VZCZCXRO8456
RR RUEHCN RUEHGH
DE RUEHHK #0462/01 0720820
ZNR UUUUU ZZH
R 130820Z MAR 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 7121
INFO RUEHBJ/AMEMBASSY BEIJING 2983
RUEHCN/AMCONSUL CHENGDU 1409
RUEHGZ/AMCONSUL GUANGZHOU 0169
RUEHGH/AMCONSUL SHANGHAI
RUEHSH/AMCONSUL SHENYANG 3850
RUEHIN/AIT TAIPEI 0225
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 HONG KONG 000462 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
 
E.O. 12958: N/A 
TAGS: ECON EFIN HK
SUBJECT: HONG KONG STRENGTHENING MONEY LAUNDERING STATUTES 
 
REF: HONG KONG 289 
 
¶1.  (SBU)  Summary.  Hong Kong's three financial regulatory 
agencies (the Hong Kong Monetary Authority, the Securities 
and Futures Commission and the Office of the Commissioner of 
Insurance) told Embassy Beijing Deputy Treasury Attache Jean 
Paul Duvivier on February 25 that Hong Kong's Financial 
Services and Treasury Bureau is drafting anti-money 
laundering (AML) legislation to provide statutory backing for 
AML guidelines issued by each agency (reftel).  The 
regulators told Duvivier that their current AML guidelines 
are effective, but acknowledged that during Hong Kong's 2007 
Mutual Evaluation, the Financial Action Task Force (FATF) 
recommended Hong Kong pass legislation to strengthen its AML 
regime.  The three regulators provide AML training to their 
industry groups.  They also rely on the banks, securities 
firms and insurance agencies to conduct their own industry 
and in-house training as well as to stay current on the 
existing guidelines and be conscientious.  All three 
regulators welcome U.S. Treasury Department training/guidance 
both for the regulatory agencies themselves and for the 
banking, securities and insurance industry groups on AML 
issues.  End Summary. 
 
¶2.  (SBU) Embassy Beijing Deputy Treasury Attache Jean Paul 
Duvivier met with Hong Kong's Securities and Futures 
Commission (SFC), the Office of the Commissioner of Insurance 
(OCI) and the Hong Kong Monetary Authority (HKMA) on February 
25 to discuss anti-money laundering/counterterrorism finance 
(AML/CFT) compliance issues.  Duvivier also explained the 
U.S. Department of Treasury's Office of Terrorism and 
Financial Intelligence priorities and programs (targeted 
financial sanctions, Patriot Act Section 311 actions and 
advisory bulletins). 
 
¶3.  (SBU) The SFC's Senior Director for Intermediate 
Supervision Stephen Po told Duvivier that the SFC licensed 
approximately 1,500 securities firms operating in Hong Kong, 
including 700 broker/dealers, 200 futures brokers, with the 
remainder being fund managers and advisors.  Assistant 
Commissioner of Insurance Carol Hui stated that OCI licensed 
174 insurance firms in Hong Kong, of which 47 are life 
insurance companies, the 10 largest controlling 80% of Hong 
Kong's market.  HKMA's Head of Banking Policy Division 
Raymond Chan said that HKMA oversees over 200 firms in three 
categories - licensed banks, restricted license banks and 
deposit taking companies. 
 
¶4.  (SBU) Each agency currently issues AML guidelines for its 
sector.  The Financial Action Task Force during its 2007 
Mutual Evaluation of Hong Kong cited Hong Kong's lack of 
legislative backing for these agency AML guidelines as a 
weakness.  Hong Kong's Financial Services and Treasury Bureau 
is drafting AML legislation to provide statutory backing, 
which it hopes to have passed into law by mid 2010. 
Additionally, Hong Kong is crafting AML regulations to cover 
non-financial businesses and professions, such as lawyers and 
accountants.  Hong Kong is also working with other FATF 
members to establish an objective definition of "equivalent 
jurisdiction."  All three regulators provide industry 
training, but also rely on the banks, securities firms and 
insurance agencies to conduct their own industry and in-house 
training as well as to stay current on the existing 
guidelines and be conscientious.  They welcome U.S. Treasury 
Department training/guidance both to the regulatory agencies 
and banking, securities and insurance industry groups on AML. 
 
¶5.  (SBU) HKMA noted that it had revoked the license of one 
or two banks for AML/CFT violations, most recently shutting 
down Banco Delta Asia's Hong Kong affiliate Delta Asia 
Credit.  SFC and OCI officials said that they have not 
executed any AML cases over the past several years.  HKMA, 
SFC and OCI maintain contact with Hong Kong's Joint Financial 
Intelligence Unit, the agency that conducts investigations 
based on Suspicious Transactions Reports and Suspicious 
Activities Reports. 
 
¶6.  (SBU) Duvivier inquired about HKMA's efforts to address 
trade-based money laundering (TBML) concerns.  HKMA's Chan 
responded that TBML is very hard to detect; however, they are 
planning to do thematic bank exams on trade finance 
activities with eight to ten Hong Kong banks.  HKMA will look 
for common deficiencies and best practices, using a 
 
HONG KONG 00000462  002 OF 002 
 
 
risk-based approach.  Risk levels can be determined by 
analyzing the client background, the banks involved and the 
nature of the goods, as part of due diligence procedures.  In 
special circumstances a bank can demand to see the trade 
documents and/or products. 
 
¶7.  (SBU) HKMA's Chan commented that there is significant 
interaction between HKMA and mainland China's People's Bank 
of China (PBOC) and China's Banking Regulatory Commission 
(CBRC) on financial issues.  On AML/CFT issues, however, 
Hong Kong and mainland China do not have much interaction 
outside of international plenaries. 
 
¶8. (U) Deputy Attache' Duvivier cleared this message. 
 
DONOVAN