Hong Kong Economic and Monetary Developments and Prospects

1
HONG KONG MONETARY AUTHORITY
Common Deficiencies Identified in Tier 2 AML
Examinations
12 May 2009
2
General CDD

• Failure to verify nationality of non-permanent
  HKID holders
• Acceptance of expired passports
• Failure to record the identity of 3rd parties
  making large cash deposits
• Address proof failure to obtain or acceptance
  of out of date documents
• Inadequate follow-up on outstanding CDD
  documentation
• 3rd party payments from accounts with outstanding
  CDD

3
General CDD

• No periodic review of CDD of lower risk accounts
  in absence of trigger event
• Incoming cross border remittance transactions
  containing incomplete originator information
  inadequate monitoring
• No periodic re-screening of client list against
  SFC Alert List
• Intermediaries - no assessment of the fit and
  proper standing

4
Corporate Customers

• Failure to identify beneficial owner
• Failure to obtain up to date company search
  documents (incorporated in jurisdiction with
  public registries) COI (from regulated parties
  in non-public registry jurisdictions)
• Bearer shares - failure to immobilize or obtain
  annual declarations from shareholders

5
Corporate Customers

• Failure to properly identify and screen connected
  parties (i.e. directors, principal shareholders,
  signatories)
• Details of connected parties are not included in
  AIs core banking system - resulting in no
  periodic re-screening against Terrorist/Sanction/P
  EP lists

6
PEPs

• Excluding known close associates family members
  from PEP definition
• No regular review of identified PEP accounts
• No periodic re-screening of client lists to
  identify clients whose status may have changed
• Failure to screen connected parties to corporate
  customer

7
Suspicious Transaction Reporting

• No review of the risks associated with reported
  accounts
• Undue reliance on consent and the former Low
  Risk Classification
• STR provides statutory defense to ML does not
  address the legal, reputational, regulatory risks
  associated with accounts continued operation

8
Correspondent Banking

• Exchange of Swift Keys deemed establishment of
  correspondent activity
• Failure to obtain sufficient information to
  assess the adequacy and effectiveness of the
  respondent's AML controls and risk.
• AI must satisfy itself respondent
• subject to appropriate regulatory oversight
• does not maintain relations with shell banks
• payable through accounts (special measures
  required).

9
Private Banking

• Account booked offshore but managed in HK
  deemed shared relationship
• CDD conducted to standard required by HKMA
  (minimum)
• HKMA access to CDD/transaction information upon
  request

10

• Questions