Guidance Note. A Companion to the Anti. nti-money Laundering and Counter- Terrorist Financing Guidelines - I. A practical guide to good governance

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1 Guidance Note A practical guide to good governance The Hong Kong Institute of Chartered Secretaries Chartered Secretaries. More than meets the eye. A Companion to the Anti nti-money Laundering and Counter- Terrorist Financing Guidelines - I March 2010 Reference number: 10

2 PREFACE 1. This Guidance Note, as a companion to the earlier Anti-Money Laundering and Counter- Terrorist Financing Guidelines (Guidelines), 1 is for trust and company service providers (TCSPs). It provides, in the form of four appendices, the following: Appendix A B C D A sample customer acceptance policy Annex I - Anti-money laundering and combating the financing of terrorism (AML/CFT) customer identification checklist 2 Annex II Questionnaire for individuals A suspicious transaction report form for filing with the Joint Financial Intelligence Unit (JFIU) Access to JFIU feedbacks Recommended best practice no. 1 - appointment of a compliance officer 2. It is hoped that these templates and materials will assist TCSPs to comply with their AML/CFT obligations. 3. AML/CFT is a fast changing area. The Hong Kong Institute of Chartered Secretaries (the Institute or HKICS ) will continue to issue guidance notes to complement the Guidelines and will revise and update the Guidelines as warranted. 4. Notwithstanding the recommendations made by the Institute in the Guidelines and this Guidance Note, they are not intended to provide legal advice. Members and readers shall form their own opinions on each individual case and if in doubt, shall consult their legal advisers. 1 Anti-Money Laundering and Counter-Terrorist Financing Guidelines, published by the Institute in May 2008, available at 2 The phrases counter-terrorist financing (CTF) and combating the financing of terrorism (CFT) refer to the same subject. In this Guidance Note, we follow the Financial Action Task Force s Third Mutual Evaluation Report on Hong Kong and use the phrase combating the financing of terrorism (CFT)

3 APPENDIX A CUSTOMER ACCEPTANCE POLICY 1. INTRODUCTION 1.1. As trust and company service providers (TCSPs), we seek to observe the highest standards of customer due diligence The purposes of this policy are: To know our customer and understand the customer s business; To protect our staff from committing offences under the anti-money laundering and combating the financing of terrorism (AML/CFT) legislation; To comply with our obligations under the AML/CFT legislation; and To minimise our risks of being inadvertently exploited by criminals in their money laundering and financing of terrorism schemes All staff should familiarise themselves with this policy Failure to observe this policy could be grounds for disciplinary proceedings, with the possibility of termination of employment, irrespective of whether any money laundering activity has taken place. In addition, the staff could have committed a criminal offence liable to be prosecuted under the AML/CFT legislation. Penalty for such a criminal offence includes a fine, imprisonment or both. 2. THE CUSTOMER 2.1. A customer is the party for which our services are rendered For a company, the customer includes its directors, shareholders, holding companies and the beneficial owners and any individual who otherwise exercises control over the management of the company For a trust, and depending on the particular provisions of the trust deed, the customer includes the settlor, the trustee, the protector, the appointer and the beneficiaries and all those who are authorised to deal with or make decisions about the trust assets. 3. CUSTOMER DUE DILIGENCE 3.1. As a general principle, prior to accepting any engagement for services, you should: Identify the customer; and Check and verify the customer s identity, i.e., the person is who he claims to be. 3 By way of example, see the definition of a customer in Basel Committee on Banking Supervision, Customer Due Diligence for Banks, October 2001, paragraph 21, page 6, available at See also the definition of customer by the Hong Kong Monetary Authority in Supplement to the Guideline on Prevention of Money Laundering and the accompanying interpretative notes, available at at Guideline

