RESOURCE MATERIAL SERIES No. 58

CURRENT SITUATION AND
COUNTERMEASURES AGAINST MONEY LAUNDERING:
HONG KONG
Sin Kam-wah *I. INTRODUCTION
Money laundering is one of, if not thebiggest, transnational crime facing us all
today. Ever since the mid to late 1980s, it
was accepted that to effectively fight theworld drug trade, law enforcement needed
not only to get culprits sentenced to long
periods of imprisonment but also to
confiscate their assets and proceeds ofcrime. With emphasis placed on taking
their money the criminal has had to resort
to laundering to hide it away or disguise
its origin.
Given the ease with which money andassets can be moved around the world it is
impossible for any one jurisdiction toeffectively fight this battle on their own.
Effective laws and co-operation amongst
jurisdictions are a necessity for any
successful action to be taken against thelaunderers and their activities. Hong Kong
has been quick to recognise their
responsibility in this regard and we joined
the Financial Action Task Force (FATF)
when it was first established in 1989.
Subsequently we joined the Asian PacificGroup against Money Laundering (APG)
when it was established in 1997.
The People’s Republic of China is not amember of FATF but is a member of the
APG. After the handover in 1997 whenHong Kong became a Special
Administrative Region of the Mainland,* Senior Superintendent, Organized Crime and Triad
Bureau, Hong Kong Police Force, Hong Kong

380

Hong Kong continued its membership of
FATF, despite the mainland not being amember. Indeed in June 2001 Hong Kong
will take up the Presidency of FATF for the
one year term of office. This will be an
important time for the organisation as itis planned to review the 40
recommendations.
This paper draws heavily on theexperience of the Hong Kong Police, andwill address the following areas:(i)

The Current Laws in Hong Kongand their use(ii) Co-operation by banks and othersectors, including obstacles and theovercoming of them throughlegislation, education andregulation(iii) The functions and activities of the
Joint Financial Intelligence Unit
in Hong Kong(iv) Asset confiscation(v) Case examples(vi) International co-operation
II. THE MAGNITUDE OF MONEY
LAUNDERING
It is almost impossible to put an accurate
figure on the amount of money being
laundered each year; criminals, after all,do not publish accounts. Estimates of therevenue generated from narcotics
trafficking in the USA alone range from
US$40 billion to US$100 billion1.

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The Financial Action Task Force (FATF)
estimates that narcotics trafficking is the
single largest source of criminal proceeds,
followed by the various types of fraud 2.
Smuggling, gambling and, increasingly
nowadays, trafficking in human beings also
generate significant amounts of criminal
proceeds. Often overlooked, however, is thehuge amounts of money generated by tax
evasion. Many people do not think of tax
evasion as being a source of criminal
proceeds; indeed, in some jurisdictions tax
evasion is not a crime per se. However one
only has to consider the huge industry
which has grown up around so called tax
havens, or off-shore financial centres, torealise that tax evasion - and its legallyambiguous sibling, tax avoidance - is big
business.
In summary, therefore, whilst it is notpossible to accurately quantify the amountof money laundering going on in any one
country or region, it is possible to conclude
that the amount of money being launderedis huge.
III. THE CURRENT LAWS IN HONG
KONG AND THEIR USE
A. Criminalisation of Money
Laundering
For historical reasons, Hong Kong’s
money laundering laws are in two
Ordinances. Firstly in 1989 came the Drug
Trafficking (Recovery of Proceeds)
Ordinance, Cap 405. Under section 25 thefollowing offence was introduced :“Subject to section 25A, a person
commits an offence if, knowing or
having reasonable grounds to believethat any property in whole or in part,

directly or indirectly represents any
person’s proceeds of drug trafficking,he deals with that property.”
The main points to note are “Knowing
or reasonable belief.” Obviously knowledge
is a fairly straight forward concept, but it
is difficult to prove other than through say- admissions, undercover officers,
accomplices or technical assistance.
Reasonable belief is however a much moredifficult concept to show and it wasconsidered by the Court of Appeal in
HKSAR and SHING SIU MING and twoothers (CA415/97). SHING was a major
drug trafficker between Hong Kong andAustralia and he was sentenced to 30 years
for trafficking and money laundering andthe two others involved were also sentenced
to 7 years each for money laundering. The
two others were his wife and sister and theprosecution relied on reasonable belief.
The Court of Appeal said :“Knowledge if proved would simply
resolve the matter. Difficulty,
however, arises from the use of thewords “having reasonable grounds tobelieve.” This phrase we are satisfied,contains subjective and objective
elements. In our view it requires proof
that there were grounds that acommon sense, right-thinking
member of the community would
consider were sufficient to lead a
person to believe that the person being
assisted was a drug trafficker or had
benefited therefrom. That is theobjective element. It must also be
proved that those grounds were
known to the defendant. That is the
subjective element.”
The Court of Appeal also later said :1

Financial Action Task Force Annual Report 19992000
2 Financial Action Task Force Annual Report 19992000“Here the judge was wrong as he was
directing that it was incumbent upon
the prosecution to prove either

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RESOURCE MATERIAL SERIES No. 58
knowledge or belief, which hecharacterized as “something less thanknowledge”, in the minds of the
defendants. The test is, in fact, notso high. The prosecution has to proveknowledge of trafficking or that adefendant had reasonable grounds tobelieve that there was trafficking.
The prosecution is not called upon toprove actual belief. It would be
sufficient to prove reasonable grounds
for such a belief and that thedefendant knew of those grounds.”
In this case the prosecution could provehuge sums of money coming from Australia
to the relatives’ bank accounts which
SHING told them to set up and that they
withdrew the money in cash and gave it to
SHING. They believed SHING wasunemployed, they knew he had previously
been convicted of drug offences and had
visited him in prison. The prosecution
could show they opened accounts for an
unemployed person with previous drug
convictions which received huge sums ofmoney (HK$47 million) which they
withdrew in cash and gave to him and theyknew all the above facts. A right-thinking
member of society using common sense
should have believed the money was fromdrugs. The applications were dismissed.
Similarly,- “Any property” is very wide
and includes, everything you can think ofsuch as cash, flats, jewellery, cars, stocks,
shares etc, etc. “Represents any person’s
proceeds” means if the criminal gets cashfrom trafficking and then buys a house withthe cash and then sells the house and buys
shares; the cash, house and shares all
represent the proceeds. Also one shouldnote it refers to “any person’s” which meansthat one can also launder one’s own
proceeds of crime and be charged with boththe substantive offence and money
laundering, as Happened in SHING’s Case
Mentioned Earlier.

