Prevention of Money Laundering and Terrorist Financing 防止洗錢及恐怖分子籌資活動

What is Money Laundering 什麼是洗錢

Money laundering is the process of putting the proceeds of crime (for example from drug trafficking, fraud or corruption) through a series of steps that disguise or conceal their illegal origin and true ownership, so that the money appears to be legitimate income.

The key point in money laundering is that the source of the funds is illegal. In Hong Kong the offence is not limited to drug proceeds: dealing with the proceeds of any indictable offence is also caught. A person who did not commit the original crime can still commit a money laundering offence if they deal with property that they know, or have reasonable grounds to believe, represents criminal proceeds.

What is Terrorist Financing 什麼是恐怖分子資金籌集

Terrorist financing means providing or collecting funds or other property by any means, directly or indirectly, intending or knowing that it will be used to commit terrorist acts, or used by terrorists or people associated with them.

The main difference from money laundering is that money laundering is concerned with the illegal source of funds, whereas terrorist financing is concerned with their intended use. Terrorist funds may come from legitimate sources such as salaries, donations or business income, and the amounts can be small, which makes them harder to detect. Both use similar methods to hide the movement of money, so they are usually regulated together.

What is Proliferation Financing 什麼是大規模毀滅武器擴散資金籌集

Proliferation financing means providing funds or financial services that help in the manufacture, acquisition, development, stockpiling, transport or use of nuclear, chemical or biological weapons and their means of delivery, including related dual-use goods (goods with both civilian and military uses).

Like terrorist financing, proliferation financing is about the use of the funds, which may themselves come from a legitimate business. Hong Kong gives effect to targeted financial sanctions of the United Nations Security Council through regulations made under the United Nations Sanctions Ordinance (Cap. 537), which prohibit making funds or economic resources available to designated persons or entities. The Weapons of Mass Destruction (Control of Provision of Services) Ordinance (Cap. 526) controls services that may assist the proliferation of such weapons. Insurance institutions should screen customers and beneficiaries against sanctions lists.

Stages of Money Laundering 洗錢的階段

Money laundering is usually described in three stages, in this order: placement, layering and integration. The stages may happen separately, at the same time or overlapping.

Placement: introducing criminal cash into the financial system, for example by paying a large premium in cash or splitting cash into many small deposits.

Layering: separating the money from its source through layers of complex transactions to make it hard to trace, for example buying a policy and then cancelling it during the cooling-off period or surrendering it early, asking for the refund to be paid to a third party, or using policy loans and repeated assignments.

Integration: putting the 'cleaned' money back into the economy in an apparently legitimate form, for example using surrender proceeds or a claim payment to buy property or invest in a business.

Vulnerabilities in Insurance Industry 保險業所面對的風險

Long term business, especially single premium policies, investment-linked policies and savings products with a cash value, is the most vulnerable to money laundering because these policies build up value and can be surrendered early for cash or assigned. That is why Hong Kong's anti-money laundering supervision of insurance focuses on long term business. The risk in general insurance is lower but not absent, for example inflated claims or overpaying premiums and then asking for a refund.

Common warning signs include: early surrender regardless of heavy surrender charges; cancelling a policy during the cooling-off period and asking for the refund to go to a third party; premiums paid by a third party with no apparent connection to the customer; overpaying premiums and asking for the refund by a different method or to a different account; paying large premiums in cash; assigning the policy to an unrelated person; frequent changes of beneficiary; and a customer who cares little about the cover and only about how quickly money can be taken out.

Insurance intermediaries are often the first point of contact with the customer. If they do not know their customer properly, they may help launder money without realising it.

Legislation on Money Laundering and Terrorist Financing 關於洗錢和恐怖分子資金籌集的法例

Section 25 of the Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405) and of the Organized and Serious Crimes Ordinance (Cap. 455) makes it an offence to deal with property knowing or having reasonable grounds to believe that it wholly or partly, directly or indirectly, represents the proceeds of drug trafficking or of an indictable offence. The maximum penalty on conviction on indictment is a fine of HK$5 million and 14 years' imprisonment.

Section 25A of both Ordinances requires any person who knows or suspects that property represents such proceeds to report it to an authorised officer as soon as possible; in practice this means the Joint Financial Intelligence Unit (JFIU), run jointly by the Hong Kong Police Force and the Customs and Excise Department. Failure to report carries a maximum fine of HK$50,000 and 3 months' imprisonment. Reporting before dealing with the property and acting with consent, or reporting on one's own initiative as soon as reasonably practicable, provides a defence to the dealing offence. Disclosing to anyone information likely to prejudice an investigation, knowing or suspecting that a report has been made, is the offence of 'tipping off', with a maximum of 3 years' imprisonment and a fine. The reporting duty applies to any person, not only to financial institutions.

The United Nations (Anti-Terrorism Measures) Ordinance (Cap. 575) prohibits providing or collecting property for terrorists or terrorist acts. It also contains a similar reporting duty and tipping-off offence.

The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO) imposes statutory customer due diligence and record-keeping requirements on financial institutions, including authorized insurers and licensed insurance intermediaries carrying on long term business. The Insurance Authority is the relevant authority for the insurance sector and may impose sanctions on those in breach, such as a public reprimand, a remedial order, and a pecuniary penalty of up to HK$10 million or three times the profit gained (or costs avoided), whichever is greater.

Guideline on Anti-Money Laundering and Counter-Terrorist Financing (GL3) 《打擊洗錢及恐怖分子資金籌集指引》（指引3）

GL3 is issued by the Insurance Authority and applies to authorized insurers and licensed insurance intermediaries carrying on long term business. It gives practical guidance on complying with the AMLO. It takes a risk-based approach: an institution must assess the risks of its business, customers, products, delivery channels and geographical exposure, and match its controls to the level of risk.

Customer due diligence (CDD) involves identifying and verifying the customer; identifying the beneficial owner (for example an individual owning or controlling more than 25% of a company's shares or voting rights) and taking reasonable measures to verify that person; understanding the purpose and intended nature of the business relationship; and verifying the identity and authority of anyone acting on the customer's behalf. The beneficiary of a life policy must generally be verified before the policy proceeds are paid out. Simplified due diligence may be used in low-risk situations. High-risk situations, such as those involving politically exposed persons or high-risk jurisdictions, require enhanced due diligence, including senior management approval and establishing the source of wealth and source of funds.

Institutions must monitor business relationships and transactions on an ongoing basis, appoint a Compliance Officer and a Money Laundering Reporting Officer (MLRO), and report suspicious transactions to the JFIU through the MLRO. CDD records must be kept throughout the business relationship and for at least 5 years after it ends, and transaction records for at least 5 years after the transaction is completed.

Institutions must also train staff and intermediaries on anti-money laundering and screen customers against sanctions and terrorist lists. A breach of the guideline is not necessarily a criminal offence in itself, but the Insurance Authority takes it into account when deciding whether an institution or intermediary has breached the rules and whether they remain fit and proper.