Banks learn about the difference in US and HK moneylaundering rules

Monday, 25 August, 2014, 3:34am

BusinessBanking & Finance
REGULATION
Enoch Yiu and Don Weinland
Monetary Authority says while it does not use the same tools as its US counterparts,
it insists the standards in HK are just as rigorous
Standard Chartered is the latest global bank with extensive operations in Hong Kong
to learn the hard way that financial regulators in the city and the United States take a
very different approach to the enforcement of anti-money laundering efforts.
The New York Department of Financial Services last week fined Standard Chartered
US$300 million after its New York branch failed to flag high-risk transactions from
clients in Hong Kong and the United Arab Emirates.
In December 2012, HSBC Holdings agreed to pay US$1.92 billion in fines to settle
charges related to money laundering and terrorist financing levelled by US
authorities.
The Hong Kong Monetary Authority has never fined any banks for such breaches,
although the court has imposed heavy penalties on individuals for money laundering.
The steepest punishment was meted out to Luo Juncheng, who was jailed for 10
years in January last year for laundering more than HK$13 billion involving online
transactions between Hong Kong and the mainland over eight months.
The HKMA says that while it has different supervisory tools to that of its US peers, it
insists the standards in Hong Kong are just as high. Both jurisdictions are members
of the Financial Action Task Force (FATF), requiring banks under their watch to have
measures in place to report or monitor their customers to prevent the bank networks
being used for illegal transfers.
"Different jurisdictions face different money laundering and terrorist-financing threats,
therefore in practice, different regulators have different measures tailor made to their
local market operations," an HKMA spokeswoman said.

She cited the concerns in US about money laundering related to Mexican drug
cartels.
In contrast, worries about illegal cross-border transactions are closer to home for
Hong Kong. The city has adopted a risk-based supervisory approach that requires
more bank vigilance over large transfer volumes.
"Hong Kong, as a major commercial and trading hub in Asia, naturally has a very
large volume of cross-border transactions," the spokeswoman said. "Using different
supervisory tools doesn't mean we have a weaker regime. We have a wide range of
powers under the banking ordinance which allow us to ensure continuing
enhancement on banks' anti-money-laundering and counter-terrorism controls.
"HKMA is empowered to restrict banks' business and remove their management
teams in extreme scenarios."
She said the HKMA had doubled the resources to ensure banks comply with the antimoney laundering rules and report suspicious transactions to the Joint Financial
Intelligence Unit, which is run by the police and customs. Local banks reported
12,931 suspicious transfers in the first five months of this year.
Hong Kong introduced an anti-money laundering law in 2012 after the FATF in 2008
pointed out the city did not meet global standards without such a law. The law adds
requirements for banks to step up due diligence on customers, with the provision of
fines of up to HK$10 million for each breach found against a bank of its anti-moneylaundering responsibilities.
Graham Lim, a partner at law firm Jones Day, said regulators in the US - in contrast
to their Hong Kong counterparts - had decades of experience tracking suspect
transactions.
"KYC [know-your-client] type rules in the US have been around since the 1970s, with
a sharp uptick since 911 and the enactment of the [anti-terrorism] Patriot Act. The US
has a unique and deeper history compared to most other countries, including Hong
Kong," Lim told the South China Morning Post. "The regulators all have the same
objective in mind but with different legal rules and enforcement histories, you're
going to see differences in the way these regulators work."

A specialist involved in cross-border bank transactions said that when a bank

conducted a transaction between Hong Kong and New York, a gap in compliance
spending existed between the two jurisdictions.
Financial centres such as New York exacted increasingly high compliance spending
from banks, said the specialist, who asked not be named. The cost is lower in Hong
Kong and banks here are unlikely to spend in order to meet foreign regulations.
Patrick Rozario, a director and head of risk advisory services at accounting firm
BDO, said Hong Kong would be hard pressed to match the US on combating money
laundering and terrorist financing. "The legal systems between Hong Kong and the
US are very different. The businesses conducted by the lenders in the two markets
are also different. Hence, the regulators also adopt different approaches," he said.
Christopher Cheung Wah-fung, the legislator for the financial services sector, said:
"The US regulator does not understand Asian business practices and culture. I do
not see why we should follow the US way of regulation."
Topics:
Standard Chartered Bank
Source URL (retrieved on Aug 28th 2014, 4:52pm):
http://www.scmp.com/business/banking-finance/article/1580466/banks-learn-aboutdifference-us-and-hk-money-laundering