382“Drug Trafficking” under the law
includes many serious drug offences suchas manufacturing, importing, exporting
etc. “Deals” is defined as :(a) Receiving or acquiring the property;(b) Concealing or disguising the property(whether by concealing or disguising
its nature, source, location,
disposition, movement or ownershipor any rights with respect to it orotherwise);(c) Disposing of or converting theproperty;(d) Bringing the property into or
removing from H.K.;(e) Using the property to borrow money,or as a security (whether by way of
charge, mortgage or pledge orotherwise).
The maximum sentence is 14 years anda $5 million fine on Indictment and 3 years
and $1/2 million fine on summaryconviction.
When FATF extended the money
laundering recommendations to coverorganized and serious crimes, Hong Kong
introduced the Organized and Serious
Crimes Ordinance, (OSCO), Cap 455 in late1994 and it came into effect in mid 1995.
Also at section 25, the money laundering
offence is the same as the DT (ROP) offence
except that is applies to proceeds of an
indictable offence, rather than proceeds of
drug trafficking. Basically all offences inHong Kong are indictable, which means wehave few problems over worrying whether
the proceeds of crime are from a predicate
offence or not, as in some otherjurisdictions.
An interesting part of the OSCO offence
is section 25(4), which reads:“In this section and section 25A,
references to an indictable offence

117TH INTERNATIONAL SEMINAR
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include a reference to conduct which
would constitute an indictable offence
if it had occurred in Hong Kong.”
This means that the proceeds of crimefrom overseas are not welcome in Hong
Kong and any attempt to bring them toHong Kong constitutes an offence in the
territory. For example a robber in Japandeposits the proceeds into a Hong Kongbank account in his own or another’s name,he or the other persons are laundering in
Hong Kong. Although with the otherpersons one would have to prove theknowledge or reasonable belief. However
if someone remits money out of Japanthrough a remittance agent he comits anoffence against the Japanese Banking Act,but there is no similar offence in Hong
Kong and consequently dealing in theproceeds of that Japanese offence in Hong
Kong is not money laundering.
It is of interest to note that tax evasion
is an indictable offence in Hong Kong andtherefore dealing in both local and overseas
proceeds of tax evasion is an offence inHong Kong.
To summarise, our laws in Hong Kongare far reaching in that it is an offence tolaunder the proceeds of nearly all offences,
one can launder one’s own proceeds and it
does not matter if the predicate offence
happened outside our jurisdiction.
B. Money Laundering Cases
The Hong Kong experience suggests that
it is very hard to show “knolwedge” or“reasonable belief” in money laundering
offences. Consequently there is currently
an amendment before our legislature tolower the mental element to “suspect”.
Proving someone should have suspected
property dealt with by them is the proceedsof crime will be easier.

Another problem with the HK legislationis showing that the property which was the
subject of the transaction was, as a matterof fact, the proceeds of crime. This is often
not easy, but it should be borne in mind
that through the use of circumstantial
evidence the Courts can be asked toconclude that the property must be theproceeds of crime.
Circumstantial evidence derives its
main force from the fact that it usuallyconsists of a number of items pointing inthe same direction :“It has been said that circumstantial
evidence is to be considered a chain,and each piece of evidence as a link in
the chain, but that is not so, for then,if any one link break, the chain would
fall. It is more like the case of a ropecomprised of several cords. One
strand of the cord might beinsufficient to sustain the weight, butthree standard together may be ofquite sufficient strength. Thus it may
be in circumstantial evidence - there
may be a combination of
circumstances, no one of which would
raise a reasonable conviction or morethan a mere suspicion; but the threetaken together may create aconclusion of guilt with as muchcertainty as human affairs can requireor admit of.”
[ R v. Exall (1866) 4 F&F 922]
Examples of the type of circumstantial
evidence one can use are :(a) Expert Evidence(b) Audit Trails(c) Unlikelihood of Legitimate Origin(d) Absence of Commercial or Domestic
Logic(e) Evidence of Bad Character(f) Contamination of cash(g) Packaging of Proceeds(h) Denomination of Banknotes

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RESOURCE MATERIAL SERIES No. 58(i) Lies by the Defendant(j) Inferences from Silence(k) Surveillance(l) False identities, addresses anddocumentation(m) Overall Criminal Enterprise(n) Accomplices Evidence(o) Admission regarding the suspicious
and unusual circumstances in respectof the property in issue.
Hong Kong has become aggressive inseeking the use of circumstantial evidence
to prove crime proceeds.
IV. THE INVOLVEMENT OF OTHER
SECTORS IN THE FIGHT AGAINSTMONEY LAUNDERINGAs must be apparent when looking at theway proceeds are laundered law
enforcement cannot hope to achieve any
real success on their own. If one has acertain type of crime one can try and follow
the proceeds and hope to identify thecriminal and/or launderer, but the chancesof success in this way is very limited. If
one has a suspect or target one can look at
his bank accounts, businesses etc. and try
and identify the source, but one is startingat the integration stage and working
backwards, consequently if the criminal
has laundered his proceeds well it isdifficult to get anywhere. Also this is time
consuming and resource intensive.
However if the professionals along theway such as the bankers, accountants,
lawyers, money changers, remittanceagents, stockbrokers, estate agents, highvalue retailers etc. are helping the law
enforcement agencies by reporting
suspicious transactions then the task
becomes much easier.
Consequently an important part of any
successful money laundering regime is to
get these sectors to help. Unfortunately

