Jake's View

In Hong Kong, mainland money laundering isn’t just big, its scale is ‘Amazon’

Laundered mainland money worth trillions of Hong Kong dollars passes through our city every year

PUBLISHED : Monday, 20 June, 2016, 7:20pm
UPDATED : Tuesday, 21 June, 2016, 10:18am

When I attend functions and meetings these days, as a banking regulator I tend to get an earful of comments from business contacts about their experiences, very often difficult ones, in opening bank accounts in Hong Kong.

Arthur Yuen, Hong Kong Monetary Authority,

Insight page, June 17

Then follows a long plea of “It’s not that bad and anyway I can’t do much about it.”

I shall accept the second of those two pleas. The trouble is that we launder trillions of Hong Kong dollars every year in capital flows to and from the mainland, all of it dodging the Beijing taxman and pretending to be legitimate cross-border flow.

We call it “rate of re-export margin” when it is done through foreign trade. It otherwise consists of fake declarations of direct investment in Hong Kong by foreigners or of direct investment abroad by Hong Kong entities. But it’s all just pass-through money and we just close our eyes to it as we scrub it clean.

After all, it is only the Beijing taxman who loses any money and he knows he would probably lose more in a tsunami of capital flight if he tried to shut it down.

The big anti-money laundering watchdogs of Europe and America don’t really care as their governments lose nothing. Almost all of the ballyhoo about money laundering, take note, is about tax evasion if it’s not about the career ambitions of the money-laundering watchdogs themselves.

But if we are that covered in mud, so to speak, we had best keep our noses clean for show to the watchdogs and this is best done by giving a great deal of trouble to ordinary companies and people who don’t really matter when they open bank accounts and in monitoring activity in these accounts.

Best if we can send a few of them to jail for money laundering. That really makes us look good abroad. Let them also be people who don’t really matter. That’s the whole point, you see. They don’t really matter.

And so the HKMA these days puts teams with no banking experience into special no-unauthorized-access-permitted rooms in the offices of commercial and private banks to look for wrongdoing. Let a piece of paper be signed or dated the wrong way and they make instant threats of criminal proceedings.

Oh yes, we’re tough on money laundering, indeed we are. We follow all the guidelines of Europe’s Financial Action Task Force on monitoring of bank accounts. What a show.

These days if you have anything more than an ordinary small bank account, your “relationship manager” at your bank has to write a full essay saying how he or she came to know you and describing your business.

Opportunity beckons for the likes of me here. I have kissed the Blarney Stone. Get me a good forgery man who knows his bank documents and together we could make millions, writing essays of innocence on contract for dodgy bank accounts.

Then again, there are probably thousands of people already doing it. Another bulwark of anti-money laundering procedures is soon undermined.

I expect it soon will be anyway. I am of that past-it age that doesn’t really understand how Bitcoin and blockchain technology work. But it seems they do work and one thing they say very loudly is “Bye-bye, big bank. Bye-bye, bank regulator.”

While he is still here, however, Mr Yuen has to do his job and this means giving every appearance of being tough on money laundering while that Amazon of laundered mainland money we handle continues to flow unimpeded behind his back.

Thus he tells our banks that it is their job to make sure they don’t handle questionable money but he does not define what this is. He says banks need not be “overly stringent” but he leaves unanswered how stringent they must be. Most of all, while demanding police action of them, he gives them no police powers.

And bank clerks naturally react to these ill defined instructions as you would expect them to do – If saying yes can get you into trouble then just say no. Did Mr Yuen really think they would respond any other way?

But that’s how you keep your nose clean ... when you’re standing in a mudhole.