Coming clean on dirty money

PUBLISHED : Thursday, 22 July, 2010, 12:00am
UPDATED : Thursday, 22 July, 2010, 12:00am

Companies can promote the public interest by voluntarily eradicating practices that harm society, such as money laundering, which can be used to fund terrorism and other illegal activities.

In Hong Kong, a code of practice under the United Nations (Anti-Terrorism Measures) Ordinance is expected to come into force by early next year. However, CSR involves self-regulation.

'If you consider money laundering to be a crime, then putting in the measures to prevent that crime is good CSR,' said Chris Leahy, managing director for Greater China at risk consulting company Kroll. 'It's more than just a public relations issue.'

Money laundering and terrorism financing are not only threats to public safety but expose all institutions, financial and otherwise, to risks. '[Most] criminal activities are profit-driven, and thus the act of money laundering allows for the nurturing and growth of such criminal activities,' said Hue Dang, Asia-Pacific head of the Association of Certified Anti-Money Laundering (AML) Specialists. 'Good AML/CFT [combating the financing of terrorism] is part of good corporate governance.'

Banking and financial institutions (including money changers), along with accountants, lawyers and property agents are the most directly affected by AML guidelines. Banks, especially, are based on the confidence of the market - their customers and counterparties.

'If you have lax controls and compliance, you're allowing your institution's financial infrastructure to be exploited for criminal activities,' said Leahy, adding that bad compliance also attracted regulatory scrutiny - and possible criminal sanctions and fines.

For example, the new proposals in Legco for AML guidelines mention criminal liabilities for CEOs, directors and senior managers if there are inadequate AML controls. 'You've got to have proper controls or else you might have to deal with [local] regulators and the Customs and Excise Department,' said Christopher Wilson, AML and sanctions head at Deloitte,

Fines imposed on lax companies would hurt staff and investors because 'that is money that could otherwise have gone towards employee benefits and shareholders. Businesses need to spend more to ensure proper procedures and policies exist, so they don't run afoul of criminal sanctions and civil actions'.

Peter Gallo, principal of Pacific Risk, a boutique AML and due diligence investigation firm, warned of the extra-territorial aspects of United States and British AML legislation. 'Especially in respect of anything related to corruption, this is becoming an increasing likelihood,' he said.

Moreover, tax evasion is governed by Organisation for Economic Co-operation and Development tax agreements. Tax evasion can also be an abuse under money laundering statutes. 'Regulators can use those laws, and they would be perfectly within their rights to do so. They can use one law to enforce another, as they are entitled to collect information [on tax evasion].'

Potential losses could mean being stripped of a banking licence, criminal prosecution of individual bankers, financial penalties from enforcement actions and lost business opportunities.

'Anyone with a role in the financial ecosystem and infrastructure, even down the food chain [lawyers, accountants, securities firms and money changers] must know their clients and counterparties. Institutions must be responsible members of society,' Leahy said.

'If you follow the trail far enough, you will find there is always a human victim,' he said, referring to criminal activities related to money laundering, such as narcotics, human trafficking, prostitution and terrorism. 'Money laundering is a crime that allows more crime to effectively flow from it.'