384

none of these sectors are going to help
willingly for a number of reasons. The
main obstacles to assisting and reporting
to police that have been identified in Hong
Kong through discussion with the various
sectors are :(a) Client confidentiality(b) Distrust of the Police(c) Possible loss of business(d) Breach of restriction under law orotherwise(e) Fear of damages or liability for loss(f) Not knowing what to do or who toreport to(g) Fear of the fact a disclosure was madewill get out leading to a fear of
retribution from the criminal, loss ofbusiness etc.
(h) Discouraged by low level of police
success and lack of feedback(i) Lack of awareness(j) Aware of the low risk of prosecution
if they do not comply(k) Insufficient resources(l) High cost and lack of rewards(m) Belief that no or little laundering
occurs in their sector
The obstacles have been overcome in a
number of ways but primarily through thelegislation, education and regulation.
1. Legislation
Section 25A of OSCO and DT(ROP) arebasically the same, but Section 25A(1) of
OSCO says:“Where a person knows or suspects thatany property (a) in whole or in part directly or
indirectly represents any person’s
proceeds of;(b) was used in connection with; or(c) is intended to be used in connection
with an indictable offence,
he shall as soon as it is reasonable
for him to do so disclose that

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
knowledge, or suspicion, together
with any matter on which thatknowledge or suspicion is based to an
authorised officer”.
The penalty for non-compliance is 3
months imprisonment and a fine of
HK$25,000 - $50,000 but of course the real
penalty is the stigma attached to aprosecution under this section and thedamage to one’s reputation. Manycompanies just would not deal with say abank or accountants who have been
convicted under this section.
Few points about this section are :(i)“Knows or suspects”, therequirement is suspects which isin legal terms low. One can assume
the Courts will expect a level ofprofessional standards from theperson. That is to say it would bereasonable for a trained
accountant to suspect something
amiss having looked at theaccounts but perhaps notreasonable for the account clerk.
(ii) “ i s i n t e n d e d t o b e u s e d i nconnection with”, this covers say
the drug trafficker collecting
money together to pay for his drugs
before he receives them or say arich businessman withdrawing
cash from the bank to pay the
kidnap ransom for the return of hisson. In the latter example if thebank knew the money was being
withdrawn by a victim to pay aransom they clearly are under aduty to disclose.
(iii) “soon as is reasonable” - would
depend on all the circumstances,
but a few days is not asking much.
(iv) “an authorized officer” - this isdefined in the Ordinance as any
police officer, customs officer oranyone else authorised by the
Secretary for Justice. In effect it

is JFIU - the Joint Financial
Intelligence Unit. This is a unit in
Narcotics Bureau manned bypolice and customs which will becovered in more detail later.
The bonus of the section is that if aperson makes a disclosure in accordancewith it, he cannot then be charged with
Money Laundering. Section 25A(2) saysthat if the disclosure is made before any
act in contravention of Section 25(1) andthe disclosure relates to the act, one canstill do the act with the consent of an
authorised officer. Or if the disclosure
follows the act providing the disclosure ismade of his own initiative, as soon as it isreasonable to do so, then there is no offence
against Section 25(1).
The key to Suspicious Transaction
Reporting is ‘Know Your Customer’. If you
know who you are dealing with then you
can decide if it is suspicious or not. For
example, if the managing director of alisted company puts HK$5 million into his
account then it is probably not suspicious,
but if a building site labourer puts HK$5
million in his account, it is definitely
suspicious. Banks and other organisations
need to know who their customer is, what
he does, what his salary is, where he lives
etc. For companies they need to know
about the type of business, turnover etc.
With this information they can identify
suspicious or unusual transactions much
more easily.
Most people disclose after the act andfor them and those who disclose before, in
99.9% of the cases JFIU tell them that they
can continue to deal with the account inquestion. Only very rarely will they be toldthat they cannot continue to deal. Such a
notification effectively freezes the accountand there are specific provisions to do thisunder the Restraint Provisions.
Accordingly one is placing the person or

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RESOURCE MATERIAL SERIES No. 58
Institution in a difficult position byrefusing and so it is rarely used.
In Section 25A(3), the law specificallysays a disclosure shall not be treated as abreach of restriction imposed by contract,
law etc. etc. It also says one cannot beliable for any damages which may result
from having made the disclosure.
Section 25A(4) says that for people inemployment providing they report to theircompliance officer or supervisor they havefulfilled their duty and it is incumbent uponthat person in accordance with theemployer ’s procedures to make thedisclosure. This effectively forces financial
institutions and other such businesses toestablish procedures and tell their staff.
Section 25A(5) makes it an offence to tip
the subject of the disclosure off. Section
26 also effectively restricts anyone,
including the police, even during a trial,from revealing a disclosure has been madeand by whom. This restriction is important
if disclosure makers are to have any
confidence in the system.
2. Education
As one can see through the legislation
we have overcome a number of the
obstacles. On the education front,
Financial Intelligence Unit Officers andInvestigators spend many hours giving
presentations and lectures to people fromdifferent sectors and different levels - frombank tellers up to senior directors of stock
brokering and accounting firms and eventhe law society as lawyers seemparticularly ignorant of their
responsibilities. This means that as agroup money laundering investigators
establish a very wide network of contacts
in varied institutions and business.
In addition to direct education JFIU
provide a series of regular feedback toinstitutions. Primarily to date we have386

concentrated on the banks but we areslowly trying to involve other sectors. This
feedback is considered very important by
the banking sector. We tell them aboutmoney laundering methods and indicators
we have come across and from these they
can hopefully identify what is suspicious
and what is not and educate their staff.
Additionally each disclosure maker istold of the result of every disclosure madewhich investigators classify in one of fourways:(a) positive(b) other crime(c) unresolved(d) no crime
Also when investigators do come acrossa money laundering case they review
everything afterwards to see if anyone
should have made a disclosure but failed
to do so. They then discuss it with theInstitution concerned. With the banks weare still very much at this stage rather thanprosecution. Tied in with this the Financial
Intelligence Unit has begun to examine
banks’ disclosures from both a quantitativeand quality viewpoint. Based on this JFIU
have been able to identify weaknesses invarious banks compliance structures andencourage training of staff at appropriate
levels on problem subjects.
3. Regulation
Regulation in this context means how
various sectors can be pushed into
complying. Probably the best example isthe banks. The Hong Kong Monetary
Authority (HKMA) have issued guidelines
under Section 7(3) of the Banking
Ordinance. These guidelines are not law
but they do establish the minimum
standards the HKMA expect licensed
banks in Hong Kong to subscribe to. If local
banks are found to be in breach of theguidelines the HKMA can order a Money
Laundering Audit to examine the banks

