This quarters update was slightly delayed in anticipation of the FATF plenary in October, but we also wanted to cover the Anti- Money Laundering and Counter Terrorist Financing Amendment bill on virtual assets (“the Bill”) which was published earlier this year and will update the main Anti-Money Laundering Ordinance (“AMLO”) in Hong Kong from 2023. (see here for a summary of the latest update. We also provided a general update on compliance here)
We are also taking the opportunity to raise the profile of our Consultant, Charles French, who has been working with us for the last few years and has taken responsibility for drafting these MLRO updates during that time. Internally, he keeps us up to date on AML issues as they arise. Charles previously worked in Hong Kong at an investment bank, working on onboarding, and at prior consultancy practice and has fast become one of the trusted advisers here at Cognitive GRC. In addition to having his own portfolio of clients, Charles leads our AML service provision.
Please feel free to reach out to Charles French directly or Derek McGibney for any of your AML service support needs or issues discussed in our quarterly MLRO resource updates (Back issues area available on our client data portal).
We typically supply these updates to our Money Laundering Reporting Officers/Managers in Charge for Anti-Money Laundering on a quarterly basis to ensure that they are kept up to date with their knowledge on regulatory changes relevant to their roles. We decided to publish this quarters’ update online to show prospective clients what we mean by keeping our clients up to date on matters relevant to their obligations. Important updates can get missed amongst the barrage of e-mails. We keep these updates in our datasite repository for reference and review purposes and encourage our clients to ensure they record a formal review.
Outcomes of the FATF Plenary, Paris, 18-21 October 2022
The FATF restated its sincerest sympathies for the needless loss of life, suffering and destruction caused by the ongoing Russian invasion of Ukraine.
They consider that Russia’s actions continue to violate FATFs core principles. Russia is barred from participating in current and future FATF projects and barred from participating in meetings of the FATF-Style Regional Bodies as an FATF Member. Russia has been stripped of all its leadership roles since June 2022.
Following the statements issued in March, April and June 2022, the FATF reiterated that all jurisdictions should be vigilant to emerging risks from the circumvention of measures taken against Russia in order to protect the international financial system.
2. FATF Statement on High-Risk Jurisdictions & Jurisdictions under Increased Monitoring
Since February 2020, the FATF has halted the review process for jurisdictions in High-Risk Jurisdictions subject to a Call for Action. The FATF’s call for action on Iran and the Democratic People’s Republic of Korea remains in effect although the above-mentioned February 2020 statement may not necessarily reflect their most recent status.
Black List (Source: FATF) (aka High-Risk Jurisdictions subject to a Call for Action)
· Democratic People's Republic of Korea
· Myanmar (added October 2022)
Myanmar has been added to the FATF Black List. In February 2020, Myanmar was committed to addressing its strategic deficiencies. Myanmar’s action plan expired in September 2021. In June 2022, the FATF strongly urged Myanmar to quickly complete its action plan by October 2022. Given the continued lack of progress and most of its action items still not addressed after a year beyond the action plan deadline, the FATF decided to call on its members and other jurisdictions to apply enhanced due diligence measures proportionate to the risk arising from Myanmar. The FATF urges Myanmar to work to fully address its AML/CFT deficiencies and Myanmar will remain on the list of countries subject to a call for action until its full action plan is completed.
Grey List (aka Jurisdictions under Increased Monitoring)
FATF now identifies the Democratic Republic of the Congo, Mozambique, and Tanzania as Jurisdictions under Increased Monitoring.
Nicaragua and Pakistan are no longer subject to the FATF’s increased monitoring programme. However, Nicaragua should continue to work to further improve its AML/CFT regime, including to ensure its oversight of Non-Profit Organisations (“NPOs”) is risk-based and in line with the FATF Standards. Pakistan has strengthened the effectiveness of its AML/CFT regime and addressed technical deficiencies that the FATF identified in June 2018 and June 2021,
In most cases, investors that come from FATF members or countries that have been confirmed to have equivalence, will, where appropriate to their type and in absence of other indications of risk, be available for simplified due diligence processes. However, if their country of residence is not a FATF member or deemed equivalent, and, if the jurisdiction is subject to a finding of deficiency, then there would be a general expectation that you will need to engage in enhanced due diligence as part of the client’s onboarding.
However, if the jurisdiction’s deficiencies are not relevant to the type of customer or client being onboarded, then recording that fact and proceeding with simplified due diligence, where allowed under standard approach, can be appropriate.
3. Strategic Initiatives
Improving Asset Recovery
The amount of criminal proceeds that are confiscated are estimated to be less than 1% of total criminal proceeds, and that ambitious and decisive action is needed by the FATF and its members to drive greater asset recovery. Participants of the inaugural joint FATF-INTERPOL Roundtable Engagement (FIRE) agreed on the importance of a strong legal framework to effectively pursue asset recovery.
It was agreed that the FATF should continue to proactively take a leadership role to improve international cooperation in this area and drive greater global asset recovery.
