Do I have to worry about Money Laundering when I am receiving payment?

Money laundering is when someone transfers money to hide illegally obtained money (e.g. received from criminal sources), in order to conceal where the money came from by making it seem as if it was taken from a legitimate source.

While there are several different methods that can be used to launder money, one possible way is by placing the laundered money to pay for a legitimate service/good in the economy.

Why is this important for my business?

Hong Kong, as one of the major financial centres in the world, has very strict rules on money laundering and terrorist financing. This is why it should be emphasized to take productive steps to avoid unintentionally participating in a money-laundering scheme. While it is true that money laundering is more prevalent than others in certain industries such as Real Estate and investment, it is still a good idea to be aware.

Moreover, money laundering becomes a criminal offence under the Organised and Serious Crimes Ordinance (Cap 455), where an individual commits the offence of money laundering if they deal with any property (i.e. money) which they know or has reasonable grounds to believe to be proceeds of crime.

Thus, you don’t have to be committing the money laundering, but if you strongly suspect you are receiving payment that was from an illegal source, you could be liable for this crime. Therefore, you cannot afford to simply turn a blind eye, if there are reasons to be suspicious.

Examples of What to Look Out For

• Customers who transfer counterfeit notes
• Customers who are transferring a large amount of money from overseas for cash payments
• Sudden large cash deposits made by individuals for business purposes are usually paid in cash or cheques (or other normal instruments used)
• Customers depositing cash through numerous credit slips, making the total of each deposit unremarkable (but a total of all credits is significant)

Three Stages Signalling Criminal Activity

1. Placement; disposing of physical cash coming from illegal acts

2. Layering; creating complex ‘layers’ of transactions to cover up the source of money

3. Integration; Usually after layering, making the proceeds seem legitimate and not from criminal acts; integrating the funds into the economy to make it look like it is connected to legitimate business activities

What makes a business more secure against money laundering?

(1) Only allowing for smaller payments

(2) When the SVFs or RPS used is a more established means of transferring money (e.g. using Octopus systems, Union Pay)

(3) Businesses should have an electronic trail, used to identify and locate the user (e.g. money coming from a bank account)

Other precautionary methods to adopt:

• Maintain proper records of financial transactions (provides evidence for possible investigations)
• Keep a proper internal control system to monitor the payments
• Report any suspicious transactions
• Understand who your customers are and whether your business accepts payments for ‘high-risk activities’
• Know the purpose of the transactions and where the funds came from
• Talk to the consumer and ask for more information to clarify suspicious transactions
• Have internal policies, procedures and controls; ensure to communicate these with all employees on topics such as record keeping and methods to report suspicious transactions
• Conduct independent audits to test compliance with internal policies, procedures and controls

What to do if you suspect money laundering from received payments

If you suspect or know there to be a case of money laundering, you should make a suspicious transaction report (STR) to the Joint Financial Intelligence Unit.

This is what you should include in your report:

• Contact details and personal particulars of the individual(s) involved in the activity
• Details of the suspicious activity
• What indicated the suspicious activity
• Other information that the STR requires/questions

Key Takeaways

• Always monitor the received payments and look out for any suspicious or out of the ordinary transactions
• Business operators should have adequate systems and controls in place to screen payments and record transactions

Bibliography

• https://www.nd.gov.hk/pdf/moneylaundering/AML_eng_part3.pdf
• A Guideline issued by the Monetary Authority under section 7(3) of the Banking Ordinance:  https://www.hkma.gov.hk/eng/regulatory-resources/regulatory-guides/guidelines/2000/12/20001222/#a5
• A Guideline issued by the Monetary Authority under section 7(3) of the Banking Ordinance for Stored Value Facilities: https://www.hkma.gov.hk/media/eng/doc/key-functions/financial-infrastructure/infrastructure/svf/Guideline_on_AMLCFT_for_SVF_eng_Sep2020.pdf

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