117TH INTERNATIONAL SEMINAR
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rules and compliance. If the HKMA were
unhappy with the bank they could thenwithdraw its license until it complies withthe guidelines. If we the police find banks
in regular or deliberate breach of theguidelines we will involve the HKMA. If
we go back to the background and history
to this whole subject the HKMA must keepa strong grip on the banks on this issue as
if it was felt that the Hong Kong banking
system was being used for money
laundering and banks were doing little toprevent it, Hong Kong would faceinternational sanctions. Other sectors suchas the Insurance Sector, Lawyers andAccountants also have their own
guidelines.
One sector that was soon identified in
Hong Kong as a problem and because it was
unregulated was difficult to do anything
about was Remittance Agents and Money
Changers. There is a huge network ofRemittance Agents working in Hong Kong.
Some are run as actual businesses (likeWestern Union), while others operate aspart of existing businesses, like goldsmith
shops, apartment houses or whatever;whilst others operate out of peoples flats
and homes. These agents have reciprocal
agents, shops or relatives overseas. They
will then arrange for the transfer of funds
all over the world. Many of these agentsuse a counter-balance method and settle
at irregular intervals so in many instances
no money is actually sent. They often use
cash courier, bank remittance and othermethods that break the audit trial. All thatis required to run such an Agency is atelephone, fax and bank account.

human smuggling and fraud.
The police therefore decided they needed
Regulating and earlier this year anamendment to OSCO was introduced.
Unfortunately due to arguments over thecost of implementation and manpower
Government eventually went forregistration rather than licensing. It
remains to be seen if this works. Anyway
these remittance centres and moneychangers (not banks, who are governed by
HKMA regulations) must now keep records
for 6 years (just like the banks) and identify
their customers and their transactions,over $20,000HK. They must register with
the Joint Financial Intelligence Unit anda copy of all registered money changers andremittance agents is now on the JFIU
website (www.jfiuhk.com). The law cameinto effect on June 1st 2000 and there wasa 3 month grace period. We are still trying
to encourage people to register. Probably
in the new year we will start charging
people who are not complying. Obviously
only time will tell how effective this will bein the fight against money laundering.
This threshold amount for remittanceagents and money changers was to preventmoney changers becoming bogged downwith numerous records. It has led to some
confusion about threshold reporting, but it
is not a threshold reporting system, they
merely have to keep records.
The legal requirements to makedisclosures, obstacles to this and the
involvement of other sectors are covered,but how are we doing? Disclosure figures
by year are :These remittance agents were clearly
not keeping proper records, not identifying
their customers and were totallyunregulated and uncontrolled. They areparticularly active in moving funds to andfrom China and are popular withlaunderers involved in drug activities,

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RESOURCE MATERIAL SERIES No. 58

Year
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
(to 1/11/2000)

No. of Disclosures
34
125
147
267
368
550
1,798
4,141
4,227
5,570
5,804
5,010

The disclosure figures by sector are:
Year

Banks

1998
1999

5524
5757

Lawyers
1
0

Accountants
4
1

FinancialCompanies
24
14

Other than the retail banking sector itis quite true to say compliance in Hong
Kong is not satisfactory. We are working
hard to encourage greater response fromother sectors, but probably only a few highprofile prosecutions of lawyers andaccountants will encourage these sectors
to take the subject seriously. Currently
police are heading a governmental
committee to see what can be done toimprove the situation in all sectors.
V. THE FINANCIALINTELLIGENCE UNIT
In Hong Kong the FIU is manned by both
Police and Customs Officers and is known
as the Joint Financial Intelligence Unit.
For historical reasons it is housed in our
Narcotics Bureau. The primary role of the
JFIU is the collection, collation and

388

Insurance
Companies
816

Foreign
Exchange Cos
5
14

Other

Total

4
2

5570
5804

dissemination of disclosures or suspicioustransaction reports. The unit itself does
not investigate any disclosures. They checkthe subjects against the Criminal andIntelligence Records as well as the previous
disclosure history. Based on this thedisclosures are distributed primarily to theCustoms and Excise, Police Narcotics
Bureau or the Organized Crime and Triad
Bureau. If there are no indications as towho should investigate, the disclosure isallocated to any of the units so that eachhas roughly one third of all disclosures. If
subsequent enquiries show another unit
should be investigating the enquiry ispassed across. From time to time some getpassed to our Commercial Crime Bureau,
Independent Commission against
Corruption or Security Wing.

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Hong Kong are members of the EgmontGroup and are committed to the exchange
of information obtained through JFIU withoverseas agencies. Any information
obtained through disclosures can be passed
overseas for intelligence purposes only. If
the information is required for Court
purposes then more formal channels, suchas the MLA route needs to be followed, as
the information needs to be obtained by a
Production Order or Search Warrant.. By
law we are not allowed to reveal to anyone,
including the Courts that a disclosure has
been made and by whom. Accordingly
whilst information is supplied the sourceis always concealed. As far as HK isconcerned enquiries can be made direct to
the JFIU or through the normal Interpol
channels.
As has been alluded to earlier in thispaper an important part of the JFIU work
also involves the provision of feedback andtraining to the disclosure makers. This is
an often overlooked, but vital, part of an
FIU duties. The effectiveness of a
suspicious transaction reporting systemrelies on both the quantity and quality of
the reports made. This in turn depends on
how well staff of financial institutions(which in practice make the vast majorityof reports) can identify transactions which
are genuinely suspicious. Without proper
training, both the quantity and quality of
the reports will remain at a low level.
Although banks and other financial
institutions provide basic training to theirstaff, input from the FIU is vital if they
are to be kept up to date on the latest trends
and methodologies for laundering money.
The following practices can be consideredwhen planning training and feedback :
(i)
(ii)