4 3.2. The AML/CFT Customer Identification Checklist (ANNEX I) sets out the types of information to be collected and verified and the documents that should be obtained from the customer. Please follow this checklist Request the customer (director, shareholder or beneficial owner, settlor, trustee, protector, appointer, partner, executor or administrator) to complete the Questionnaire for Individuals (ANNEX II) Obtain senior management approval (i.e., an officer of suitable seniority such as a director or the legal or compliance officer) for all exceptions to the checklist or questionnaire. 4. ENHANCED CUSTOMER DUE DILIGENCE FOR HIGHER RISK CUSTOMER 4.1. Some countries are known to have higher risk of money laundering or known to be applying in an insufficient manner the Financial Action Task Force (FATF) standards on money laundering. Having a business relationship with customers based in such countries posed a higher risk Determine if a customer is of higher risk by reference to factors such as: Customer s nationality, citizenship and resident status (in the case of a company, its place of incorporation), the place where the customer s business is established and whether the customer is connected with jurisdictions known to lack proper standards in the prevention of money laundering or customer due diligence process; Background of the customer such as being, or linked to, a politically exposed person; Nature and scope of the customer s business which may be particularly susceptible to money laundering risk and financing of terrorist activities; For corporate customers, unduly complex corporate structures across multiple jurisdictions with no apparent business reasons; and Any other information which may suggest that the customer is of higher risk such as knowledge that other TCSPs or professionals have declined to offer services to the customer Once a customer is identified as of higher risk, further enquiry or investigation should be made/undertaken as appropriate to ensure that there is no suspicion of money laundering or terrorist financing. Such further steps may include obtaining and verifying further details on the source of funds, the proposed transactions, their underlying purposes and the parties involved Obtain senior management approval (i.e., an officer of suitable seniority such as a director or the legal or compliance officer) before establishing a business relationship with a higher risk customer. 4 Politically-exposed persons are those who have been entrusted with prominent public functions, such as heads of state or government, senior politicians, senior government officials, judicial or military officials, senior executives of public organisations and senior political party officials. The concern here is that these individuals may abuse their public powers for their own illicit enrichment through bribes, etc. For details, see Section 5.8, Anti-Money Laundering and Counter- Terrorist Financing Guidelines, published by the Institute in May 2008, available at

5 5. ONGOING CUSTOMER DUE DILIGENCE 5.1. All customer profiles should be reviewed periodically so as to keep the customer s records upto-date. The review should also include scrutinising customer s transactions to detect patterns of unusual or suspicious activities, having regard to the customer s profile. In performing the review, a more extensive procedure should be adopted for higher risk customers At a minimum, profile of higher risk customers should be reviewed annually. Other customers profile should be reviewed every three (3) years. 6. CONFIDENTIALITY 6.1. All personal data provided by customers will be used for the purposes of customer due diligence All customer data should be kept confidential in accordance with the applicable laws and regulations, including the Personal Data (Privacy) Ordinance. 7. A FEW GOLDEN RULES 7.1. BE VIGILANT USE COMMON SENSE AND JUDGMENT IF IN DOUBT, CONSULT A SENIOR OFFICER. HKICS Customer Acceptance Policy template (January 2010) - 4 -

6 ANNEX I ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM (AML/CFT) CUSTOMER IDENTIFICATION CHECKLIST CUSTOMER NAME FILE NO. DATE: SECTION A INDIVIDUALS Information to Collect and Verify Documents Needed for Verification 1. Customer s full name 2. Customer s date of birth Any one of the following a. Hong Kong identity card 3. Customer s nationality b. Passport or travel document 4. Customer s residential address Any one of the following issued within the last three (3) months a. Bank statement b. Credit card statement c. Utility bills Any one of the following (provided it is current) d. Rates and government rent demand note e. Tax assessment bill f. Others (please specify) 5. Customer s background Reference letter issued by an international bank, a Chartered Secretary, a notary public, a lawyer, or an accountant stating: a. Length of the business relationship b. If the relationship has been continuous or occasional c. Types of services provided d. If the relationship has been satisfactory e. Any facts or circumstances that should be brought to the attention of a new service provider 6. Customer s source of wealth a. Any reasonable proof of the customer s source of wealth b. Verify information behind the generic description of the source of wealth such as savings, investment or business dealing ; documentation such as personal tax assessment note will be helpful c. Does the customer have ties to high-risk jurisdictions or if he or she is a politically exposed person/high-profile individual - 5 -

