Safeguarding the city's financial reputation
While Hong Kong and international authorities may differ about the extent to which our city is implicated in cross-border financial crime, as a free port it has its attractions to money launderers and tax dodgers. The financial crisis highlighted flaws in regulatory systems and Hong Kong was seen as part of the problem. The US Central Intelligence Agency has said the city's banking system is a conduit for laundering, including cash from regional and global drug trafficking. As a result Hong Kong has come under pressure to tighten its regulations.
It is good to see that law enforcement has been active, that banks and other financial institutions have kept a sharper lookout for suspicious transactions and that police are exchanging more intelligence with overseas counterparts. Last year, police and customs investigated record sums of suspicious transactions and recovered HK$150 million in criminal proceeds - double the previous year's haul. This means more to Hong Kong than just pulling its weight as a member of the Financial Action Task Force. As a financial centre the city cannot afford the damage to its brand of having its name crop up too often in reports on money laundering and tax dodging.
One of Hong Kong's strengths is a potential weakness in this regard. Simple regulations on forming a company, low tax and the rule of law make it an attractive place to set up a firm. Inevitably, a minority with dubious backgrounds take advantage. Compliance with international standards of transparency poses problems, since the tax authorities collect less information from banks, securities houses and individuals than overseas counterparts. Privacy is therefore an issue. And resistance to regulation is understandable. The travel industry, for example, is concerned that proposed limits on the amount of currency travellers can carry across borders would damage the city's reputation as a free port. But Hong Kong's reputation as a financial centre is more important. In a global economy, international standards of transparency must prevail.