lectures to bank complianceofficers and front line staff;
provision of training material or
vetting of a bank training material
to ensure it is up to date and covers

all relevant legislation;(iii) provision of real life sanitised cases
to illustrate particular methods ofmoney laundering and highlightsuspicious activity indicators;(iv) working groups consisting ofmembers of both financial
institutions and the FIU tohighlight best practices;(v) an FIU web site to increase publicawareness of the legal
requirements to report suspicioustransactions;(vi) qualitative and quantitative
analyses of suspicious transaction
reports made by individual
institutions.
In addition, makers of suspicioustransaction reports should be informed,
whenever practical, of the progress andultimate outcome of the investigation
generated by their report, particularly
where the report has led to a successful
case.
VI. RESTRAINT AND
CONFISCATION
During this paper restraint andconfiscation have been mentioned and after
all this is the main reason why criminals
have to launder their funds. Accordingly
we will mention the law in this regard inHong Kong and also see how we are doing.
Hong Kong restraint orders are made exparte and hence we are able to obtain themand serve them prior to arrest or
subsequent to arrest without the defendant
becoming aware of our intention
beforehand. This is obviously importantto prevent the proceeds from disappearing.
There has been some problems overcontinuing a restraint order where thedefendant is not charged straight away. An
amendment to the law is before thelegislature to overcome this allowing the389

RESOURCE MATERIAL SERIES No. 58
restraint of assets to continue for a“reasonable period” whilst police
investigate prior to charging. The Courts
will assess what is a reasonable period in
all the circumstances of the particular case.
There are confiscation provisions in bothDT (ROP) and OSCO. In DT (ROP) andOSCO investigators can seek confiscationof a person’s assets in three sets ofcircumstances :(a) upon conviction(b) upon death(c) has absconded
Normally it is upon conviction and so it
will be covered from that perspective.
Upon conviction in the District or High
Court the prosecution will apply toconfiscate the proceeds. Firstly the offence
must be in Schedule 1 of DT(ROP) or
Schedule 1 or 2 of OSCO. These schedules
in fact include most major or serious
crimes. The court must then determine if
the person has benefitted from the crimeand under OSCO the proceeds must be atleast HK$100,000. The court will thenassess the extent of the person’s proceedsof crime. Under section 2 (6) of OSCO
proceeds are defined as :(a) Any payments or other rewards
received by him at any time inconnection with the commission of
the offence;(b) Any property derived or realised,directly or indirectly by him for anyof the payments or other rewards; or(c) Any pecuniary advantage obtained inconnection with the commission ofthat offence.
This means that in a loansharking casethe proceeds include the initial deduction
made by the loanshark and all subsequent
repayments including the principal or
actual loan. In drug cases the court can

390

assess the proceeds from the quantity ofdrugs involved and/or the amount passing
through his accounts.
The police will put forward a statement
to support their assessment of the proceeds
for the court to consider and the court willthen give a ruling on its assessment of theproceeds of crime.
When the case is an Organized Crime
under section 9 of OSCO the police may ask
the court to assume that any assets
acquired in the last six years by the person
are the proceeds of crime. It is incumbent
upon the person to refute this and show theassets were lawfully obtained. If the court
sides with the police, the value of the assets,
so assessed, can be added to the value ofthe defendants proceeds of crime.
The next step is that the police will put
forward details of the person’s assets, whichhave normally been restrained or charged(a restraint or charging order is used
depending on the type of assets). Theremay be some debate here over say the
spouse’s assets and whether they are
entirely theirs. Anyway the court will thenrule on the value of the person’s assets.
Note there is no need for any link between
the Assets and the Proceeds.
Finally the court will then make aconfiscation order up to the value of theproceeds they have assessed, but it cannot
be greater than the assets available. That
is to say if the proceeds of a drug trafficker
are assessed at HK$10 million, but thepolice have only identified assets of HK$5
million, then the order will be for $5 million.
If the police locate more assets in the next
6 years they can return to Court to seek anamendment of the confiscation order up to
the assessed proceeds. If the defendants
assets are held outside Hong Kong and herefuses to realise them and pay theconfiscation order he can be given an extra

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
sentence.
If the police cannot find any assets they
can seek the confiscation of a nominal sum,
say $1 and then they have up to 6 years tofind the assets and return to court to get
the confiscation order varied.
To date $461 million HK has been
confiscated in Hong Kong, mostly drugmoney and a further $163 million HK isunder restraint. Concerning confiscation
under OSCO, we have not had the success
we hoped for. Why not? There are anumber of reasons :(a) Some scheduled offences whichshould be included are not. Examples
are :(i) Aiding and Abetting Illegal
Immigrants for humansmuggling cases.
(ii) Carrying on the business oflending money without a licence.
(iii) S a l e a n d P r o d u c t i o n o f
Pornographic material.
(b) Many offences have victims where
the prosecution have to step aside toallow compensation of the victim
from the assets.
(c) Persuading the prosecutors to put
certain offences in higher courts.
Traditionally bookmakers, illegal
casino operators and loansharks havereceived relatively small sentences(under 3 years) and hence these caseare heard in the Magistracy where it
is not possible to seek confiscation.
Prosecutors are proving very
reluctant to put cases in higher courts
merely so confiscation of assets canbe sought. Dialogue between thepolice and the prosecutors is
continuing on the subject.
Given the trans-national nature oforganized crime criminals will often keep
assets overseas. HK laws have provisions

