Launderers have time to clean up

PUBLISHED : Wednesday, 28 November, 2001, 12:00am
UPDATED : Wednesday, 28 November, 2001, 12:00am


A DRUG SYNDICATE recently cooked up what it thought was a foolproof scheme to launder dirty cash: it enlisted teenagers with bank books. A few thousand dollars passed through their accounts every day. The plan had a fatal flaw - all the teenagers banked at the same branch. It was not long before suspicious tellers alerted the authorities.

Some forms of money-laundering are so blatant that to miss them would be a crime. The majority are more sophisticated.

Take the trusts, shelf companies, property deals, virtual casinos and professional 'gatekeepers', such as lawyers and accountants, listed in the most recent typology report by the 29-country Financial Action Task Force (FATF) - the Organisation for Economic Co-operation and Development watchdog on money matters. The document sets out the most up-to-date money-laundering methods, trends and vulnerabilities.

It also outlines the prime sources of criminal proceeds to be laundered: trafficking in narcotics and human beings, gambling, corruption and other organised crime and tax evasion.

Cash is still king as the principal means of payment, giving rise to various schemes to place funds directly in the banking system. Criminals may even use the dirty cash as collateral for loans or deposits for shares.

Banks and financial institutions make thousands of reports to police each year in Hong Kong about suspicious transactions. But the quality of these reports is dubious. Of the 6,104 reports last year and a further 5,100 up to the end of last month. only one in 10 was considered worth investigating after initial assessment, according to Superintendent Terence Leung Lap-fun of the financial investigations unit of the Narcotics Bureau. And only 100 reports out of the thousands were worth serious investigation.

'The quality of disclosure is improving, but it depends on the banks,' he said. 'For some major banks, we receive good quality [reports], but for some minor banks or banks that do not put too many resources on that side, the quality, or standard, varies.'

A 'good' report would detail transactions such as remittances, the use of intermediate bodies and other corporate entities. The 'poor' variety is merely a report of a cash transaction.

There have only been 10 cases up to September this year where the proceeds of crime have been frozen, with 12 cases last year. In cash terms, HK$41.93 million was frozen up to September, well down on the HK$168.52 million for the whole of last year.

Since 1997, there have been 69 cases of proceeds of crime being frozen, with the cash figure amounting to HK$417 million. The amount confiscated is lower, totalling HK$207.24 million between 1997 and September this year.

The next step, launching a prosecution, has been cumbersome. As the law stands, a suspect must have had 'reasonable grounds to believe' the cash was used for illicit purposes. Culprits face 20 years in jail and a HK$5 million penalty.

According to Mr Leung, unless the police have a confession, a conviction is impossible to secure: 'We seldom have a confession from a suspect. We have to find circumstances and the suspect has to be aware of the circumstances.'

Two cases have already been rejected by the Department of Justice this year.

In the past four years, 3,000 investigations have resulted in only 49 convictions. If the low rate continues, the SAR is in danger of falling foul of the FATF, a body it actually chairs this year. Earlier this year, the FATF threatened economic sanctions against the Philippines, Russia and Nauru if they did not pass tougher laws against money-laundering.

The FATF has voiced concern in the past over Hong Kong's low conviction rate. Yet an attempt to beef up money-laundering laws to appease the body was on the brink of collapse this summer.

The Government hoped to lower the knowledge threshold to 'reasonable grounds to suspect' (rather than believe) that proceeds were the result of money-laundering. But legislators in the bills committee baulked at the proposal, which could see more gullible people put behind bars for up to five years.

'There was a bit of a stand-off last [legislative] year to the point that no legislator supporting any party supported the bill,' legislator Eric Li Ka-cheung said.

'Because it presumed guilt of a person who may not even know they have committed a long list of crimes and have to prove their own innocence. That is a very fundamental change in legal policy.'

Mr Leung was more optimistic.

'We still think we should push for the amendment,' he said. 'We will try to convince the bills committee of the need for that amendment, particularly after the September 11 tragedy.'

If this failed, there were other legal options to be considered, although he declined details.

The need to strengthen laws to combat money-laundering has also been stressed by Hong Kong's Director of Public Prosecutions, Grenville Cross. Although speaking of a global need to do so, he outlined a more hard-line approach to the issue of money-laundering at a conference on transnational crimes in Guangzhou earlier this month.

'In what direction should we be going? . . . Our responses may have to be draconian. Organised crime will not be defeated by kid gloves,' he said. The time was right to press for 'decisive progress' from lawmakers.

But the Government may need to find a new angle in attempting to toughen its laws. Legislators like Mr Li are unlikely to be swayed.

'The bill as they wrote it is really presuming someone is guilty until proven innocent,' he said.

'They need a serious rethink of the whole strategy.'