The price of becoming Asia’s world city: attracting global trade opens Hong Kong to laundering
The city has also battled notoriety for being a fundraising platform for money laundering and even terrorist activity
As Chief Executive Leung Chun-ying has sought to position Hong Kong as Asia’s world city and a “super-connector” in global trade, the city has also battled notoriety for being a fundraising platform for money laundering and even terrorist activity.
Anti-fraud regulations have been imposed by foreign governments over the past few years, such as the Foreign Account Tax Compliance Act in the US, along with international anti-money laundering and counter-terrorism financing regulations.
Banks, which face hefty fines if caught failing to comply with the new rules, now tread more carefully when selecting customers.
Following a corruption scandal that rocked soccer’s global governing body Fifa in May last year, US Justice Department officials said an HSBC bank account in Hong Kong was one of many used to funnel millions of dollars in bribes.
A month later, HSBC was ordered to pay 40 million Swiss francs (HK$320 million) and given a final warning by the Geneva authorities for “organisational deficiencies”, which had allowed money laundering to take place in the bank’s Swiss subsidiary.
This followed a record US$1.92 billion in fines for HSBC in December in 2012, to settle charges of allowing itself to laundering money and finance terrorism by US authorities.
The New York Department of Financial Services fined Standard Chartered Bank US$300 million in August 2014 after its branch in the city failed to flag high-risk transactions from clients in Hong Kong and the United Arab Emirates.
As a port of entry for mainland exports, Hong Kong is vulnerable to illicit funds flowing through normal trade-based channels.
The city was deemed “non-compliant” to the requirements of the Paris-based money- laundering body, Financial Action Task Force, due to the absence of a process for declaring cross border transactions – including the movement of currency and bearer negotiable instruments such as banknotes, travellers cheques and money orders. Hong Kong is due to report back to the task force, possibly next year.
Even prior to all these events, the Hong Kong Monetary Authority, the city’s de facto central bank, had introduced an anti-money laundering law and launched investigations into suspicious activities in 2012, which focused on whether banks had sufficient protocols in place to report suspicious activities to the Joint Financial Intelligence Unit.