to allow for the enforcement of overseas
restraint and confiscation orders andsharing of confiscated assets. These will
be touched upon again later.
VII. CASE EXAMPLES
Some case examples are now given toillustrate some of the points raised earlier
and are considered useful experience toshare:(a) US Fraud Case
A small bank in the USA was defraudedof several million USD by the President(Mr.A) and Vice-President assisted by twoother men, one of whom we will call Mr. B.
The bank eventually went into liquidationand the four men were all tried andconvicted.
Enquiries showed that Mr. A & B
laundered much of their money through asolicitor in Hong Kong, Mr. C. Mr. C set
up various companies and opened bankaccounts for those companies, used hisclient account and also obtained a Belize
passport for Mr. A in a false name.
Mr. A & B moved their proceeds intoeither Mr. C’s client account in Hong Kongor into another Hong Kong account in thename of Co. K. Co. K was set up by Mr. C
in Hong Kong for Mr. A & B. Mr. C opened
the account in Hong Kong and Mr. B
opened an account in Guernsey. Much of
the money received into Co. K’s HK
account was by way of structured
remittances (i.e. amounts less than
$10,000 in order to by-pass US reporting
requirements). Money from Mr. C’s client
account was remitted to Co. K’s accountin Guernsey. Money from the two Co. K
account’s in Hong Kong and Guernsey wasthen remitted to another Guernsey accountin the name of Co. L, a BVI Company set
up by Mr. B. Mr. B then moved his shareon to a Swiss Bank account, Mr. A moved

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RESOURCE MATERIAL SERIES No. 58
his share to Co. M’s account in Guernsey.
Co. M had been set up by the solicitor Mr.
C in Hong Kong for Mr. A who used a falsename - Mr. D. Mr. C also assisted Mr. A to
get a Belize passport in this false name ‘D’.
Mr. C had also opened a bank account in
Guernsey for the Company. Some of A’sshare was remitted back to C’s client
account. Some of this was further remitted
to a Company N in Mexico and the remitterwas shown as one of C’s nominee companies
he used in establishing companies for his
clients. This was apparently done at D’srequest so that Company M’s name was notshown on the remittance.
‘C’ was interviewed and claimed client
privilege and refused to answer any
questions. However he then decided after
the police visit and on receiving
correspondence from the US that ‘A’ had
used a false identity and that ‘A’ & ‘D’ werein fact the same person and he ‘co-operated’
with police. He claimed not to have realised
this up to that point. He denied knowingthat the money from Company K which
went to Co. L was the same money whichthen went to Co. M. As such he did notknow Co. K & M were connected. He
denied making the transactions from theCo. ‘K’ account in Guernsey to the Co. ‘L’account. Unfortunately we have a chicken
and egg case with the Channel Islands laws
in that we are not allowed warrants tocheck the banking records unless we charge‘C’. We cannot charge ‘C’ unless we getthese banking records or other evidence.
When asked about the movement
between all the Companies and what was
the point of them all, the solicitor said that
it was common for him to do this for
American clients. The US had a worldwide
tax system and many Americans like to put
a little nest egg away from the reach of the
tax authorities. He did it all the time andwhat he meant but did not say was “andwhat is wrong with that”. He spoke of392

opening companies for one transaction andclosing them out afterwards in order tomake it more difficult to trace the flow offunds and claimed that was alright andthat putting someone elses name on aremittance was acceptable. These areclassic money laundering indicators andyet he spoke of them as normal businesspractice. Regarding the Belize passports
for which he accepted a birth certificate as
proof of identity from an American visiting
Hong Kong he felt this was alright and saw
no reason why he should have taken the
passport.
‘C’ has not been charged as there wereinsufficient evidence to show he knew orshould have reasonably believed the funds
were the proceeds of crime.
Whether or not the solicitor was culpablein this case, a number of issues are raised:(a) C m e t A & B t h r o u g h a nintermediary he trusted.
Professionals must be wary ofIntermediaries.
(b) ‘C’ should have asked why the client
wanted to open these accounts andmove money around. ‘C’ possibly
suspected tax evasion an indictableoffence in Hong Kong, but chose not
to do anything or he knew of thefraud.
(c) If one operates a bank account for acompany one has set up one must beaware of structuring and transaction
reporting conditions in othercountries.
(d) S o l i c i t o r s s h o u l d n o t a l l o w
remittances to come through theirclient accounts when the client canmove money in other ways, unlessthere is a very good reason to do so.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS(e) Solicitors should not hide theidentity of a remitter for their clientunless there is a very good reason to
do so.
(f) If one is asking overseas clients for
identification get their passports.
Birth certificates which have no
photograph do not prove someone’s
identity. It is in most countries easy
to obtain a copy of anyones birthcertificate.
The obvious
identification to request is a
passport.
Overseas people do use bank accounts
in Hong Kong to do the following
transactions, which without explanation
should be regarded as suspicious :(i)‘U’ Turn transactions - wheremoney is say remitted from the
USA to the account in Hong Kongand then remitted straight back toanother person or US Company.

(ii)

Layering - a number of different
transactions when one could havesufficed.

(iii) Numerous transactions withcountries known for drug or
criminal activities.
(iv)

Tr a n s a c t i o n s w h i c h a r e
inconsistent with the clients
background or profile.

As the operator of the account the lawyer
should not wait for the banks to spot thesuspicious transaction and disclose. The
lawyer must monitor accounts he is
responsible for and that includes his own
client account (for large cash transactions)and disclose when he sees suspicious
activities.