7 SECTION B COMPANIES Information to Collect and Verify Documents Needed for Verification 1. Company s full name, date and place Certificate of Incorporation of incorporation 2. Company s registered office or its Business registration certificate/extract from trade principal place of business (if any) register/commercial register 3. Company s objects or business Memorandum and articles of association, charter, purposes statute or by-laws 4. Company s internal structure and regulation 5. Company s management structure Register of directors and secretaries, extract from trade register/commercial register or a certificate of incumbency issued within one (1) month by the registered agent certifying the latest management structure 6. Ownership structure Register of members, extract from trade register/commercial register or a certificate of incumbency issued within one (1) month by the registered agent certifying the latest ownership structure; corporate organisation chart showing the individual s beneficial ownership of the companies; or declaration of trust (as appropriate) 7. Legal status Certificate of good standing issued by the local 8. Authority of person purporting to give instructions on behalf of the company 9. Public company listed on a recognised stock exchange authorities Board resolutions appointing the authorised person Name of the stock exchange under which the company is listed and the stock code 10. Licensed financial institution Regulatory authority under which it is being supervised 11. Licensed trustee Licence or certificate issued by the regulatory authority SECTION C TRUSTS Information to Collect and Verify 1. Full name of the trust 2. Nature and purpose of the trust 3. Personal information of settlor, trustee, protector, appointer or beneficiary (if appropriate) 4. Corporate information of settlor, trustee, protector, appointer or beneficiary (if appropriate) Documents Needed for Verification Either the trust deed or a letter from the trustee covering the information to be verified See Section A See Section B - 6 -

8 SECTION D CHARITABLE INSTITUTIONS Information to Collect and Verify 1. Full name of the charitable institution 2. Nature and purpose of the charitable institution 3. Possible ties to high risk jurisdictions 4. Personal information of individuals who have effective control over the charitable institution including control over its assets 5. Corporate information of entities which have effective control over the charitable institution including control over its assets Documents Needed for Verification a. Either the governing instrument or a letter from the trustee covering the information to be verified b. A list of charitable institutions or trusts of a public character which are exempt from tax under section 88 of the Inland Revenue Ordinance is available at c. Financial documents such as records of donations, banking documents, records of donors and beneficiaries, details of donors and beneficiaries d. Please refer to An Advisory Guideline on Preventing the Misuse of Charities for Terrorist Financing, published by the Narcotics Division, Security Bureau, which is available at See Section A See Section B SECTION E PARTNERSHIPS Information to Collect and Verify Documents Needed for Verification 1. Full name of the partnership or the a. Partnership agreement limited partnership b. If the partnership is a partnership of lawyers, 2. Business name of the partnership 3. Place in which the partnership was established chartered or certified accountants or certified surveyors, confirmation of the partnership's registration from the relevant professional body may be acceptable 4. Personal information of partners See Section A 5. Corporate information of partners (if applicable) See Section B SECTION F ESTATES Information to Collect and Verify 1. Full name of the estate and authority of the executor or administrator 2. Personal information of executor or administrator 3. Corporate information of the executor or administrator Documents Needed for Verification a. Death certificate b. Either the grant of probate or letter of administration See Section A See Section B - 7 -

