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The Effectiveness of Money Laundering Investigations in Fighting Transnational Crime: A Comparison of the United States and Hong Kong

Nelson Yiu-mo Cheng

INTRODUCTION

For a two-year period between 2008 and 2010, part of my professional responsibilities with the Hong Kong Police was to command the Joint Financial Intelligence Unit[1] of Hong Kong (“JFIU”). One day in mid 2009, just as I was about to leave the office, I received a call from a compliance officer of a bank, who was also a personal friend, asking for my advice on a case which had aroused his suspicions. In short, his staff had identified a pattern involving a group of three nonresidents (from Mainland China in fact) opening personal bank accounts at different branches of the bank in the last couple of days. During routine customer due diligence processes, the group told the bank that the accounts were to be used for the purpose of business (trading). However, they appeared to have some common links and once the accounts were opened, they shared a similar transaction pattern of receiving inward remittances from Taiwan in the range of HK$20,000 – 100,000 (US$2,500 – 12,500).

Though I was not happy about the bank allowing personal accounts to be opened for business purposes, being his friend I was courteous enough to praise his staff for what appeared to be good transaction monitoring. Though experience suggested that something was not right with these accounts, neither the bank nor my unit could do anything about the inward remittances. I advised my friend to file a suspicious activity report as obligated under Hong Kong law so that my unit could look into it.

After the call, I asked one of my team leaders to initiate an investigation into the background of the group once the suspicious activity report had been received. The report came two days later which I regarded as pretty efficient; many reports were filed weeks or months after the transactions in question had taken place. However, when the team leader called the bank for some missing details, he was told that the accounts had received further inward remittances from Taiwan in the last two days and that most of them had been either withdrawn in cash or transferred to a remittance agent. The inward remittances amounted HK$ 1.6 million (US$200,000) in total.

Initially, little could be established as to the background of the account holders as they were nonresidents and had left Hong Kong. The funds transferred to the remittance agency were subsequently “wired”[2] through underground remittance networks to two bank accounts in the Mainland. Background checks on the account holders and bank accounts were then conducted with the Mainland and the Taiwanese authorities but experience suggested that we would have to wait weeks or even months for the results. Two days later the remitting bank in Taiwan attempted to recall the remittances from one of the accounts as they were believed to be the proceeds of fraud. Our suspicions were confirmed. The remitting bank alleged that the remittances came from the account of a retiree who was deceived (over the telephone) to believe that his son was subject to a money laundering investigation by the Taiwanese Police and that he needed to transfer all funds in his account to Hong Kong for investigation to prove his son’s innocence.

This was not an exceptional case but was one of many which JFIU came across in recent years. This case illustrates, for the purpose of this study, the fact that transnational crimes take place on a daily basis, and that they are not necessarily complex or involve big sums. It also depicts the current landscape of transnational crime where criminals are adept at exploiting jurisdictional boundaries and incompatibilities to ensure a low risk environment for their criminalities; and it exemplifies the relative inefficiency and ineffectiveness of law enforcement response. There were also issues concerning the regulation of financial institutions for the purposes of anti-money laundering and combating the financing of terrorism, but they do not fall within the purview of this study.


[1] Hong Kong’s Joint Financial Intelligence Unit (“JFIU”) is managed by the Hong Kong Police and is set up in accordance with Recommendation 26 of the Financial Action Task Force (“FATF”), an intergovernmental body comprising 36 financial jurisdictions and organizations. Recommendation 26, titled “Institutional and other measures necessary in systems for combating money laundering and terrorist financing,” reads as follows:

“Countries should establish a FIU that serves as a national centre for the receiving (and, as permitted, requesting), analysis and dissemination of suspicious transaction report (or suspicious activity report) and other information regarding potential money laundering or terrorist financing. The FIU should have access, directly or indirectly, on a timely basis to the financial, administrative and law enforcement information that it requires to properly undertake its functions, including the analysis of STR.”

See http://www.fatf-gafi.org/document/44/0,3746,en_32250379_32236920_43730156_1_1_1_1,00.html.

[2] Cross boundary remittance operations between Hong Kong and Mainland China do not involve actual cross boundary fund transfers through banking systems. Remittance agents in Hong Kong normally join in partnership with underground remittance agents in the Mainland to conduct the cross boundary remittance business. On receiving a remittance instruction from a client in Hong Kong, a remittance agent will pass it to his partner agent in the Mainland, who will then deposit the money into the bank account(s) designated by the client.

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