Reporting suspicious transactions won’t be considered a breach of confidentiality, nor will one be sued or found liable for breach of privacy.

Reporting suspicious transactions won’t be considered a breach of confidentiality, nor will one be sued or found liable for breach of privacy


By Ricky Lai

Hong Kong is an international financial center whose open economic system allows not only for the free flow of funds, but also for money laundering. Several big global financial institutions have been heavily fined in recent years for violating money laundering laws. That’s why it’s imperative to establish effective anti-money laundering policies and procedures for related-industry players, such as financial practitioners, remittance companies, money changers, money lenders, real estate agents, trust and company service providers, jewelers, accountants and lawyers.

Many people have experienced the long waits required for banks to complete multiple “getting to know you” procedures and get internal approvals just to open a corporate account at a Hong Kong bank. In some cases, waits may even stretch on for two months without results.

It wasn’t supposed to be that difficult, but it became that way largely due to anti-money laundering laws. Hong Kong’s anti-money laundering legislation sprang from its Organized and Serious Crimes Ordinance, whose Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance took effect in 2012. The ordinances require financial institutions to carry out due diligence and keep records on their customers, and provide staff with anti-money laundering and risk assessment training.

Furthermore, if a customer is unwilling or unable to give a reasonable explanation for one or more suspicious transactions, or if its financial activities are not consistent with what it should be doing in the normal course of business, financial institutions must file suspicious transaction reports to the Joint Financial Intelligence Unit (JFIU) of the Hong Kong Police Force and Customs and Excise Department.

Overriding client privacy

What’s more, customers who are Politically Exposed Persons (PEPs) are subject to even stricter customer identification measures. Financial institutions and designated non-financial enterprises and other related professions are therefore required to have appropriate risk-assessment measures in place to identify PEPs.

JFIU is a regulatory body that has no law enforcement powers like the Securities and Futures Commission (SFC) or Independent Commission Against Corruption (ICAC) in Hong Kong. Its role is to receive, analyze, and store suspicious transaction reports from all parties. It then assesses and analyzes them to determine whether a customer is suspected of money laundering, and notifies local or overseas law enforcement agencies, or financial intelligence units around the world. All suspicious transaction reports are confidential documents.

Reporting a suspicious transaction is not regarded as a breach of confidentiality, nor can an institution be sued or held liable for damages for violating a client’s privacy by reporting the suspicious transaction. In other words, legally speaking, reporting suspicious transactions overrides a client’s right to confidentiality.

In addition to financial institutions, others like trust companies and company secretaries must be licensed to do their work. Their licensing requirements should be on par with those for financial institutions. That means that whenever there are reasonable grounds to suspect a customer of money laundering, even if the suspicion eventually proves to be invalid, a suspicious report should be submitted to the JFIU. Otherwise, the service provider could be violating the anti-money laundering law and potentially be held criminally liable if money laundering allegations later prove to be valid. In summary, anti-money laundering has become an integral part of good corporate governance in Hong Kong.

This commentary is the views of the writer and does not necessarily reflect the views of Bamboo Works

Have a great investment idea but don’t know how to spread the word? We can help! Contact us for more details.

To subscribe to Bamboo Works free weekly newsletter, click here

Recent Articles