NO one will be greatly surprised by the news that three New Yorkers have been charged with laundering drug money through a Hong Kong bank. The scandal is that laundering operations here are not exposed more often. There is no question that a lot of drug money comes through Hong Kong. The Government, the police and the big banks have made some effort to crack down. Already Hong Kong's drug-money controls are seen as a model in much of Asia. But much more can and should be done. A three-pronged approach through legislation, enforcement and above all public education should be high on the Government's agenda.
One crucial law is already in place. Section 25 of the 1984 Drug Trafficking (Recovery of Proceeds) Ordinance requires anyone handling money which they know or have 'reasonable grounds to believe' is the proceeds of drug trafficking to report it. But legislation is one thing; enforcement is quite another. The UK legislation on which the ordinance is modelled specifies only 'reasonable grounds to suspect' the money is drug-related. The standard of proof required in Hong Kong is so much higher that the Legal Department has given up on many cases knowing charges could not be made to stick.
The law should be amended to match the UK version and the Attorney-General should be more aggressive in taking cases to court. At present one cannot be prosecuted for laundering one's own money. That loophole must be closed. The courts should be permitted to issue monitoring orders for suspect accounts instead of one-off inspection orders. It might be worth following the US example of requiring banks to report any transaction above, say, $100,000, although that may generate more paperwork than illumination.
But no legislation will kill the laundering business unless it is accompanied by a change in Hong Kong's business culture. Lawyers and financial advisers may be turning a blind eye to more abuses than the banks. In the professions as in banking, ethics must be put above profits.
The international banks already see the damage of what laundering can do to their businesses. But some smaller, often privately owned banks, may be less scrupulous. It goes against the grain for a banker to ignore the confidentiality of his relationship with a client. It is even more unnatural to turn up his nose at deposits, especially when, in some cases, suspect money may be a substantial part of the bank's turnover. A key change must be to force the banks to be more open about their operations.
Getting private banks to follow the publicly-traded banks' example in disclosing transfers from and into their inner reserves would be a very good start. But they must also be able to explain in more detail where their profits come from. Ultimately, an open banking system will also be a healthier and cleaner system.