(b) Operation Maltwine
A character called Mr. ‘A’ was operatinga legitimate money lending business called
Co. X Ltd. This company had four offices
around the territory and throughnewspaper adverts he attracted a steadystream of clients. These clients wererequired to complete an application form
giving all their personal particulars. The
application forms were then passed to thehead office and only a very small
percentage of applicants were eversuccessful in obtaining a loan.
Details of all the unsuccessful applicants
were passed to the criminal side of thebusiness and from a secret office within thehead office cold calls were made to theunsuccessful applicants who were offeredloans of $2,000. The initial payment was
only $1,800, $200 being deducted for ahandling charge. Then $400 interest had
to be paid every 10 days until the principalof $2,000 was paid in full. This works out
to over 1,000% per annum.
This offer was made on a take it or leave
it basis and many desperate people
accepted. If it was agreed another gangmember was contacted and told to pay themoney direct into the debtors account andthe application form and other details werethen Faxed to a records office in Shenzhen,
just across the border with China. Records
in the Hong Kong office were thenshredded.
The office in Shenzhen had all therecords computerised. The debtors weretold to repay money into various accounts
which had been opened by debtors or drug
addicts who had registered a number ofdifferent companies and opened a series ofbank accounts for a small payment. 36
accounts were used in all. The office inShenzhen monitored repayment into thedifferent accounts. Non payers details werereferred to another office in Shenzhen

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RESOURCE MATERIAL SERIES No. 58
which ran the debt collecting side of things.
From the debt collecting office a groupof young triads were tasked daily to visit
various addresses to either remind thedebtors to repay or to splash paint all overtheir doors and leave threatening
messages. It also transpired that the debt
collecting office took orders from othersyndicates to harass their debtors.
Meanwhile the money was withdrawn
from the repayment accounts by bank cards
or as there is a daily limit on withdrawals
by using the Jockey Club. One canpurchase betting vouchers for large
amounts by using ones bank card and thesewere then cashed straight away. Some of
the money was used to lend to new debtors
and the rest, about HK$2 million a month
was remitted to Macau.
The money was later remitted back toanother company, Co. Y, which pretended
to be involved in trade, but in fact did noneat all and from there it was used to run theoperation or it was moved to Mr. X and his
relatives who bought flats.
While some of the companies were in X’s
name, anything illegal was distanced from
him and the only time he felt safe toactually get involved was in the Records
Office in Shenzhen or with Co. Y.
Various police units had arrested anumber of the young men causing criminal
damage and the Organized Crime & Triad
Bureau also identified the people operating
the collection account and paying the
debtors. This suggested a large syndicate
was at work. Surveillance andinvestigation work led on to much of therest of the operation, although everything
was not really tied together until police
went overt in April 2000. Anyway once it
was realised that the gang were keeping
records and directing things from China,

394

HK Police approached the Police Security
Bureau who gave us very professional
assistance, including surveillance. There
were some problems at first in thatloansharking is not an offence in the
Mainland but these were overcome, thanks
to a great spirit of co-operation.
In April 2000 joint raids in China andHong Kong were carried out once Mr. X wasseen at his records office in Shenzhen andeveryone arrested. HK Police were allowed
to be present in China, film the raid andseizing of exhibits which the PSB agreed
to do in accordance with HK procedures,
so that everything will be admissible in our
Courts.
Mr. X’s assets of about HK$48 million
have been restrained and enquiries weremade with thousands of debtors andcriminal damage victims. Mr. X and thefive other Hong Kong citizens arrested in
China were returned and charged. Mr. X
and his main assistant are detained andthe rest were given Court Bail. Of thosearrested in Hong Kong some have been
charged and some are on bail.
The money being laundered through
Macau was an attempt to disguise its
source and it was explained away as money
coming out of China from trading deals
through unofficial sources given China’s
tight currency control restrictions. Whilst
the Macau police have been helpful andunderstanding their Judiciary has blocked
our efforts to obtain warrants to see what
was happening over there and how muchmoney is still held there. HK Police are
now trying a formal letter of request.
However we have been able to link money
going to Macau to money returning after
one of those detained in China gave us
permission to access his accounts in Macau.
Mr. X had been running this operation
for about 8 years and keeping his records

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
and involvement outside of Hong Kong
where the group was operating, made him
feel secure. In Hong Kong the only thingthat ties him to the syndicate is the money
and it is to hope we not only convict him,
but we also confiscate his assets.
(c) Tax Evasion
An appeal case HKSAR and LI CHING(CA 436/97) is an important case for money
laundering investigators. LI opened a bankaccount for a group involved in a deception
which duly came off and $2.8 million HK
was deposited into the account andwithdrawn by LI. On arrest LI claimed toknow nothing about the deception and that
he was given $50,000 only and the rest of
the cash he gave to Ah Keung. He claimed
he thought Ah Keung was using theaccount to put some tax evasion moneyfrom China through. The Appeal Court
held that his belief was that he dealt in
the proceeds of tax evasion from China.
Tax evasion was an offence in China, it was
indictable in Hong Kong and therefore he
was guilty of money laundering. His appeal
was dismissed. This ruling emphasisedthat investigators did not have to prove theactual offence, merely that the defendantbelieved the proceeds was from an offence.

requests the transactions to beshown as cash deposits rather thantransfer deposits, thereby breaking
the audit trail.
The banks are well aware of this thanks
to Police feedbacks and have made regulardisclosures over the years. Police have
tried different approaches :(i)(d) Bookmaking Cases
The following have been noted as strong
indicators that bank accounts are being
used for bookmaking :(i)Increased use on Mondays andThursdays i.e. the days after theraces.
(ii) T h e A c c o u n t s h a v e f e w
transactions in July and August,which is the close season.
(iii) The deposits are either ‘no book
cash deposits’ or ‘transfer deposits’.
(iv) The withdrawals are in cash.
Sometimes they are then followed
by deposits to a number of otheraccounts, but the account holder(ii)

Operation Birchwood was
mounted against 25 syndicates
operating in China and Macau whowere laundering their proceeds
through Hong Kong banks. In
June 1998, 28 people were arrested
and four were charged when they
admitted what they were doing,with sentences of between a fineand 10 months imprisonment
imposed. The man who got 10
months, YU Leung-chong is stillfighting police as we are trying to
get his proceeds confiscated. We
have restrained his accounts andproperty worth $3.9 million HK
and we are attempting toconfiscate up to $6.9 million as hiswife also has $3 million in assets,
but has never worked in her life.
The confiscation hearing is set for
March 2001. Following thisoperation we have had few
successes as the overseas
bookmakers now know it is anoffence, which some did not before
the operation. Consequently
admissions are not so easy toobtain now.
Operation Guildersome wasmounted against a number of local
bookmaking syndicates, and saw
25 bookmakers and 4 money
launderers arrested. Fourteen of
the bookmakers were convicted
and received between fines andsuspended sentences. This
operation highlighted to us the395

