Whether the Hong Kong Association of Banks’ new guidance will add clout to existing regulation remains to be seen
UPDATED : Monday, 14 March, 2016, 6:46pm
Will the development of onion law reduce the flow of dirty money? Photo: Nora Tam
Hong Kong most likely serves as the centre of a vast trade-based money laundering network. Recently, the Post informed us of Colombian drug cartels and mainlanders buying goods via Hong Kong to sell elsewhere (or vice versa). The value of money laundered thus should easily come to between HK$50 billion and HK$200 billion, but probably more. Hong Kong’s lax control over transactions makes it a jurisdiction attractive for trade and investment but also for more nefarious activities.
The Legislative Council’s adoption of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) in 2012 was supposed to show the world the government wanted to seriously tackle money laundering and terrorist finance. Wouldn’t it be nice if the government could actually do so?
Hong Kong’s money laundering cases now seem to be piling up. The anti-corruption drive on the mainland has had such a big impact on retailing and other trade in Hong Kong that few can doubt the importance criminal money from the mainland plays in Hong Kong.
How can we show the world that Hong Kong’s banks seriously want to fight money laundering and the financing of terrorism? The Hong Kong Association of Banks’ (HKAB) guidance paper on combating trade-based money laundering has come to the rescue.
The guidance comes straight out of the AMLO, and anyone trying to apply the AMLO to trade finance would arrive at the same conclusions it does. The guidance thus represents a description of the ordinance with a dash of “trade spice”.
More fundamentally, the guidance represents self-regulation, but not like the stock exchange’s or that of the legal or other professions. The HKAB supposedly consulted the Hong Kong Monetary Authority when writing the guidance. Reciprocally, the HKMA said it “expects every [financial institution] to give full consideration to the adoption of the practices this paper recommends”. Such a quasi-regulatory function represents something new and old in Hong Kong. Association rules have long been based on laws – but still claim to play a regulatory role. This would be like the Hong Kong Dried Sea Food and Grocery Merchants Association promulgating rules against theft by lifting text from the Theft Ordinance, illustrating with examples, and then noting the regulatory value of these rules.
The guidance represents neither hard nor soft law. It does not exemplify soft law; it is based on hard ordinance law. But it does not represent hard law either, as it introduces no new rights or obligations. Instead, it reflects a new legal creation – an extra restatement of law – which serves to remind banks to know their clients and their transactions.
The paper represents a retelling of the law – written in a voice not unlike our own HKMA or Securities and Futures Commission regulations. We have seen this before in other places.
Anti-corruption guidance “instruments” (as they call themselves) in the 1990s and 2000s made firms promise to introduce anti-corruption provisions into contracts and employee codes of conduct. Many in the United States, Canada and Britain make parties promise not to pay bribes (an illegal act in any case). Now anti-corruption rules are layered into criminal law, civil law, contract law, and trade rules. Like in an onion, each layer of restatement adds nothing different.
Does such “onion law” make our financial system better or worse? Does checking money laundering compliance against yet another checklist make it safer?
The guidance provides a much-needed resource for financial institutions too poor to pay staff who can translate the AMLO’s broad principles into workable internal procedures. It also shows people like the US government and the Financial Action Task Force that Hong Kong’s regulators and industry associations are doing something about money laundering and terrorism finance. Do Hong Kong’s financial firms now possess guidance on fighting money laundering? Yes.
But will the paper actually reduce the flow of dirty money (or money destined for the armed and disgruntled)? Will the development of onion law around the world actually help improve legal compliance? Only statistical analysis and econometric studies will tell for sure.
Dr Bryane Michael is a senior fellow with the University of Hong Kong’s Asian Institute for International Financial Law
http://m.scmp.com/news/hong-kong/law-crime/article/1924615/can-hong-kongs-onion-law-have-effect-money-laundering
