal financial activities seen worldwide. On November 1st, this trend continued, as Australia and China agreed “to share intelligence about potential financial crime as part of a crackdown on cross-border money laundering and the financing of terrorism” (Reuters, 2016). The article “China, Australia to Share Intelligence on Financial Crimes to Combat Money Laundering, Terrorism” cited in BSA News Now on Thursday, explains that the agreement between the countries was viewed as an essential element in allowing them both to “target and disrupt organized crime networks” (Reuters, 2016).

With China recently becoming Australia’s largest partner in trade, the agreement was also regarded as a way to increase financial security between the two respective countries, as well as within the financial services industry as a whole. Australian Minister of Justice Michael Keenan deemed this move absolutely necessary for the sustainment of financial security within Australia, as it will limit the ability of organized criminal groups to capitalize on the strong trading relationship between China and Australia for drug trafficking purposes.

The agreement holds substantial benefits for China, as the multi-ethnic country has now gained an international accomplice to aid them in the track-down of corrupt Chinese officials and business executives who have fled overseas in recent years. Following Chinese President Xi Jinping’s “anti-graft” campaign of 2012, which targeted governmental and military officials suspected of corruption, multiple Chinese governmental officials fled the country in order to avoid prosecution, with a fair amount remaining at large today. Corrupt Chinese officials who have already been apprehended have aided in the crackdown on corruption however, as several of these individuals have agreed to testify against their fellow executives in exchange for lighter sentences. Nevertheless, the agreement between Australia and China has been perceived as a great success for China, as the country has somewhat failed in garnering support for their extradition efforts over the past several years due to the concerns of other Western countries about the alleged “mistreatment of criminal suspects” found in China (Reuters, 2016).

In December of 2015, the Financial Crimes Enforcement Network (FinCEN), the leading AML regulator for the United States federal government, signed an agreement with China’s regulatory body CAMLMAC, to expand the exchange of vital financial information to be used in the fight against terrorism financing and money laundering. The United States has numerous similar agreements currently in place with Financial Intelligence Unit’s from 151 countries around the world, known as the “Egmont Group.” The agreement with China, who is not yet part of the Egmont Group, is likely a sign of things to come for other countries outside of this group, as the United States strives to set the global standard for the sharing of information and proper AML training to oppose criminal financial activity.

Staggering AML Reporting Figures in Hong Kong

In an article cited in BSA News Now on November 4th, writer Clifford Lo of the South China Morning Post examines the astonishing number of suspicious financial activity reports (SAR’S) filed in Hong Kong since the start of 2016. The article “Hong Kong Money Laundering Reports Hit Record High” states that the Joint Financial Intelligence Unit (JFIU), Hong Kong’s leading educational and enforcement resource on money laundering and terrorist financing laws, received “59,730 reports of suspicious financial activity in the first nine months of this year”, an average of over 200 reports a day (Lo, 2016). These totals are by far the largest quantity received in a single year since the JFIU was established in 1989, and they are even more staggering when considering that these statistics stem from only ¾ of the current year. Lo reveals that the rise in reporting this year, a “40 percent increase from the 42,555 reports received during the whole of 2015”, comes as a direct result of the Hong Kong Monetary Authority’s (HKMA) enhanced reporting and monitoring requirements (Lo, 2016).

Banks and other financial institutions found in Hong Kong are now required to correct and clear the filing backlogs they may have had in order to meet the HKMA’s risk-based approach to anti-money laundering. Norman Chan Tak-Iam, Chief Executive of the HKMA, noted that the “risk-based approach” principles are expected to be implemented by financial institutions immediately, as they are essential for businesses to remain compliant and avoid penalties for breaches of anti-money laundering laws. Tak-Iam stated that he “issued a notice in September requesting banks to review current procedures and ways of handling to ensure they meet the regulatory requirements of the risk-based approach and also strike a balance between risk avoidance and financial inclusion” (Lo, 2016).

Compliance officers have been on high alert since June of 2015, when investigations into several financial institutions that were said to be non-compliant began in Hong Kong. These officials are now scrambling to submit all proper documentation, including SAR’s, to the Joint Financial Intelligence Unit, and demonstrate total compliance with AML regulations, as the imposition of severe penalties is becoming more palpable in China today. Multiple major cases have been brought against prominent financial institutions in Hong Kong, including a $7.5 million fine against the Hong Kong branch of the State Bank of India in July of 2015 for a breach of anti-money laundering regulations. Lo maintains that the threat of possible repercussions has propelled many “major financial institutions to strengthen their AML and CTF efforts” (Lo, 2016).

However, a conundrum has surfaced pertaining to recent money laundering prosecution figures. Even as the reporting of suspicious financial activities has increased exponentially in Hong Kong in recent years, “the number of people convicted of money laundering fell from 145 in 2014 to 122 last year” (Lo, 2016). Additionally, the JFIU reported that assets worth HK$105 million were seized under the money laundering and asset confiscation laws in the first nine months of this year, down from HK$341 million in the whole of last year and HK$418 million in 2014” (Lo, 2016). These statistics reveal a distasteful trend, and one that the JFIU is aiming to correct in order to reduce the risks of financial crime in Hong Kong and China altogether.

 

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Mr. Christopher J. Pelaez is a Staff Writer and Operations Specialist for Global RADAR. His background consists of experience as both a BSA and marketing consultant, with an education based in law. Always on top of all the latest in the world of AML/BSA, Mr. Pelaez also curates the well-known Global RADAR news service, BSA News Now.
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