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Launderers in hot water

Published on Tuesday, 23 Sep 2014
Kyran McCarthy

Whether it is in the context of funding terrorism, hiding the proceeds of crime, or evading tax or legal controls, money laundering is making more headlines around the world than ever before. However, this doesn't necessarily imply a breakdown in the rule of law, particularly in Hong Kong.

"I don't necessarily think there's a growing problem in Hong Kong, however, there is clearly greater awareness," says Kyran McCarthy, KPMG's Asia Pacific head of anti-money laundering (AML) and sanctions services.

However, McCarthy believes the stakes have never been higher for financial institutions to have robust AML systems in place. Money laundering fines are increasing from millions to billions of dollars, while regulators - and the public at large - are holding senior executives to a greater standard of accountability. Punishments for systemic oversights are on the rise and company reputations are at risk of being damaged.

The Hong Kong Monetary Authority (HKMA) has greatly increased the resources it devotes to this area. "In Hong Kong, the Securities and Futures Commission [SFC], HKMA and Office of the Commissioner of Insurance [OCI] are significantly increasing the number of new hires with AML skills in an effort to stay on top of evolving money laundering cases and trends," McCarthy says.

Much of the guidance given to local financial institutions was drafted in response to a review conducted by the intergovernmental Financial Action Task Force (FATF) in 2007. The FATF is an intergovernmental organisation that provides recommendations for governments to implement regulations to combat money laundering and counter-terrorist financing.

"FATF conducts mutual evaluations of its member countries. The outcome of its review of Hong Kong in 2007 was the AML ordinance, which came into play in April 2012," McCarthy says.

Following this, the SFC, the HKMA and the OCI jointly drafted guidance related to the ordinance in July 2012.

"Since 2007, Hong Kong has taken significant steps to meet the FATF recommendations," McCarthy says. "The Hong Kong regulators are very active, not only to confirm compliance with the AML ordinance, but also to provide as much guidance and clarification as they can through both seminars and guidance notes. However, there are areas where clearly more guidance can be issued, particularly around things like institutional risk assessments, trade-based AML controls and tax evasion."

McCarthy points out that KPMG's recent global AML survey found that since 2004, respondents have consistently been keen for regulators to collaborate with them to address any challenges relating to AML compliance, and not just impose sanctions.

"I genuinely believe the regulators in Hong Kong do take a collaborative approach," he adds. "However, those financial institutions that don't come to the table are very likely to be penalised."

McCarthy concludes that all of this means the scrutiny of financial institutions and their AML systems - or lack thereof - is rapidly increasing, and will continue to do so for the foreseeable future.

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