RESOURCE MATERIAL SERIES No. 58
difficulties in proving the proceedsof crime in bookmaking cases.
Proceeds in the Ordinance aredescribed as payments received,
whereas people bet on credit withbookmakers. Consequently bets on
the day are not proceeds, one has
to show that money going throught h e b o o k m a k e r ’s a c c o u n t spreviously were bookmaking
proceeds and this is not easy. It
relies on admissions, punters
telling you, or old betting records
and banking records matching up.
All unlikely. Police now try andidentify locally operatingbookmakers and throughsurveillance or call forwarding
records identify the location ofoperation.
(iii) Other operations - have been
mounted and police have had
success against football
bookmakers and launderers. Also
last racing season HK Police
worked with the Macau Judicial
Police (MJP) to get them to arresta syndicate operating in Macau,
and we are now trying to build acase against the bank accountoperators (launderers) in Hong
Kong who will be arrested once thebookmakers are convicted in
Macau. Other initiatives include
trying to put a circumstantial
money laundering case together.
Investigators will pick an accountwhich displays all the indicators
and use the financial investigation
units head to give expert evidence,
Police will also show the person
had no employment (we can get tax
records through Production
Orders), those who are identifiable
who have dealt with the accountwill be record checked, most tend
to have gambling and bookmaking
convictions and lastly bank tellers

396

will give evidence that the accountoperator requests the transactions
to be shown in cash rather than asa transfer. It will be hoped that
the Judge will only be able toconclude given all the different
circumstances that the money
being dealt with in the account is
the proceeds of an indictableoffence.
(e) A Drug Case
Narcotics Bureau have had some very
successful drug money laundering cases
over the years and some large asset
seizures, but one case to highlight wassignificant because it arose purely fromdisclosures.
A housing estate in Kowloon East had
one bank and that bank noted that a
number of accounts operated by young
people aged from 14 to 22 were receiving
regular deposits of between $20 - 60,000HK
every few days in $20, $50 and $100 notes.
Very soon after the deposits the depositors
would withdraw the sum in 1,000 dollar
notes. The bank was suspicious and madea disclosure.
Investigators mounted an operation
using surveillance, Observation Posts andundercover officers to make controlled
buys. The Narcotics Bureau Financial
investigators also looked at the money.
Over a one year period this street leveltrafficking operation had laundered HK$13
million through their accounts. Fifteen
syndicate members were eventuallycharged and convicted in the High Court
and over HK$2 million in assets was
confiscated.

117TH INTERNATIONAL SEMINAR
VISITING EXPERTS’ PAPERS
VIII. INTERNATIONAL COOPERATION
Given that the proceeds of crime can be
moved around the world easily, it is
impossible for any one jurisdiction toeffectively fight the battle on their own. Cooperation among all law enforcement
agencies therefore becomes vital. Such cooperation should be two-phased; theexchange of intelligence in money
laundering matters and the rendering ofassistance to another jurisdiction in
obtaining evidence. The swift exchange ofintelligence between enforcement agencies
and FIU of different jurisdictions at theinvestigation phase is important iftransnational money laundering is to be
tackled effectively and efficiently. There
are treaties governing mutual legal
assistance in criminal matters designed forcollecting evidence for use in a court of law.
FATF Recommendation No. 32 states:“Each country should make efforts toimprove a spontaneous or “uponrequest” international informationexchange relating to suspicioustransactions, persons andcorporations involved in thosetransactions between competentauthorities. Strict safeguards shouldbe established to ensure that thisexchange of information is consistent
with national and international
provisions on privacy and dataprotection.”
Recommendation No. 37 goes on to state:“There should be procedures formutual assistance in criminal mattersregarding the use of compulsory
measures including the production ofrecords by financial institutions andother persons, the search of persons
and premises, seizure and obtainingof evidence for use in money

laundering investigations andprosecutions and in related actions inforeign jurisdictions.”
To assist other jurisdictions further inthe fight against money laundering, Hong
Kong has provisions for Overseas
Confiscation Orders and Asset Sharing.
A. Overseas Confiscation Orders
The trans-national nature of organizedcrime is reflected in the fact that criminals
will often keep their assets in different
countries. It is essential, therefore thatlegislation proovides for this by allowing
for confiscation orders issued in overseas
jurisdictions to be enforced domestically. In
this regard, the FATF Recommendation
No. 38 says:“There should be authority to take
expeditious action in response to requests
by foreign countries to identify, freeze, seize
and confiscate proceeds or other property
of corresponding value to such proceeds,
based on money laundering or the crimes
underlying the laundering activity.”
B. Asset Sharing
Once an overseas confiscation order isenforced domestically, fairness dictatesthat the overseas jurisdiction be allowed
to share the confiscated assets. Provisionmust therefore be made, both by law andby policy, for assets to be shared between
jurisdictions. This may not always bepracticable where only a small amount ofproperty has been confiscated, as theadministrative costs involved would
outweigh the value of the assets to beshared. Government policy, therefore,should set a realistic threshold over andabove which foreign governments may beallowed to apply for and receive a share of
the assets commensurate with the work
done by each side in that particular case.

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IX. CONCLUSION
Tackling money laundering will never be
easy. The ease with which money can be
moved around the world, the ingenuity ofmoney launderers in finding new ways to
disguise their ill gotten gains, theprevalence of tax havens and shelfcompanies and the excessive secrecy of
certain jurisdictions all combine to ensurethat tracing the flow of dirty money andprosecuting the money launderer willremain one of the hardest tasks in criminal
investigation. This task will be madesomewhat easier, however, if various antimoney laundering components are welded
together to form a cohesive anti-money
laundering strategy in as many
jurisdictions as possible. A workable andcomprehensive law, close international cooperation, an effective FIU and strong
regulation of the financial sector, combinedwith imaginative and thoroughinvestigation, are vital if money launderingand its inherent dangers to society are tobe effectively combated.

398