Hong Kong banks caught up in 'boiler room' money laundering schemes

Thailand and Philippines-based "boiler rooms" laundered cash worth hundreds of millions of US dollars through Hong Kong's banking system over the past decade, according to incriminating documents released online by aggrieved investors now angling for financial settlements with boiler room kingpins - and the banks that helped them.

"The magnitude and scale of cash moving through the accounts is at a level where banks have highly likely violated money laundering regulations," said John, a senior representative of investor network Fraud Recovery Group (FRG), preferring a pseudonym after several FRG members were physically threatened.

Between 4,000 and 10,000 mostly American and European investors lost several hundred million US dollars since 2004, according to research by FRG and a private investigation firm.

The revelations will once again focus attention on Hong Kong's banking network and its willingness to police dirty money flows. While Hong Kong has historically prospered as a light-touch conduit for international capital, banks are legally required to conduct due diligence on new account holders and monitor accounts for suspicious cash flows, according to Simon Deane, a partner at law firm Deacons.

Boiler room accounts generally see a high frequency of small deposits coming in from various countries. Money is then removed from accounts in cash withdrawals.

Such transaction patterns could indicate a money laundering technique called "smurfing" said Deane. "This is where the customer due diligence comes in. The bank should check what type of business the customer operates before opening the account and continue to monitor the customer's business."