9 INSTRUCTIONS FOR THE USE OF AML/CFT CUSTOMER IDENTIFICATION CHECKLIST 1. Face-to-face interview should be performed whenever possible in order to better understand the customer, his or her affairs and business. 2. Originals of the supporting documents should always be requested in the first instance. Such documents should be inspected, photocopied and returned to customer. 3. Where originals are not available, photocopies of the supporting documents may be accepted provided they are certified as a true copy of the original document by a Chartered Secretary, a lawyer or an accountant with membership in The Hong Kong Institute of Chartered Secretaries, The Law Society of Hong Kong or the Hong Kong Institute of Certified Public Accountants or a notary public, an embassy, consulate or high commission of the country of issue of the identity document. 4. For multi-layer ownership structures, information and supporting documents should be obtained for the first layer. An organisation chart showing the individuals who are the ultimate principal beneficial owners (holding at least 10%) should also be obtained with the identity of those individuals verified. 5. For companies: the directors and each 10% beneficial owner must be identified and with their identities verified. Where there are a large number of directors and shareholders, only the principal directors and controlling shareholders need be identified and verified. 6. For a reference letter under Section A - Individuals, Item 5 Customer s background, the preference is to have an international banker s reference. If that is not possible, professional reference letter from a Chartered Secretary, a notary public, a lawyer or an accountant with membership in The Hong Kong Institute of Chartered Secretaries, The Law Society of Hong Kong or the Hong Kong Institute of Certified Public Accountants is acceptable. 7. Try to obtain all documents on the checklist. Any exception to the checklist should be approved by an officer of suitable seniority such as a director or the legal or compliance officer. HKICS AML/CFT Customer Identification Checklist template (January 2010) - 8 -

10 ANNEX II QUESTIONNAIRE FOR INDIVIDUALS (State the capacity of the individual completing this questionnaire by checking the box) director settlor appointer executor shareholder trustee general partner administrator beneficial owner protector limited partner 1. Name of individual Surname: Other names: Any other name(s) which you have been known: 2. Date of Birth (dd/mm/year) 3. Gender (Male/Female) 4. Nationality 5. Hong Kong identity card number 6. Passport/travel document 7. Residential address Number: Country of issue: Expiry date: 8. Contact information 9. Occupation Office Tel: Residential Tel: Mobile Tel: Source of wealth 11. 1Banker/Professional reference International bank: Bank account number and title/address of person giving the banker s reference: - 9 -

11 Chartered Secretary (name & address): Accountant (name & address): Lawyer (name & address): 12. Have you ever been convicted of any offences (except minor traffic offences)? If yes, please give details. 13. Have you ever been sanctioned by any professional or regulatory bodies? If yes, please give details. 14. Have you ever been adjudged bankrupt or insolvent? If yes, please give details. 15. Do you have any ties with politically exposed persons? If yes, please give details. 16. Name of the company/trust/charitable institution/partnership/estate in connection with which this questionnaire is being completed (if applicable) 17. Position in company/trust/charitable institution/partnership/estate (e.g. officer, director, shareholder, beneficial owner, settlor, trustee, protector, appointer, partner, executor or administrator) 18. In carrying out your duties will you be acting on the direction or instruction of other individuals? If yes, please give details

12 19. Services required (Please specify) 20. Source of funds for the proposed transaction(s) 21. Other relevant information I hereby CERTIFY that the above information is complete and correct and I undertake that I shall promptly notify (name of TCSP) of any changes to or affecting the accuracy or completeness of the above information. I hereby AGREE to provide such other documents or information as may be required by (name of TCSP) to complete its customer due diligence. Date: Signed: HKICS Questionnaire for Individuals template (January 2010)

13 APPENDIX B SUSPICIOUS TRANSACTION REPORT FORM For filing with the Joint Financial Intelligence Unit ( JFIU ) Transaction status indicator (Please check the box) COMPLETED ATTEMPTED Please send completed form in one of the following ways: By e-reporting system, STREAMS Need to apply and register with JFIU By jfiu@police.gov.hk By telephone (for urgent reports during (852) office hours): By fax: (852) By mail: Joint Financial Intelligence Unit GPO Box 6555, Hong Kong For more information, please contact JFIU Telephone: (852) Details of the subject Name: Hong Kong identify card number: Nationality: Address: Date of Birth: Gender (Male/Female): Passport or travel document number: Telephone: Company: Place of incorporation: Address: Bank account information: (bank, branch & account number) 2. Details of the suspicious transaction and the reason(s) why the transaction is considered suspicious

