Circular to SFC s Registered Intermediaries Financial Action Task Force on Money Laundering Non-cooperative Countries and Territories We wrote to you on 31 July 2001 about the work of the Financial Action Task Force (FATF) note 1 and the list of jurisdictions identified as non-cooperative countries and territories (NCCTs) in the fight against money laundering. In September 2001, the FATF completed the review of several jurisdictions and added two countries - Grenada and the Ukraine - to its NCCT list because these two countries were found to have serious deficiencies in their anti-money laundering regimes. No country was removed from the previous NCCT list. The revised list of the 19 NCCTs is presently as follows: - Cook Islands - Dominica - Egypt - Grenada - Guatemala - Hungary - Indonesia - Israel - Lebanon - Marshall Islands - Myanmar - Nauru - Nigeria - Niue - Philippines - Russia - St. Kitts and Nevis - St. Vincent and the Grenadines - Ukraine The FATF calls on its members to remind their financial institutions to apply Recommendation 21 of the Forty Recommendations note 2 which states that :- Financial institutions should give special attention to business relations and transactions with persons, including companies and financial institutions, from countries which do not or insufficiently apply these Recommendations. Whenever these transactions have no apparent economic or visible lawful purpose, their background and purpose should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies. In addition to the know your client rules under the Code of Conduct for Registered Persons and Guidance Notes on anti-money laundering issued by the Securities and Futures Commission, you are advised to give special attention to business relations and transactions with persons, including companies and financial institutions, from the above NCCTs to comply with the above Recommendation. Furthermore, in view of the inadequate progress made by the Philippines to address the serious deficiencies in its anti-money laundering regime, the FATF has also decided to recommend the application of additional counter-measures as of 30 September 2001 with
28 September 2001 page 2 respect to the Philippines. Details of the counter-measures to be implemented in Hong Kong are set out in the jurisdiction-specific advisory at Appendix 1. The FATF will review the NCCT list and the need to apply counter-measures from time to time. We will advise you of any future changes by similar advisory circulars. Intermediaries & Investment Products Securities and Futures Commission Note 1: Note 2: FATF is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering. FATF currently consists of 29 jurisdictions and two international organizations: Argentina; Australia; Austria; Belgium; Brazil; Canada; Denmark; Finland; France; Germany: Greece; Hong Kong, China; Iceland; Ireland; Italy; Japan; Luxembourg; Mexico; the Kingdom of the Netherlands; New Zealand; Norway; Portugal; Singapore; Spain; Sweden; Switzerland; Turkey; the United Kingdom, the United States; the European Commission; and Gulf Cooperation Council. The Forty Recommendations were promulgated by the FATF as standards and international best practices in countering money laundering. All members of the FATF, including Hong Kong, China, are encouraged to adopt these measures to help combat money laundering. [c:\advisory] Encl
Appendix 1 Jurisdiction-specific advisory in respect of transactions with the Philippines This advisory sets out the serious deficiencies in the anti-money laundering systems of the Republic of the Philippines, the scrutiny that registered intermediaries should give to certain transactions or business relationships involving this jurisdiction and their obligation to report any suspicious transactions arising from such scrutiny. In addition, registered intermediaries are requested to raise the awareness of their staff and the general public on non-cooperative countries and territories including the Philippines through various means as set out in this advisory. The anti-money laundering regime embodied in the legal, supervisory, and regulatory systems of the Philippines is found to suffer from the following serious problems: Money laundering is not a crime under the law of the Philippines. For Philippines financial institutions, anti-money laundering regulations are not in place to require them to verify and record the identity of their customers. Since there is no mandatory system for reporting suspicious transactions, financial institutions operating in the Philippines have no obligation to report suspicious transactions. The Philippines bank secrecy laws make it virtually impossible for government authorities to obtain any financial information that is collected and maintained by banks about any bank deposits by customers. The deficiencies in the counter-money laundering systems of the Philippines have caused the Philippines to be identified by the Financial Action Task Force on Money Laundering ( FATF ) as non-cooperative in the fight against money laundering. The Philippines has indicated an awareness of the impact of the deficiencies in its anti-money laundering system, and has laid a Bill before its Parliament to remedy the structural deficiencies identified by the FATF. The purpose of the Bill is to provide
