Anti-Money Laundering and Counter-Terrorist Financing
This domain tests the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) as applied to licensed corporations through the SFC's AML/CFT Guideline, and how a firm builds a risk-based programme rather than a checklist.
Framework
- The AMLO sets the statutory duties; the SFC Guideline applies to licensed corporations and the HKMA Guideline applies to registered institutions.
- Four pillars: senior management responsibility, risk-based customer due diligence, record keeping, and ongoing monitoring with reporting.
- Firms must carry out a firm-wide money laundering and terrorist financing risk assessment and apply a risk-based approach.
Customer due diligence
When CDD is required: before establishing a business relationship; for occasional transactions of HK$120,000 or more; where money laundering or terrorist financing is suspected, whatever the amount; and where previously obtained data is doubtful.
What CDD requires: identify the customer and verify identity; identify the beneficial owner (an individual holding more than 25% of shares or voting rights) and the controller; screen against terrorist and sanctions lists; identify politically exposed persons; and establish the purpose and intended nature of the relationship.
Enhanced due diligence applies to PEPs, non-face-to-face customers, higher-risk jurisdictions and unusual patterns. Simplified due diligence is permitted only for genuinely low-risk cases.
Records and reporting
- Records must be kept for at least 5 years after the end of the business relationship or completion of the transaction.
- Suspicious transaction reports go to the Joint Financial Intelligence Unit. Failure to disclose and tipping-off are criminal offences, and there is no minimum amount.
Worked example
A client asks to fund a HK$1.2 million subscription from an unrelated third-party company. The firm must identify and verify the third party, establish source of funds, apply enhanced scrutiny, obtain internal approval under its policy, and consider filing a suspicious transaction report. Accepting the deposit without this analysis is a breach of the risk-based approach and of the prohibition on unexplained third-party funding.
Traps
- Applying the HK$120,000 threshold to every transaction rather than occasional transactions.
- Assuming PEPs are only foreign politicians; domestic and international organisation PEPs are included.
- Confusing the 5-year AML record period with the 7-year record-keeping rule for licensed corporations.
- Delaying a report while continuing to investigate, which risks tipping off.