Source:
https://scmp.com/comment/letters/article/3025333/runaway-housing-prices-fire-hong-kong-protesters-targeting-dirty Letters
As runaway housing prices fire up Hong Kong protesters, targeting dirty money flows from China would help
- A recent European Union report linking money laundering and inflated real estate markets is of relevance to Hong Kong
- With unaffordable housing a major source of the malaise feeding Hong Kong protests, it is time for the city to get tough on cross-border dirty cash flows
Currency notes are run through a counting machine at a bank in Hong Kong. The city has a low rate of conviction in money-laundering cases. Improving the legal framework for pursuing such cases with the mainland authorities could reduce real estate asset inflation and increase affordability. Photo: Bloomberg
A report to the European Parliament titled “Understanding money laundering through real estate transactions” notes: “Abuse of the real estate sector has long been described as one of the oldest known ways to launder ill-gotten gains … Real estate transactions can involve large sums and are subject to more limited scrutiny with regard to money-laundering risks than financial sector transactions, as non-financial sector rules are much more limited.”
In a section titled “Trickle-down effect on real estate”, the report states: “Distortions of real estate prices and the concentration on limited sectors may have an impact beyond those areas and lead to increases in real estate prices, thus pricing people with legal sources of funds out of the market. Driving up the prices of real estate reduces housing affordability, something that has been witnessed in several cities in both developed and developing countries. This impacts not only those people rendered unable to purchase housing but also renters.”
This seems an accurate description of the malaise faced by many youths hoping to get on the Hong Kong property ladder today.
The “Hong Kong Money Laundering and Terrorist Financing Risk Assessment Report”, published by the Hong Kong government in April 2018, states money laundering often involves transnational crimes and that effective international cooperation is essential in tracing crime proceeds and uncovering the identity and background of criminals.
The Mutual Legal Assistance in Criminal Matters Ordinance provides the statutory framework for implementing bilateral and multilateral agreements on mutual legal assistance, enabling assistance to be provided to or obtained from foreign jurisdictions, in the investigation and prosecution of criminal offences and ancillary criminal matters. The Fugitive Offenders Ordinance permits the surrender from Hong Kong of people wanted abroad for offences against the laws of those places. However, both the ordinances do not apply to other parts of China, including the mainland, Macau and Taiwan.
In Jake Van Der Kamp’s 2016 opinion column in the Post, titled “In Hong Kong, mainland money laundering isn’t just big, its scale is ‘Amazon’”, he says, “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.”
The government’s money laundering report suggests that it has a low rate of successful prosecutions in money laundering cases under the current legal framework, with only HK$3.7 billion of assets in restraint orders and HK$2.9 billion in confiscation orders for the 2011-2015 period from all relevant jurisdictions. Real estate assets under restraint order comprised only HK$920 million while confiscation orders were at HK$287 million for the same period.
Given the huge discrepancy in successful prosecution versus actual money laundering capital flows, it is likely any improvement in the legal framework for pursuing money laundering cases with the mainland authorities could result in a decrease in real estate asset inflation in Hong Kong, thereby increasing housing affordability to those hoping to get on the property ladder.
Rodney Heng, managing director, Catalyst for Social Good, Hong Kong