14 3. Details of suspicious activity indicators 4. Details of explanation given by the subject about the transaction 5. Details of other entities involved in the suspicious transaction Name: Date of Birth: Hong Kong identify card number: Nationality: Address: Gender (Male/Female): Passport or travel document number: Telephone: Company: Place of incorporation: Address: Bank account information: (bank, branch & account number) 6. Details of the individual/company making the report Name: Telephone: Address: Name of contact person (for this report): Telephone: Date: This report is made Under Section 25A of the Drug Trafficking (Recovery Of Proceeds) Ordinance or Organized and Serious Crimes Ordinance/Section 12 of the United Nations (Anti-Terrorism Measures) Ordinance

15 INSTRUCTIONS FOR THE USE OF SUSPICIOUS TRANSACTION REPORT FORM 1. Follow JFIU s recommended SAFE approach to identify suspicious transactions: 1.1. Screen the customer and account for suspicious indicators; 1.2. Ask the customer appropriate questions to clarify suspicious circumstances; 1.3. Find out whether the transaction commensurate with what is expected from the customer by reviewing the information already known about the customer; and 1.4. Evaluate all the above information and decide whether the transaction relating to the customer is genuinely suspicious The obligation to report is on the individual who becomes suspicious of a transaction. If a designated person, such as a compliance officer, has been appointed to co-ordinate the reporting of suspicious transactions, once an employee has made a report to that person in accordance with the relevant internal procedures, the employee s obligation to report is considered to have been fulfilled. It is then up to the designated person to decide if a report should be made to JFIU. 3. Suspicion in its ordinary meaning means a state of conjecture or surmise where proof is lacking: I suspect but I cannot prove Keep a register to record all reports made to JFIU (with date on which the report is made, the person who makes the report and the reasons for making the report). 5. After filing the report, do not carry out or continue the transactions unless authorised by JFIU. 6. Do not disclose to the person the subject of the report or to any party which may prejudice the investigation that a report has been made to JFIU. 7. For further details, please refer to Part III: Reporting Suspicious Transactions/Terrorist Property of the Anti-Money Laundering and Counter-Terrorist Financing Guidelines 7 or JFIU (at or Tel: ). HKICS STR Form template (January 2010) 5 See Section 3.22, Anti-Money Laundering and Counter-Terrorist Financing A Practical Guide for Accountants, Estate Agents, Precious Metals and Precious Stones Dealers and Trust and Company Service Providers, published by the Narcotics Division, Security Bureau, available at 6 Hussien v. Chong Fook Kam [1970] AC 942 at Anti-Money Laundering and Counter-Terrorist Financing Guidelines, published by the Institute in May 2008, available at

16 APPENDIX C JOINT FINANCIAL INTELLIGENCE UNIT FEEDBACKS The Joint Financial Intelligence Unit (JFIU) website [under the Secure Area Login ( contains useful feedbacks. By way of example: 1. Feedback No Applying Know Your Customer & Customer Due Diligence by Nonfinancial Professionals 1.1. The important role played by TCSPs in anti-money laundering mechanism and the significance of complying with the customer due diligence principles. 2. Feedback No. 85 Know Your Customers' and Customer Due Diligence 2.1. Some company formation agents had poor customer due diligence practice. 3. Feedback No. 110 Good CDD of TCSP 3.1. A TCSP was credited for having a good practice of customer due diligence which can effectively help the prevention and detection of money laundering. Members are encouraged to apply to JFIU to have access to these feedbacks by completing an application form. For details, please contact JFIU

