VZCZCXRO5964
PP RUEHCN RUEHGH RUEHVC
DE RUEHHK #4270/01 3050659
ZNY CCCCC ZZH
P 010659Z NOV 06
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 9259
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 004270 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM AND EB 
TREASURY FOR OASIA GKEOPKE 
STATE PASS USTR 
USDOC FOR 4420 
NSC FOR DWILDER/KTONG 
 
E.O. 12958: DECL: 11/01/2016 
TAGS: ECON EFIN PGOV HK CH
SUBJECT: HONG KONG MONETARY AUTHORITY RESPONDS TO UNSCR 1718 
 
REF: A. STATE 172816 
 
     ¶B. HONG KONG 4214 
 
Classified By: E/P Chief Laurent Charbonnet for Reasons 1.4 (b, d). 
 
¶1. (C) Summary:  In a written response to Ref A demarche, the 
Hong Kong Monetary Authority (HKMA) described the Hong Kong 
Government's (HKG) process for implementing UN Security 
Council Resolutions and detailed its efforts to monitor 
financial institutions in Hong Kong to ensure that they have 
implemented adequate controls against dealing with agents of 
"high risk" or sensitive jurisdictions and entities.  HKMA 
also elaborated on the establishment of an Industry Working 
Group to share and develop industry standards and share best 
practices on how to prevent money laundering and terrorist 
financing.  The full HKMA text is included below.  Septel 
will report how other HKG departments with responsibility for 
implementing UNSCR 1718 have described their ongoing 
legislative and regulatory procedures for implementations. 
End summary. 
 
¶2. (C) Begin HKMA Text: 
 
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The Hong Kong Monetary Authority (HKMA) is fully committed to 
counter money laundering and terrorist financing activities 
including facilitation of WMD and missile proliferation. 
 
The HKSAR has a mechanism to implement relevant UNSCRs in 
Hong Kong, including UNSCR #1718. In general, when an UNSCR 
is unanimously adopted by all UNSCR members, the 
Administration in Hong Kong will start preparations to draft 
subsidiary legislation under the United Nations Sanctions 
Ordinance for implementing the UNSCR.  The draft subsidiary 
legislation will be put forward to the Legislative Council. 
The mechanism involves the enactment of subsidiary 
legislation in Hong Kong upon receiving a directive from the 
Central People,s Government.  While the HKMA is not directly 
involved in the legislation process, the HKMA will promptly 
issue a circular to alert Authorized Institutions (AIs) upon 
the passing of the new subsidiary legislation and require AIs 
to act accordingly.  This may include freezing the assets of 
designated entities and refraining from the conduct of any 
financial transactions with such entities, as appropriate. 
 
In fact, even before the enactment of new subsidiary 
legislation for the implementation of UNSCR 1718, the Weapons 
of Mass Destruction (Control of Provision of Services) 
Ordinance already prohibits the provision of financial 
services to WMD proliferators.  The HKMA reminds AIs from 
time to time to exercise extra caution in deciding whether to 
deal with high risk or sensitive jurisdictions and entities. 
The HKMA also examines regularly the adequacy of individual 
AIs, controls against dealing with such jurisdictions and 
entities. 
 
Industry Working Group 
----------------------- 
 
To help deal with money laundering and terrorist financing 
issues from a practical perspective and reflect industry 
concerns, the HKMA coordinated the establishment of an 
Industry Working Group (IWG) in June 2006, which includes 
representatives of some 20 AIs.  So far the IWG has met 
twice.  The first IWG meeting (held in June 2006) led to the 
formation of three user sub-groups to respectively consider: 
 
- Specific issues relating to the application of customer due 
diligence (CDD)to non-retail accounts (e.g. checking of 
politically exposed persons and CDD on private banking and 
trust accounts); 
 
- General issues relating to the CDD process and other CDD 
issues affecting retail banking operations (e.g. application 
of risk-based approach and CDD on existing accounts); and 
 
- Issues relating to the detection and monitoring of specific 
types of banking transactions (e.g. correspondent banking, 
terrorist financing and design of management information 
systems for transaction monitoring). 
 
The user sub-groups, consisting mainly of industry 
 
HONG KONG 00004270  002 OF 002 
 
 
representatives, are responsible for studying the above 
issues with a view to promoting and developing industry 
standards and best practices.  The user sub-group will update 
the IWG on their work progress from time to time, and where 
appropriate make recommendations via the IWG to the HKMA on 
the relevant issues. 
 
Other initiatives relating to prevention of money laundering 
and terrorist financing: 
 
Apart from those mentioned above, the HKMA has taken various 
initiatives to further strengthen the controls of the banking 
industry in this regard.  In particular, 
 
Circulars:  The HKMA issued a circular on 25 September 2006 
to remind AIs to take stringent measures to prevent the 
transfer of financial resources for WMD proliferators.  AIs 
need to draw reference from the relevant designations by 
overseas authorities, including the US Executive Order 13382 
list, for identifying suspicious entities that may pose 
higher risk to AIs in this regard.  A circular was also 
issued in November 2005 clarifying the HKMA,s supervisory 
standard in this area and reminding AIs to take preventive 
measures against WMD financing.  In addition, the HKMA issued 
a circular to AIs on 6 October 2006 setting out a framework 
for formalizing the use of supervisory measures for effective 
enforcement of the HKMA,s regulatory standards in this area; 
 
Executive Briefing:  The HKMA conducted two Executive 
Briefing Sessions on 27 September 2006 to remind senior 
executives of AIs to remain vigilant on money laundering and 
terrorist financing issues and challenges, as well as guard 
against WMD financing.  In particular, the need for enhanced 
scrutiny of business transactions against countries and 
entities of higher money laundering/terrorist financing risk 
was re-iterated; 
 
FATF Special Recommendation (SR) VII:  The HKMA consulted the 
industry in the June 2006 on proposed amendments to the 
HKMA,s guidelines regarding the FATF,s latest revision of 
SR VII, which requires the ordering bank in a remittance 
transaction to include some basic originator information 
(e.g. date of birth, address) in the remittance message 
starting form 2007; and 
 
Supervision of AIs' Control:  The HKMA has continued to 
conduct tier-1 (general) and tier-2 (in-depth) examinations 
of AIs on controls against money laundering and terrorist 
financing, as well as related thematic examinations on 
high-risk areas including correspondent banking and private 
banking.  The HKMA is also implementing a risk profiling 
process for assessing AIs, inherent risks in this regard 
(i.e. analyses of AIs, customers, product and geographical 
locations etc.) and their risk mitigating controls, for 
prioritizing the HKMA,s supervisory efforts in this area. 
 
End HKMA Text. 
 
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Cunningham