| Hong
Kong at laundering's cutting edge |
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Hong Kong and Singapore
face a money laundering clampdown in the next few months as
local banking organisations and regulatory authorities launch
rulebooks bringing local rules in line with international standards.
These standards are recommended by the Financial Action Task
Force (FATF) and the Basel Committee. Some Asian financial
institutions will be forced to tighten up their controls.
Local banks, and branches
of institutions based in the Asian region can expect tighter
scrutiny. But the new rules are expected to have minimal affect
on international private banks established in the two jurisdictions
who apply systems laid out by their headquarters, say regulators.
Asia ’s two leading financial
centres are taking different routes to money laundering compliance.
Singapore’s new rules will be based on risk-based principles,
says Tan Sin Liang, a partner with SL Tan and Co, who is advising
the Monetary Authority of Singapore (MAS) on its money laundering
law. Countries with risk-based systems delegate decisions about
the level of due diligence imposed on each transaction or customer
to the bank. The local regulators typically police the system
with unannounced visits.
The system is devised to assist the
banks, says Mr Tan: ‘We are throwing the ball into the
banks’ court. The private bank has to determine for itself
whether a customers is a higher or lower risk. It does not
have to apply the whole range of due diligence procedures to
a low risk customer. That is good for the banks because it
means they don’t have to apply the same set of rules
to every customer. This is the international approach and it
is the way forward.’ |
| Risk-based systems rely heavily on
the competence of a bank’s compliance department, and
not all regulators are prepared to trust it. The Hong Kong
Monetary Authority (HKMA), for example, has taken the prescriptive
approach to money laundering control. This provides a set of
rules based on the best practice of Western banks. A group
of leading international private banks active in Hong Kong,
including Citibank, HSBC, BNP, JP Morgan, DBS and Credit Suisse,
advised the HKMA on their rulebook. |
| Simon Topping, the executive director
at the HKMA, says the system will be tough. ‘Our rules
are very detailed and practical. They say what you really need
to do, and these are the checks you must enforce. We want themto
help us catch some suspicious transactions. But we don’t
want to overburden either the banks or the customers.’ |
| Hong Kong’s rulebook is also
designed to send out a message to investors. ‘Our clear
and transparent standards will attract business not repel it.
People will say Hong Kong is a place where we know it is safe
to do business. They will know it is not some dodgy old offshore
center or tax haven. We want to be regarded as a smaller version
of London or New York. If our new rules prevent a bit of dodgy
business coming here because they want banking secrecy, then
they can go to another financial center that will take it.’ |
| Hong Kong likes to be regarded as
the region’s money laundering policeman and Topping says
the territory is widely consulted by other law enforcement
authorities in the Region. ‘Someone has got to stand
up and be counted Someone has to carry the burden, and if it
can help the rest of the region develop along the same lines
then that’s good. We are prepared for a little bit of
grief at the outset.’ |
| Singapore ’s tough money laundering
stance is appreciated by Western bankers. Daniel Truchi, CEO
of SG Private Banking (Asia Pacific), says: ‘Their rules
for money laundering, drug trafficking, and terrorism are very
strict. They are comparable in essence to Europe. Hong Kong
and Singapore cannot afford to be embroiled in a money laundering
scandal if they want to keep the status of being Asia’s
major offshore centers.’ According to Urs Brutsch, global
head of clients, ABN AMRO Private Banking, ‘ Singapore
is as strict as Switzerland. They have very tough regulators
and an understanding of the Asian business spirit. They want
to help the industry grow, because it is clearly one of Singapore’s
main priorities to make this a global financial center. The
country has a good balance of strong regulation, with clear
guidelines.’ Brutsch argues that the region’s retail
banks present a greater money laundering risk than its private
banks. |
| Economies east of Hong Kong and Singapore
present the greatest money laundering threat to the region.
The Financial Action Task Force has blacklisted five countries
there, including Indonesia and Philippines, for the inadequacy
of their law. Indonesia gives the authorities greater concern
than Philippines where efforts are underway to pass anti-money
laundering laws, and provide a policing infrastructure. Topping, ‘ The
Philippines have are working to adopt the measures; they are
just not quite there yet! So this is an area where the banks
have to be very careful, especially when lending to customers
from countries on the blacklist.’ |
| Countries in Asia may have money laundering
laws on their statute books but many are unable to police them,
says Martyn Bridges of UK consultancy Bridges and Partners. ‘These
countries have the laws, but the further east you go, the less
they are applied.’ Observers speak of concern about China’s
level of compliance with international standards, although
China is not included on the FATF’s blacklist. Bridges
says the Region’s thriving cash economy presents the
regulators with their greatest difficulties. ‘The Asian
financial sector does not have the same degree of sophistication
as that in Europe so people tend to use cash more. They also
use cash for other reasons, such as tax evasion. Hopefully
they won’t take in suitcases to their bank, those days
should have gone.’ |
| Regulators expect Indonesia and Philippines
to follow in Hong Kong and Singapore’s footsteps, and
gradually outlaw the cash economy, says Brutsch, ‘Ten
years ago, a lot more cash used to go around, physical cash
as in bank notes. Today we have very few cash transactions.
Clients now know that the banks will ask questions if large
amounts of cash comes in. If someone comes in with $100,000
in cash it looks very suspicious!’ |
| But cash remains a key part of Japan’s
economy and that increases the risk of money laundering, says
Chizu Nakajima, the director of the Centre for Financial Regulation
and Crime at London’s Cass Business School. ‘People
prefer to deal in trade because there is widespread mistrust
of the banking system. This increases the opportunities for
organised criminals and money launderers.’ Nakajima also
warns about the resurgence of the Yakuzai organised criminal
gangs who present Japan’s primary money laundering threat. |
| Asia’s cash economy suits not
only its drugs barons who can move their money around without
leaving a trace, but also a growing group of terrorists. Monetary
authorities now regard them as their primary threat, says Tan. ‘Terrorist
financing is a very big concern. The problem is detecting the
terrorist finance because the amounts are very small. That
is the challenge. Singapore has passed a whole series of law
on terrorism financing, not just money laundering.’ |
The recent resurgence of terrorism
in parts of the region is set to give money laundering initiatives
greater momentum. Hong Kong and Singapore’s pioneering
work has a long way to go.
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