17 APPENDIX D RECOMMENDED BEST PRACTICE FOR TRUST AND COMPANY SERVICE PROVIDERS Recommended Best Practice No. 1: Appointment of a Compliance Officer 1. TCSPs should appoint a compliance officer, of suitable seniority, to oversee their overall compliance with AML/CFT requirements, including suspicious transaction reporting to the Joint Financial Intelligence Unit (JFIU). 2. Below are some of the compliance officer s responsibilities: 2.1. Implement TCSP s AML/CFT policies; 2.2. Ensure compliance with AML/CFT regulatory requirements; 2.3. Advise senior management on AML/CFT matters; 2.4. Review and update AML/CFT guidelines and procedures in accordance with regulatory requirements; 2.5. Issue compliance alerts and newsletters regarding AML/CFT matters; 2.6. Review AML/CFT exception reports and high risk customers; 2.7. Co-ordinate TCSP s suspicious transaction reporting including filing the reports with JFIU; 2.8. Represent TCSP in the industry forum to share and discuss AML/CFT issues; and 2.9. Provide training to staff on AML/CFT matters. 3. The compliance officer should preferably be members of a professional body such as The Hong Kong Institute of Chartered Secretaries, The Law Society of Hong Kong or the Hong Kong Institute of Certified Public Accountants. Other AML/CFT professionals such as retired police officers with the rank of inspector (or above) or risk management/compliance managers (or above) with a reasonable number of years of AML/CFT experience could also fill this post

18 ACKNOWLEDGMENT The Institute would like to thank the following members of our Professional Services Panel for preparing this Guidance Note: Names below are in alphabetical order: Ms Suzanne Callister, Managing Director, TMF Hong Kong Limited Ms Elly Chan, Manager, Corporate Services, JSM Ms Katherine Chiu, Deputy Managing Director, Intertrust Hong Kong Ms Grace Kwok, Director, Corporate Services Department, Baker & McKenzie Mr Eddie K. C. Liou, Head of Corporate Management Services, Equity Trust Hong Kong Limited Ms Gloria S. K. Ma, Director of Corporate Secretarial and Head of Registration and Compliance Services, KCS Hong Kong Limited Mrs Natalia Seng, Immediate Past President, Chairman, Professional Development Committee, Chairman, Professional Services Panel and Anti-Money Laundering Working Group, HKICS; Executive Director, Tricor Services Limited Ms Samantha Suen, Past President, Founding Chairman of the Professional Services Panel and Anti- Money Laundering Working Group, HKICS Mr Wilson Toe, General Manager, Compliance, Offshore Incorporations HK Limited And special thanks to Mr Eddie K. C. Liou for preparing a preliminary draft of this Guidance Note

19 COPYRIGHT AND DISCLAIMER The Institute hereby reserves its rights on this Guidance Note. No part of this Guidance Note may be copied, reprinted, transmitted or excerpted in any way or form or in any place for any purpose, including photocopying or recording, unless prior written consent has been obtained from the Institute. Without prejudice to the foregoing, nothing herein, however, shall prohibit any reader from reproducing or adapting the contents contained herein, or any of the templates annexed hereto, for the purposes of designing and maintaining the appropriate system or implementing the necessary procedures to ensure that his AML/CFT obligations shall be complied with as promulgated in the Guidelines or herein. The information contained in this Guidance Note is provided in good faith by the Institute with the view to enhancing members knowledge and understanding of the subject matter set out in the Guidelines or herein. This Guidance Note shall not be taken as, and is not the same as legal advice. The Institute believes, to the best of its knowledge, that at the time of the publication of this Guidance Note, the information contained herein is accurate. The Institute (for itself and as trustee of all of its staff) hereby disclaims any and all liabilities arising from any claim brought against it (for itself and as trustee of all of its staff) by any person who, in reliance upon the information contained herein, suffers any loss or damage as a result of his action or inaction. If any person after reading this Guidance Note has any doubt or concern about the accuracy of the information contained or the subject matter refers to herein, he should immediately seek legal advice. For interpretation purposes, references to a person also include body corporate, unincorporated association, partnership (whether or not having separate legal personality); and the masculine gender shall include the feminine and neuter gender

20 The Hong Kong Institute of Chartered Secretaries (Incorporated with limited liability) Hong Kong Office 3F Hong Kong Diamond Exchange Building, 8 Duddell Street, Central, Hong Kong Tel: (852) Fax: (852) ask@hkics.org.hk Website: Beijing Representative Office Rms , 10F Jinyu Mansion No 129 Xuanwumen Xidajie, Xicheng District, Beijing, China PC Tel: (8610) Fax: (8610) bro@hkics.org.hk Website: