New financial law all gobbledygook

PUBLISHED : Tuesday, 03 April, 2012, 12:00am
UPDATED : Tuesday, 03 April, 2012, 12:00am


The new law, the Anti-Money Laundering and Counter-Terrorist financing (Financial Institutions) Ordinance will plug .... loopholes because it imposes a single set of requirements on all financial firms.

SCMP, March 31

Let me give you the flavour of this single set of requirements. Here goes:

'(2) Except where a situation referred to in section 15 of this Schedule exists, if an individual is a beneficial owner of a customer by virtue of paragraph (a)(i)(A) or (B), (b)(i)(A) or (B) or (c)(i) of the definition of beneficial owner in section 1(1) of this Schedule, the financial institution is not required to verify the identity of the individual unless -'

And then we get several paragraphs of qualifications on a similar note, all part of 151 pages of blather of this sort.

Law once consisted of such simple statements as 'Thou shalt not kill' but we now have incomprehensible statutes that I defy even lawyers to muddle their way through.

There will be plenty of new jobs for them, however. Banks will have to keep more lawyers on staff to demonstrate their best efforts at compliance.

It is nonetheless an impossible task. The new law says, for instance, that certain due diligence procedures are required when a financial institution 'suspects' that a customer is involved in money laundering or terrorist financing.

Will someone tell me how an institution can suspect something? And if the law means that individual employees may suspect it, will someone please tell me what degree of unusual circumstances are required to trigger such a suspicion?

Back we go, as we do with all such legislation, to the overuse of the word 'reasonable'. It brings us no further along. What is reasonable and what is not? Reasonability is in the mind of the person who reasons it. What one person may consider reasonable, another may not.

What it will mean in practice, of course, is reasonable as understood by the regulators appointed to enforce the law. I confidently predict that these people will be third-rate lawyers who could not get jobs in private practice and have never held jobs in finance.

But beware of contradicting their ignorance. The penalty for doing it could be a jail sentence. Professional financiers now stand in danger of being deemed criminals if they think differently from uninformed regulatory zealots.

Thus, once again, law has been used to undermine justice. We seem to make a practice of it these days.

And it is such hypocrisy. Our re-export trade amounts to more than HK$3 trillion a year, which is far greater than the size of our economy. All of it is effectively a form of money laundering to circumvent taxes on the mainland. Yet it will never be made the target of this new law.

I am entirely happy that it should be so as I have never been able to work up much indignation about money laundering.

Hong Kong's wealth has always been significantly based on engaging in illicit commerce for and with the mainland, to the mainland's huge benefit even if the political masters in Beijing did not always approve.

Bear in mind here that the talk of stopping terrorist financing is a red herring. Terrorist financing requires very little money and works entirely on an underground system that never touches the banks. If you are deemed trustworthy in these circles, someone gives you a piece of paper that you take to his uncle in Peshawar. That's how you get your terrorist funding.

Nor do we need laws against money laundering to protect public revenue. Not only is our government choking on a surfeit of revenue with a fiscal surplus running at an annual HK$75 billion, but with no sales taxes, capital gains taxes or interest and dividend withholding taxes, we don't have the revenue sources that other countries try to protect with money laundering laws.

There is only one reason to have such laws in this town and it is to put up a good show to the rest of the world of being as righteous and blameless as the saints in heaven so that we can otherwise continue to make our financial arrangements as we have always made them without interference from outsiders.

But I think that some of our bureaucrats may now actually believe their own blather about money laundering. Sad day. It just isn't the town I used to know.