AML Updates

From the Secretariat: Key Takeaways from the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (the “Amendment Bill”) and Hong Kong's Money Laundering and Terrorist Financing Risk Assessment Report 2022 (the “Report”) 

The Amendment Bill

• Introduction of a licensing regime for Virtual Asset Service Providers (“VASP”)
• Registration regime for Dealers in Precious Metals and Stones (“DPMS”)
• Extension of the statutory AML/CTF obligations contained in the Anti-Money Laundering Ordinance, Cap. 615 (“AMLO”) to VASPs and DPMS
• Miscellaneous amendments to AMLO addressing technical issues identified in the Mutual Evaluation 2019 Report and other Financial Action Task Force (“FATF”) contexts impacting law firms in the following areas:
  • Treatment of Former PEPs - allowing the exemption of Enhanced Client Due Diligence (“EDD”) requirements in respect of former PEPs, if risks of money laundering and terrorist financing are low, permitting legal practitioners to determine the extent of customer due diligence (“CDD”) required in respect of such persons
  • Amendment of “beneficial owner” definition for Trusts - better aligning the definition of “beneficial owner” in relation to a trust under AMLO with that of “controlling person” under the Inland Revenue Ordinance (Cap.112), by clarifying that, where a trust is concerned, it includes trustees, beneficiaries and class(es) of beneficiaries
  • Digital ID verification - allowing the engagement of digital identification systems to assist the conduct of CDD in situations where a customer is not physically present for customer identification and verification purposes so that, if the CDD requirements are met using reliable and independent digital identification systems, the EDD requirements contained in Schedule 2, Part 2, Section 9 to AMLO, and paragraph 98 of the PDP are not required
• The Law Society will be amending Practice Direction P (“PDP”) to reflect the miscellaneous amendments in the Amendment Bill coming into force in early 2023
• PDP will be further enhanced with new provision(s) regarding combating of proliferation financing (“PF”) to align the PDP with corresponding provisions in Hong Kong legislation and with FATF’s recommendations in this area

The Report

• The Report found no changes to the overall Money Laundering (“ML”) and Terrorist Financing (“TF”) risk exposure ratings identified in the first Hong Kong ML and TF Risk Assessment Report 2018. The Hong Kong’s exposure to ML/TF/PF risks has been assessed as:
  • Medium - High level for ML risk
  • Medium - Low level for TF risk
  • Medium - Low level for PF risk
• The legal sector is exposed to Medium - Low ML, TF and PF risks
• ML threats are identified in the course of providing trust or company services and processing real estate transactions, including cross-boundary transactional work due to associated ML risks
• Legal practitioner submissions of Suspicious Transaction Reports (“STRs”) are the highest among the Designated Non-Financial Business and Professions, evidencing strong AML/CTF awareness, and an effective system for identifying and reporting suspicious activity
• Members mostly submit STRs in relation to real estate transactions without any mortgage or financial assistance
• Further progression is required to establish a robust risk-based supervision of law firms’ compliance with the AML/CTF requirements

For details click here.

• Introduction of the AML learning tools (AML Policy Template, Guidance on Alternative Processes to Verify a Client’s Identity, AML Leaflet for Clients, CDD Forms), please click here under "Tools and Templates” tab.
• AML Review and the AML Risk Assessment Questionnaire (“AML Questionnaire”) - submission details, including a copy of the AML Questionnaire, please click here. 
• An AML Forum for law firms has been scheduled on 30 September 2022 to share an overview of the AML Review and to introduce the relevant AML learning tools. Members can now sign up to the AML Forum through the Hong Kong Academy of Law website, please click here.
• Law firms should receive an e-letter from the President of the Law Society on 9 September 2022 with the above information

For details click here.

Key messages from the Law Society regarding:

• The sector-wide AML Review (Phase II) 
• AML Risk Assessment Questionnaire 
• An overview of AML risk-based supervision undertaken by Designated Non-Financial Businesses and Professions (“DNFBPs”) 
• Future steps towards AML supervision of legal professionals 
• Development of AML/CTF learning tools (AML Policy Template, Guidelines on Alternative Processes to Verify a Client’s Identity, AML Leaflet for Clients, CDD Forms)
• AML Forum - scheduled for 30 September 2022 to provide further detail on the above initiatives

For details click here 

• Recap on the Law Society’s AML/CTF actions and initiatives   
• FATF’s Mutual Evaluation 2019 and a follow-up recommendation to implement a robust supervision of legal professionals’ compliance with the AML/CTF requirements
• Appointment of the AML Executive 
• Launch of the sector-wide AML Review (Phase I)

For details click here