February 7, 2018: HK SFC AML/CTF Circular

By eric9to5 on February 7, 2018 • ( Leave a comment )

Circular to Licensed Corporations and Associated Entities

Anti-Money Laundering / Counter-Terrorist Financing

United Nations Sanctions

In relation to Chapter 6 of the Guideline on Anti-Money Laundering and Counter-Terrorist
Financing Note 1 and further to our circular of 18 August 2017 on Combating Financing of Weapons of Mass Destruction Activities, the Securities and Futures Commission (“SFC”) would like to further elaborate its expectations on actions that should be taken by licensed corporations (“LCs”) and associated entities (“AEs”) regarding sanctions imposed by the United Nations Security Council (“UNSC”) and introduce an early alert system on new sanctions.

Expected regulatory standards

The UNSC from time to time imposes sanctions on countries, entities and individuals deemed to be engaged in activities including but not limited to terrorism, proliferation of weapons of mass destruction (“WMD”) and corruption. UNSC sanctions resolutions may also target activities, such as trade in certain commodities, which are deemed to support such activities or governments and regimes engaging in them. The UNSC also issues lists of individuals, entities, vessels, etc. that are subject to sanctions.

United Nations sanctions are generally implemented in Hong Kong via regulations under the United Nations Sanctions Ordinance (Cap.537) (“UNSO”), except for UNSC Resolution 1373 relating to terrorism which is covered by the United Nations (Anti-Terrorism Measures) Ordinance (Cap.575) (“UNATMO”). A designation by a Committee of the UNSC of a person as a terrorist or terrorist associate or of property as terrorist property is effected through specification by the Chief Executive under the UNATMO. Sanctions lists are published and updated via notices in the Government Gazette pursuant to the relevant legislation. The SFC provides links to these notices in its circulars issued to LCs and AEs and requires them to screen all new designations against their client lists as soon as practicable whenever there are such updates.

In practice, there is likely to be a time gap between issuance of new or revised sanctions resolutions and/or sanctions lists, and their implementation in Hong Kong. We would remind LCs and AEs that whether or not UNSC sanctions resolutions or sanctions lists have been implemented through Hong Kong legislation, there are offences under existing anti-money laundering and counter-terrorist financing laws that are relevant. For example:

(a)    it is an offence under section 4 of the Weapons of Mass Destruction (Control of Provision of Services) Ordinance (Cap.526) (“WMD(CPS)O”) for a person to provide any services where he believes or suspects, on reasonable grounds, that those services will or may assist the development, production, acquisition or stockpiling of WMD in Hong Kong or elsewhere;

(b)    it is an offence under section 25 of the Drug Trafficking (Recovery of Proceeds) Ordinance (Cap.405) (“DTROP”) and the Organized and Serious Crimes Ordinance (Cap.455) (“OSCO”) for a person to deal with any property knowing or having reasonable grounds to believe it to represent any person’s proceeds of drug trafficking or of an indictable offence Note 2 (which includes an offence under section 4 of the WMD(CPS)O) respectively;

(c)    section 25A of the DTROP and the OSCO as well as sections 12 and 14 of the UNATMO make it an offence if a person fails to disclose, as soon as it is reasonable for him to do so, his knowledge or suspicion of any property that directly or indirectly, represents a person’s proceeds of, was used in connection with, or is intended to be used in connection with, drug trafficking, an indictable
offence Note 2 (which includes an offence under section 4 of the WMD(CPS)O) or is terrorist property respectively;

(d)    section 15 of Schedule 2 to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap.615) (“AMLO”) specifies that a financial institution must, in any situation that by its nature may present a high risk of money laundering or terrorist financing, take additional measures to mitigate the risk of money laundering or terrorist financing. Section 5(5) and (6) of the AMLO makes it a criminal offence if a financial institution knowingly, or with the intent to defraud the relevant authority, contravenes the above provision.

Inclusion of a country, individual, entity or activity in a UNSC sanctions resolution or sanctions list may constitute grounds for knowledge or suspicion for the purposes of relevant anti-money laundering and counter-terrorist financing laws, thereby triggering statutory (including reporting) obligations as well as offence provisions.

LCs and AEs should therefore ensure that in their sanctions screening of customers and payments, they pay regard to countries, individuals, entities and activities included in UNSC sanctions resolutions and sanctions lists as soon as practicable after they are promulgated by the UNSC and regardless of whether the relevant sanctions have been implemented in Hong Kong via UNSO or otherwise. Screening of customers and payments should include customers and transactions:

(a)    involving individuals or entities named in UNSC sanctions resolutions or sanctions lists, whether as customers or related parties;

(b)    connected with countries included in UNSC sanctions resolutions (high-risk jurisdictions); or

(c)    associated with activities named in UNSC sanctions resolutions or sanctions lists.

In addition, LCs and AEs should ensure that they fulfil their obligations with regard to customer due diligence (including enhanced due diligence), transaction monitoring and record-keeping under Schedule 2 of the AMLO, and suspicious transaction reporting under the OSCO, the UNATMO or the DTROP. LCs and AEs should also be alert to the risk of inadvertently committing offences including those of providing services under section 4(1) of the WMD(CPS)O and dealing in proceeds of an indictable offence or drug trafficking under section 25(1) of the OSCO or section 25(1) of the DTROP respectively.

Early alerts

To help enhance the effectiveness of LCs’ and AEs’ screening and other actions with regard to United Nations sanctions, the SFC will, with effect from the date of this circular, issue alerts via its website and/or circulars whenever new or revised sanctions resolutions or sanctions lists relating to terrorism, terrorist financing and WMD proliferation are promulgated by the UNSC. When these new or revised sanctions resolutions or sanctions lists are subsequently implemented under the Hong Kong legislation, the SFC will also update its website upon publication of related notices in the Government Gazette.

As for sanctions resolutions or sanctions lists promulgated by UNSC relating to other issues, LCs and AEs are advised to browse the UNSC Sanctions Committee website (https://www.un.org/sc/suborg/en/sanctions/information) regularly from time to time.

It is each LC’s and AE’s own legal and regulatory obligation to ensure that all relevant UNSC sanctions resolutions and sanctions lists are incorporated into screening databases, whether internal or provided by external vendors, as soon as practicable after promulgation by the UNSC. LCs and AEs should ensure that their screening databases are updated as soon as practicable whenever the abovementioned alerts are issued by the SFC.

Furthermore, LCs and AEs should review as appropriate all existing UNSC sanctions resolutions and sanctions lists issued by the UNSC before the date of this circular. In particular, their attention is drawn to the list of UNSC sanctions resolutions, with relevant URLs, set out in the Appendix to this circular containing sanctions measures not yet enacted in Hong Kong under the UNSO at the date of this circular.

Should you have any queries regarding the contents of this circular, please contact Ms Kiki Wong at 2231 1569.

Intermediaries Supervision Department
Intermediaries Division
Securities and Futures Commission

Enclosure

End