Banks in Hong Kong must establish criteria for identifying customers linked to terrorist financing and develop a database of terrorist names.

“Banking institutions must be able to identify terrorist suspects, and enhanced checks should be carried out before transactions are processed,” Simon Topping, executive director of banking policy for the Hong Kong Monetary Authority (HKMA), said yesterday.

He was speaking at a press conference held concerning the issuance of a revised supplement to the Guideline on Prevention of Money Laundering.

Topping said banks and authorized institutions should be on the alert for suspicious remittances and be aware of the origins of non-profit organizations.

Apart from new guidelines related to terrorist financing, the supplement also introduced new principles to identify high-risk customers, including politically exposed persons, correspondent banks and corporate vehicles such as offshore companies.

“It is necessary for local banking institutions to develop effective policies and procedures for customer due diligence, and they are advised to review existing accounts periodically in line with the new standards,” Topping said. “The basic issue is whether it is safe for banks to establish a relationship with a customer.”

Customer due diligence should also be focused on clients introduced by intermediaries, trust and nominee accounts, along with non face-to-face customers, according to the supplement.

“The new supplement essentially codifies what is already practiced by banks in Hong Kong, which are very concerned about the issue of money laundering,” Topping said. “While the territory has maintained a robust and effective framework to combat money laundering activities, we must remain alert to new developments and techniques.”

Representing the Hong Kong Association of Banks, Julian Fong said, “The banking sector will fully support the supplement and will work toward territory-wide implementation of its guidelines by the end of the year, which will strengthen the regulatory framework for local banks.”

“The supplement’s principles are in accordance with the best international practices followed by large financial centers in the region,” Fong added.

In collaboration with the Hong Kong Association of Banks and the Deposit-Taking Companies Association, the HKMA has developed a set of interpretative notes to accompany the supplement, providing practical guidance on implementing its requirements and explaining the use of a risk-based approach in various due diligence processes.

“In developing the supplement and its interpretative notes, it is our aim to ensure that there are adequate safeguards against money laundering in the banking system, while at the same time having regard for practicalities and the need to be business-friendly,” said Topping. “These measures reflect Hong Kong’s longstanding and ongoing commitment to meeting international standards in fighting money laundering and terrorism.”

The HKMA’s existing Guideline on Prevention of Money Laundering was issued in 1997 and previously updated in 2000.

The revised supplement takes into account 40 recommendations issued by the Financial Action Task Force on Money Laundering last year.

According to the authority, 11,000 suspected money-laundering cases were reported in the territory in 2003. Case numbers have increased steadily over the past few years.

Local banking institutions are expected to implement the guidelines of the new supplement by the end of this year.

(China Daily June 9, 2004)