MEASURES TO COMBAT ECONOMIC CRIME, INCLUDING MONEY-LAUNDERING

Mr. Tony Kwok Man-wai
Former Deputy Commissioner, Independent Commission Against Corruption
The Hong Kong Special Administrative Region of ChinaIntroduction
Firstly, I wish to declare that I will be speaking in my capacity as an individual expert, not a representative ofHong Kong. I am an expert on corruption, having served in the Hong Kong Independent Commission AgainstCorruption (HK ICAC) for 27 years. In HK ICAC, we dealt with not only corruption but also all corruption relatedcrime, including economic crime. Based on the hypothetical case, I have the following observations andcomments.
In the investigation of economic crime, one should not overlook the possibility of corrupt involvement in
the hypothetical case, it is highly likely that corruption may be involved in the following scenario:
There might be a corrupt relationship between Mr. Alan & Mr. Banner. It would be inconceivable thatMr. Alan had abused his position purely due to friendship, without obtaining some sort of advantage
from Mr. Banner.

Lawyer/accountant accepted an advantage from Ms. Chung in setting up the shell company.

Instead of retrieving bank data from rubbish bins (which is rather unlikely these days), bank staff
might accept an advantage in divulging a client’s information.

Bank staff of Goldfingers Bank accepted an advantage in assisting Ms. Chung to open the account.

Mr Alan accepted an advantage from Ms. Chung for giving a false bank assurance.

Hence one must also investigate all the possible corruption. If we want to be effective in tackling
economic crime, we must ensure that private sector corruption is a criminal offence.
Secondly we should spread our investigation net wider to cover other possible offences. On the breach oftrust in regard to the loan, there is also a possible offence of bank fraud, i.e. the bank has been deceived
by its own staff and client in awarding the loan. The investigation will entail meticulous examination ofbank documents.

In Hong Kong, we had lots of criminal prosecutions of such cases. Apart from the typical offences ofconspiracy to defraud and deception, we can also prosecute offenders for false accounting and forgery. It
is also an offence when an agent (employee) uses a false document to deceive his principal. Hence inthis case, if it can be proved that the bank manager had made any false representation in any documentsin the loan transaction, he will be guilty of the offence.

The prerequisite to effective investigation is the setting up of a user-friendly public complaint system, sothat the offence can be discovered at an early stage. In the hypothetical case, it is doubtful whether anymembers of the public who might have suspicions of the scheme, knew the channels for lodging acomplaint. The country designated law enforcement agency must ensure there is sufficient publicity of
the complaint channel. One way is to establish a cyber police station.

Proactive Investigation – There are often two methods of investigation. One is the reactive type, after theoffence has been committed - this is very difficult. The ideal is the proactive method. If we came to beaware of the scheme early enough, one can use a telephone intercept and undercover agents forentrapment. In such a case there is a good chance to get all the culprits and the mastermind red-handed.

There is a need to encourage use of undercover agents operating in cross jurisdiction. Also sharing ofundercover agents. The HK ICAC had a case of getting the assistance of an overseas law enforcement
officer to act as an undercover officer in HK. It would be useful to identify best practice procedure in theuse of undercover agents.

On the Consumer fraud case, there are several difficult aspects to the investigation – cyber crime, identity
theft, computer forensic, extraterritorial.

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III PAPERS SUBMITTED TO THE WORKSHOPInformation Technology can be a threat and aid to investigation. As a threat, it makes the criminal
activities more sophisticated and transnational; As an aid, it can assist in intelligence analysis,
behavioural profiling, as a crime prevention/detection tool using data mining (process of discovering
unknown patterns and relationships amongst variables by analyzing data from different sources withstatistical and pattern cognition techniques) and complicated financial investigations.

Compared with physical evidence, the advantage of digital evidence is that it can be recovered even after
deletion/destruction, given the right forensic tools (and this is unknown to most criminals). The problem isthe process of collection, recovery of data, authentication, analysis and how to ensure the integrity of theevidence.

The issues here are:
Capability of law enforcement agency in computer forensics
Encryption and passwords
Proper training of all investigators in the seizure and collection of evidence, to ensure integrity ofevidence
The authentication of expert evidence in courtTransnational problems – different laws and co-operationThe solutions are:
Sharing of forensic expertiseTraining centre for investigators - UNAFEI
Recognized scheme of experts

Legal power to law enforcement agencies in obtaining passwords
Intercept – fax, email, SMS
On the collection of evidence from internet service providers, firstly, all countries should have a licensing
requirement for ISPs. Then, there is a need for legal provisions to ensure the co-operation of the Internet
Service Provider; power to require production of records, to keep log files for an extended period (90days); and legal access to encryption and passwords, etc.

International cooperation – At present there are provisions for judicial assistance (Letter of Requestsystem) and mutual legal assistance. However, both normally require availability of evidence to trigger off
the assistance. This is not good enough. There is a need to develop closer mutual investigative
assistance amongst agencies – including assistance in bank a/c checks, telephone interception,
surveillance, joint search operations, undercover operations, and sharing of evidence.



There should be adequate legislation to facilitate investigation, to cover

definition of the full range of possible offences –conspiracy, attempt, fraud, deception, false
accounting, forgery and private sector corruption

provision of adequate investigative powers – bank a/c, telephone interception.

Capability to conduct financial investigation and on money trail, so as to obtain the evidence; recover themoney and make it difficult for the culprits to get their ill-gotten gains. Use of forensic accountants.

Use of immunity witness – Hong Kong has a resident informant scheme, where the accomplice has toplead guilty to the offence first before becoming an immunity witness. In return, he is entitled to have 2/3of his normal sentence reduced and he is subject to protection whilst in jail custody as well as after hisprison sentence.

Intelligence support – no criminal investigation can be successful without intelligence support. Agencies
should be prepared to share intelligence on cyber crime.

Building Integrity in Financial Institutions
HK ICAC is one of the few anti-corruption agencies that are actively involved in building integrity both in
the public and private sector, and have 30 years of experience in both.

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MEASURES TO COMBAT ECONOMIC CRIME, INCLUDING MONEY-LAUNDERING

Hong Kong has effective legislation against private sector corruption.

HK ICAC has dealt with many major corruption related bank fraud cases in the past. Just to take twoexamples:
The Overseas Trust Bank Case – this was the third largest local bank in Hong Kong, whichcollapsed in 1986 due to loss in bad loans amounting to US$385M. I was head of a joint
ICAC/Police Task Force set up to investigate the collapse. This investigation revealed numerous
incidences of bank fraud and corruption involving senior management of the bank. As a result, there
were five major successful convictions, including the chairman, managing director, the generalmanager of the bank and the fraudster.

Bumiputra Malaysia Finance case – this was a case of the proprietor of a publicly listed company
bribing senior bank officials to obtain massive loan and credit facilities. In the end, the listedcompany collapsed and the bad debt to the bank amounted to US$850M. The investigation andprosecution took 15 years to complete, with successful extradition and prosecution of the bank’schairman and two directors, and of course the listed company proprietor. The bank’s internal auditor
was murdered just prior to the investigation and the legal advisor committed suicide.

HK ICAC has been assisting the banking sector in integrity building through the three pronged strategy –prevention (system control, procedural guidelines, supervisory checks, transparency and accountability),
education (staff integrity, code of conduct), and deterrence.

Zero tolerance & a proactive policy versus don’t wash your dirty linen.

ICAC offers advice to enhance the system and audit control in the bank; and in partnership with theAssociation of Bankers, issue best practices packages.

ICAC, supported by business associations, set up an Ethics Development Centre. It serves as a resource
centre as well as an advisory service to assist banks to draw up their unique code of ethics. ICAC
recommends that the code should cover, amongst other things:
Restriction on staff receiving gifts and lavish entertainment from customers



Requirement for staff to declare their private investments and any conflict of interests



Strict prohibition on unauthorized disclosure of confidential or restricted information



Clearly stipulate the relationship between bank staff and customers.



ICAC publish a “Practical guide to bank manager”.

I have been advocating that banks should consider having an “Ethics manager” within the financial
institution, responsible for:

Formulating an effective internal anti-corruption/fraud strategy

Adopting a 3 pronged strategy -– i.e. system prevention, ethics building and deterrence

Setting up and administering an internal complaint system – an effective complaint system should
include:Encouraging complaints
Promising confidentiality
Protection of whistle-blowers
Quick response capability
Professional handling/investigation
Accountability to complainant and suspects



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Look for red flags
Big spenders
Staff with financial problems
Rule breakers
And prompt investigationPartnership with law enforcement agencies, instead of adopting a “don’t wash your dirty linen inpublic” policy!

Universities should be encouraged to organize diploma/certificate courses on ethics management. I have
set up the world’s first Postgraduate Certificate Course at the University of Hong Kong to provide training
for such positions as well as for anti-corruption officials.

Conclusion
I suggest the workshop can seek to have agreement on the following future actions, in addition torecommendations from other panellists, for inclusion in the Bangkok Declaration:
Each country must have comprehensive legislation criminalizing private sector corruption, with adedicated agency responsible for law enforcement

Setting up a centralized training course for cyber crime investigators

Promoting the establishment of an “Ethical Manager” in banks, to demonstrate that the private sector hasa clear role in fighting corruption in societySimplifying the procedure for mutual legal assistance and enhancing inter-agencies mutual investigative
assistancePrepare model legislation to enforce cyber crime

Establish an expert research centre for computer forensics

Establish a centralized intelligence databank on economic crime and money laundering.

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