Improving Access to Beneficial Ownership Information
Guidance on Beneficial Ownership (Recommendation 24)
In March 2022, the FATF strengthened its Recommendation 24 which requires countries to prevent the misuse of corporate structures, or legal persons, for money laundering or terrorist financing and to ensure that there is adequate, accurate and up-to-date information on the beneficial ownership and control of legal persons. To help countries and the private sector implement these new requirements, the FATF has developed a Guidance Note which it expects will be released for public consultation in February 2023.
Strengthening the FATF Standard on Beneficial Ownership Information for trusts and other legal arrangements
The FATF also agreed to release proposed modifications to the FATF Standard on beneficial ownership of legal arrangements (Recommendation 25) for public consultation.
The proposed revisions take into account views received on the white paper that the FATF issued for public consultation in June 2022 and aim to ensure a balanced and coherent approach to beneficial ownership in the FATF Recommendations on trusts and other legal arrangements. The FATF expects to finalise these revisions in February 2023.
Illicit Proceeds Generated from the Fentanyl and Related Synthetic Opioids Supply Chains
The FATF also worked on assisting law enforcement and other authorities in carrying out financial investigations into the growing illicit trade in fentanyl and other synthetic opioids more effectively. In North America, Africa and across Asia the non-medical use of fentanyl has caused a record number of overdose deaths and is having a significant impact on public health systems. Despite many countries identifying drug trafficking as a major predicate offence for money laundering, investigations, and prosecutions of laundering of proceeds from synthetic opioids trafficking remain low. The FATF report, which will be published in mid-November, includes risk indicators that can help identify suspicious activity and makes recommendations on the best approaches to detect and disrupt financial flows relating to this illegal trade.
Hong Kong Licensed Corporation and Money Laundering Reporting Officer /Manager-In-Charge for AML and CTF Obligations
We expect the MIC for AML and CFT and MLROs will have access to each of these resources and review these lists from time to time themselves. This is just a reminder to do so. Firms that use administrators or service providers to onboard investors should check that the administrator has access to these lists and confirm that they are following up on them.
Where firms directly onboard clients, they should be reviewing these lists directly on an ongoing basis.
The current status of Lists in Hong Kong and US can be found here.
(i) SFC Alert List https://www.sfc.hk/web/EN/alert-list/all.html
(ii) OFAC List https://www.treasury.gov/ofac/downloads/sdnlist.txt
Non-HK Sanction Lists, OFAC List Reference, Firms with US Nexus or business registration
You can sign up there for updates to the OFAC list if you don’t already receive them. Manager-In-Charge for AML/CFT and/or your Firm’s Money Laundering Reporting Officer should be on this circulation even if the funds do not have an US nexus.
Q3 2022 SFC Updates on AML
During Q3 2022, Anti-Money Laundering / Counter-Financing of Terrorism Circurlars were distributed to Licensed Corporation and Associated Entities.
· 15 September 2022: Further to the updated sanction list on the 27th July, another Circular was issued updating the sanctions list of “individuals and entities” for the Democratic People’s Republic of Korea
For all the above the Securities and Futures Commission expects all new designations to be screened by Licensed corporations (“LCs”) and associated entities (“AEs”) against their client lists as soon as practicable whenever there are updates. LCs and AEs are also reminded to report any transactions or relationships they have or have had with any designated person or entity to the Joint Financial Intelligence Unit.
· 8 July 2022: Circular issuing the publication of the Hong Kong’s Latest Money Laundering and Terrorist Financing Risk Assessment Report.
The Report explores the ML/TF risks and weaknesses confronting Hong Kong in recent years, as well as assessing the risk of proliferation financing faced by Hong Kong.
The Report notes that the securities sector continues to be exposed to transnational, cross-border and domestic ML threats. It notes ML threats from social media investment scams in recent years and “Nominee” accounts to facilitate market misconduct or concealing beneficial ownerships. The increased use of online and mobile trading as well as Work From Home arrangements during the COVID-19 pandemic also provide opportunities for criminals to abuse the industry for online fraud and theft and other related ML activities.
The assessment concludes the ML risk of the securities sector remains at medium level, taking into account the ML threat and vulnerability levels for the securities sector which are both assessed to remain at medium level.
LCs and AEs are reminded to identify and assess ML/TF risks that are relevant to their own circumstances. Considering all relevant risk factors such as products and services offered, delivery and distribution channels, types of customers, countries and geographical locations involved.
Please see SFC for Current Cold Shoulder and Alert Lists.
Disclaimer: The resources provided here are for the use and consideration by persons responsible for Anti-Money Laundering and Counter Terrorist Financing at regulated firms and appointed in that capacity. This document does not represent legal advice. The purpose of the update is to spotlgith information that may be relevant to the respective role. Managers in Charge and Money Laundering Reporting Officers remain fully responsible for keeping themselves up to date with the required knowledge to maintain competent in their roles. There may be other relevant information issued during the period and other jurisdictions