To Report or Not to Report: Hong Kong Money Laundering Requirements

Hong Kong has long been recognised as one of the most liberal economies in the world. Foreign businesses can easily enter the market, there are no restrictions on the movement of capital in and out of the territory, nor are there any exchange controls. Yet it is this very freedom which leaves Hong Kong vulnerable to money laundering. As has been noted by the Financial Action Task Force in its Typologies Report, financial intermediaries are sometimes (innocently) caught up in such operations.

Requirements to report

The Hong Kong Government has attempted to address this problem by enacting legislation which requires any person who knows or suspects that any property may relate to drug trafficking, to an indictable offence or to terrorist activity, to report to an authorised officer. Failure to disclose may result in a person being found guilty of an offence, for which he or she may be liable to a fine of HK$50,000 and 3 months imprisonment.

The definitions of the crimes subject to the reporting requirements are broad. Under the Drug Trafficking (Recovery of Proceeds) Ordinance ("DTROPO"), the definition of drug trafficking includes drug trafficking anywhere in the world. Similarly, under the Organized and Serious Crimes Ordinance ("OSCO"), the term indictable offence refers to conduct anywhere in the world which would be an indictable offence in Hong Kong, regardless of whether or not it would constitute an offence in the place in which it occurred.

Duties of confidentiality

A dilemma may arise for certain professions which owe duties of confidentiality to their clients. The legislation seeks to resolve the conflict between the duty to report and the duty of confidentiality by stating that any disclosure of information under section 25A(1) of both DTROPO and OSCO shall not be treated as a breach of any restriction on disclosure. Legal professional privilege is preserved and cannot be undermined by these provisions. Solicitors therefore must refuse to disclose anything that is privileged and, therefore, protected.

Money Laundering prosecutions

Despite the apparently stringent standard, some might argue that the legislation has not been particularly effective. From 1996 to November 2001, there were 3,358 investigations into money laundering activity. These investigations resulted in only 119 prosecutions and 54 convictions. It is also noteworthy that there has only...