for the criminalization of money laundering, requirement of customer identification as well as record keeping, introduction of suspicious transaction reporting system and relaxing the bank secrecy provisions. Up to now, the Bill has not yet completed the parliamentary process and the necessary reforms have therefore yet to be put in place. In September 2001, the FATF considered that inadequate progress was made by the Philippines in addressing the serious deficiencies identified in June 2000. In addition to the application of Recommendation 21, it recommended the application of further counter-measures to the Philippines. It believed that enhanced surveillance and reporting of financial transactions involving the jurisdiction and other relevant actions were required, including the possibility of: Stringent requirements for identifying clients and enhancement of advisories, including jurisdiction-specific financial advisories, to financial institutions for identification of the beneficial owners before business relationships are established with individuals or companies from the country; Enhanced relevant reporting mechanisms or systematic reporting of financial transactions on the basis that financial transactions with NCCT countries including the Philippines are more likely to be suspicious; In considering requests for approving the establishment in FATF member countries of subsidiaries or branches or representative offices of banks, taking into account the fact that the relevant bank is from an NCCT; Warning non-financial sector businesses that transactions with entities within the NCCTs might run the risk of money laundering. Specifically, the FATF called on its members to apply further counter-measures as of 30 September 2001 to the Philippines. In view of the above, registered intermediaries are advised to make additional efforts in the following areas in respect of transactions with the Philippines: For new customers from the Philippines, registered intermediaries should clearly ascertain the customers background and the expected 2
level and nature of account activities. A supervisory officer should sign to approve the opening of such accounts. To avoid undue administrative burden, a more flexible approach could be adopted for locally residing domestic helpers from the Philippines. Registered intermediaries are advised not to accept new accounts opened through intermediaries, e.g. lawyers, accountants and company formation agents, etc, that only operate in the Philippines without having completed proactive verification procedures and assessment of the risk of money laundering, particularly if the holders or beneficial owners of such accounts originate from the Philippines. They should accept new accounts originating from the Philippines only if they are satisfied about the customers background and the source of funds after having obtained satisfactory evidence thereof and ascertained the expected level and nature of account activities. Relevant staff of registered intermediaries should pay special attention to the on-going monitoring of the activities of new accounts with the Philippines. Significant deviations from the expected level and nature of activities should be followed up and reported to the Joint Financial Intelligence Unit (JFIU) immediately if deemed appropriate. Besides the Guidance Notes on anti-money laundering issued by the Securities and Futures Commission, registered intermediaries should also refer to the list of suspicious activity indicators commonly associated with money-laundering in Hong Kong at Appendix 2 for identifying suspicious transactions and ensuring compliance with the suspicious transactions reporting requirements. Financial institutions should include the subject of NCCT with special emphasis on the Philippines in their staff training programmes in respect of money laundering. Where practicable, registered intermediaries should help spread more widely information on NCCT, in particular that about the Philippines, to business relationships with the non-bank financial sector, business sector, intermediaries such as lawyers and accountants and so on. This is to complement Government s efforts to disseminate information to the general public on the NCCT process and the Philippines which is an NCCT jurisdiction subject to counter-measures. 3
To enhance awareness on the Philippines, attention of staff of registered intermediaries should be drawn to the websites of the Narcotics Division of the Security Bureau, the JFIU, the Securities and Futures Commission and other financial regulators where the background and latest developments of NCCT, in particular the Philippines which is the NCCT jurisdiction subject to FATF counter-measures are published. 4
Appendix 2 List of Suspicious Activity Indicators Commonly Associated with Money Laundering in Hong Kong 1. Large or frequent cash transactions, either deposits or withdrawals. 2. Suspicious activity based on transaction pattern, i.e. (a) Account used as a temporary repository for funds. (b) A period of significantly increased activity amid relatively dormant periods. (c) Structuring or Smurfing i.e. many lower value transactions conducted when one, or a few, large transactions could be used. Seen particularly in incoming remittances from countries with value based transaction reporting requirements, e.g. frequent remittances of just below AUS$10,000 from Australia, or US$10,000 from USA. (d) U-turn transactions, i.e. money passes from one person or company to another, and then back to the original person or company. (e) Increased level of account activity on the first banking day after Hong Kong horse racing, normally Mondays and Thursdays, indicating illegal bookmaking. 3. Involvement of one or more of the following entities which are commonly involved in money laundering :- (a) Shelf, or Shell Companies. (b) Company registered in a known Tax Haven or Off-shore Financial Center. (c) Company Formation Agent, or Secretarial Company, as the authorized signatory of the bank account. (d) Remittance Agency or Money Changer. (e) Casino. 4. Currencies, countries or nationals of countries, commonly associated with international crime or identified as having serious deficiencies in their antimoney laundering regimes, e.g.
- Thailand, Cambodia, Myanmar, Laos, Netherlands, Colombia relating to drug trafficking; - Nigeria relating to fraud and drug trafficking; - 19 NCCTs (Non-cooperative Countries and Territories) identified by FATF in September 2001 i.e. Cook Islands, Dominica, Egypt, Grenada, Guatemala, Hungary, Indonesia, Israel, Lebanon, Marshall Islands, Myanmar, Nauru, Nigeria, Niue, Philippines, Russia, St Kitts and Nevis, St. Vincent and the Grenadines, and Ukraine. 5. Customer refuses, or is unwilling, to provide explanation of financial activity, or provides explanation assessed to be untrue. 6. Significant deviations from the expected level and nature of activities of customers should be followed up and reported to the JFIU immediately if deemed appropriate. 7. A client introduced by an overseas bank, affiliate or another client both of which are based in the Philippines. 2