Hong Kong

1. Does Hong Kong have legislation making it a criminal offence to engage in money laundering and/or terrorist financing?

Yes. In Hong Kong, the key statutes covering anti-money laundering offences include the Organized and Serious Crimes Ordinance (Cap. 455) (OSCO), the Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405) (DTROPO) and the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615) (AMLO).

The United Nations (Anti-Terrorism Measures) Ordinance (Cap. 575) (UNATMO) is the principal legislation that criminalises terrorist financing.

2. To whom does the legislation apply?

These statutes apply to any person (including corporate entities) acting in Hong Kong. Please see also our response to question 7 below.

3. What does the legislation prohibit?

The OSCO and the DTROPO prohibit anyone from dealing with any property, knowing or having reasonable grounds to believe that the property represents proceeds of an indictable offence or drug trafficking (as the case may be).

The UNATMO prohibits the provision or collection of any property with the knowledge or intention that that property will be used for a terrorist act. It also prohibits any person from dealing with terrorist property, or making property or financial services available to (or for the benefit of) terrorists or terrorist associates.

The above statutes also provide for the statutory duty of a person to make a suspicious transaction report (STR) where he or she knows or suspects that a property represents the proceeds of drug trafficking or an indicatable offence, terrorist property, or was used in connection (or is intended to be used) in drug trafficking, an indictable offence or a terrorist act. It is also an offence to “tip off” any other person in relation to matters which are likely to prejudice any investigations that may be conducted, where a person knows or suspects that a disclosure has been made to an authority.

The AMLO also imposes additional requirements on financial institutions (FIs), such as banks, stored value facility licensees and insurers, and “designated non-financial businesses and professions” (DNFBPs), such as solicitors, accountants, real estate agents, and trust and company service providers, to maintain a compliance programme that covers customer due diligence, on-going monitoring, internal controls and record-keeping. Recent amendments to the AMLO introduce a licensing regime for virtual asset service providers (VASPs) and a registration regime for dealers in precious metals and stones (DPMSs) which will be effective on 1 June 2023 and 1 April 2023 respectively (subject to the transitional grace period). After the respective effective dates of the amendments, statutory anti-money laundering (AML) and counter-terrorist financing (CTF) obligations will be imposed on the VASPs and DPMSs. Please see also our responses to questions 8 and 9 below.

4. How is money laundering defined? Does underlying criminal activity have to be proven?

Money laundering has a broad definition under the OSCO and the DTROPO. A person commits the offence of money laundering where they deal with any property, or know or have reasonable grounds to believe that such property directly or indirectly represents any person’s proceeds of an indictable offence (as opposed to a summary-only offence) or drug trafficking, whether or not it is committed in Hong Kong or elsewhere. “Dealing” includes receiving, acquiring, concealing, disguising, disposing, converting, bringing into or removing the property from Hong Kong or using the property to borrow money or as security. The “property” in question may include movable and immovable property located in Hong Kong or elsewhere, payments, derived property or a financial advantage.

Under the OSCO and the DTROPO, it is not necessary to prove the actual commission of an indictable offence (or drug trafficking), so long as the prosecution can establish beyond reasonable doubt the defendant’s requisite knowledge or belief that the property in question represents proceeds as such.

Similarly, under the UNATMO which prohibits terrorist financing (including providing or collecting property for use to commit a terrorist act), it is not essential for the prosecution to prove that a terrorist act has been committed or the property has been used to commit a terrorist act. It is sufficient to prove that the defendant has the knowledge or intention that the property is to be used to commit terrorist acts.

5. What level of intent or knowledge is required to establish a violation?

The mens rea required under the money laundering offences under the OSCO and the DTROPO is either actual knowledge, or reasonable grounds to believe, that the property in question represents any person’s proceeds of an indictable offence or of drug trafficking. The “reasonable grounds to believe” test is whether a reasonable person who shared the knowledge of the defendant at the time would have been bound to believe the property was tainted and the defendant’s subjective honest belief is only relevant as a mitigating factor in sentencing. Please see question 9 below.

Under the UNATMO, a person must not provide or collect any property knowing or with the intention that it will be used to commit a terrorist act. Recklessness as to whether such property will be so used is insufficient. In contrast, when it comes to dealing with terrorist property or making property or financial services available to terrorists or terrorist associates, the prosecution may establish either actual knowledge or recklessness on the part of the defendant as to whether the property represented terrorist property, or whether the recipient is a terrorist or terrorist associate.

6. What are the potential penalties for infringing the legislation?

The maximum penalty for money laundering offences under the OSCO and the DTROPO is a fine of HK$5 million and imprisonment for 14 years. Persons convicted of terrorist financing under the UNATMO could face a maximum penalty of a fine (no maximum level specified) and imprisonment for 14 years on indictment.

7. Does the legislation have extra-territorial reach?

While there are no express jurisdictional limits, in practice the competent authorities typically exercise jurisdiction only where there is a Hong Kong nexus. Where appropriate, the authorities may also pursue enforcement actions against an individual outside Hong Kong by way of extradition.

Hong Kong courts have jurisdiction over the terrorist financing offences committed in Hong Kong (by any person) and those committed outside Hong Kong by Hong Kong permanent residents or a body incorporated or constituted under Hong Kong law.

8. Are there additional anti-money laundering or counter terrorist financing regulations or obligations, such as registration or reporting obligations, for businesses or individuals that operate in particular sectors or undertake particular activities?

As stated above, the AMLO imposes additional requirements on FIs (and DNFBPs) to maintain a compliance programme that covers customer due diligence, on-going monitoring, internal controls and record-keeping. Subject to transitional arrangements, VASPs will have to obtain a licence from the Securities and Futures Commission (SFC) from 1 June 2023 onwards. DPMSs engaging in any transactions with customers at or above HK$120,000 will have to be registered with the Customs and Excise Department from 1 April 2023 before they can conduct their relevant business in Hong Kong. VASPs and DPMSs will be required to comply with statutory requirements under the AMLO.

The AMLO further authorises the competent authorities, including (but not limited to) the SFC, the Hong Kong Monetary Authority (HKMA) and the Insurance Authority (IA), to supervise the compliance of individual FIs and DNFBPs with the statutory requirements. The AMLO enables these competent authorities to publish guidelines to provide more detailed guidance applicable to the relevant sector in relation to the operation of the statutory requirements under the AMLO.

9. What are the potential penalties for failing to comply with these obligations?

Non-compliance with the AML/CTF obligations within the scope of specified provisions in the AMLO could lead to the imposition of a maximum pecuniary penalty of HK$10 million or three times the amount of the profit gains, or costs avoided, as a result of the contravention. The competent authorities may also issue a public reprimand, order remedial actions to be taken within a given timeframe and, in more serious cases, revocation of the licence or authorisation of the institution.

Where a breach is knowingly committed, a financial institution and its employees could face a maximum penalty of a HK$1 million fine and imprisonment for two years. Where the defendant is found to have breached the obligations with an intent to defraud the regulator, the maximum penalty is a fine of HK$1 million and imprisonment for seven years.

A failure to make a STR could lead to the imposition of a fine of up to HK$50,000 and a three-month imprisonment.

10. Who are the relevant enforcement authorities in Hong Kong and what are their contact details?

The Hong Kong Police Force, the Customs and Excise Department and the Independent Commission against Corruption are primary enforcement authorities. Other regulatory bodies such as the SFC, the HKMA and the IA also have statutory responsibilities to supervise compliance with AML/CTF measures. Further information can be found on their websites.