Chapter F — Anti-Money Laundering / Counter-Financing of Terrorism Guidelines (Condensed)

📋 Application (F-600)

Who must comply

All practices — CPA firms registered under AFRC, plus trust/company service providers run by HKICPA members.

Mandatory vs Good Practice

Specified Services (trigger full Customer Due Diligence (CDD))

Cat A: Real estate, client money/securities, bank accounts, corporate formation/management, buying/selling businesses.

Cat B: Forming companies, director/secretary roles, registered office, trustee/nominee shareholder.

Money Laundering (ML) vs Terrorist Financing (TF)

Money Laundering (ML) = SOURCE of money matters (criminal proceeds). Terrorist Financing (TF) = DESTINATION matters (can be clean money used for terrorism).

3 stages of Money Laundering (ML): Placement → Layering → Integration.

"Must" = statutory obligation. "Should/Would/May" = good practice guidance.

🏛️ Anti-Money Laundering / Counter-Financing of Terrorism Policies (F-610)

Policies, Procedures and Controls (PPC) must cover 9 areas

1. Risk assessment
2. Customer Due Diligence (CDD)
3. Ongoing monitoring
4. Suspicious Transaction Reports (STRs)
5. Sanctions & Terrorist Financing (TF)
6. Record-keeping
7. Compliance (appoint Money Laundering Reporting Officer)
8. Staff training
9. Group policy

Two mandatory roles

Both must be based in Hong Kong. Can be the same person. Need direct access to senior management.

Risk-Based Approach (Risk-Based Approach (RBA))

No one-size-fits-all. Measures proportional to risk. Consider: client type, geography, service type, delivery channel, practice size. Not static — review and adjust.

Overseas branches

Must adopt group Anti-Money Laundering / Counter-Financing of Terrorism policy. If local law blocks equivalent procedures → additional measures required.

🔍 Customer Due Diligence (F-620)

Four Customer Due Diligence (CDD) Pillars

1. Identify & verify client — government ID, public register, iAM Smart
2. Identify beneficial owner — >25% shares/voting rights or ultimate control
3. Understand purpose & nature of the relationship
4. Verify representative — identity + written authority

When Customer Due Diligence (CDD) is required

Enhanced Due Diligence (Enhanced Due Diligence (EDD))

Required for: Non-HK Politically Exposed Person (always high risk), complex/unusual transactions, high-risk countries, non-face-to-face clients.

Politically Exposed Person Enhanced Due Diligence (EDD): Senior management approval + verify source of wealth/funds + enhanced ongoing monitoring.

Pre-existing clients (before Mar 2018)

Customer Due Diligence (CDD) required when: unusual transaction, inconsistent with profile, or material change in business. If can't comply → terminate.

Timing & Third Parties

Verification before relationship (exception: delayed only if risks managed + essential for business). May rely on Customer Due Diligence (CDD) by other CPAs/FIs — but ultimate responsibility stays with you.

🚨 Suspicious Transaction Reports (F-640)

Three laws, one duty: REPORT

Applies to ALL services, all property. Covers attempted transactions too.

Suspicion = more than fanciful

"A positive feeling of actual apprehension or mistrust." Vague unease is not enough (Da Silva case).

⚠️ Tipping Off — 3 years + $500,000

If you know/suspect an Suspicious Transaction Report (STR) was made, NEVER tell the client or anyone who might prejudice investigation.

Money Laundering Reporting Officer process

Staff → Money Laundering Reporting Officer → evaluate → Suspicious Transaction Report (STR) to Joint Financial Intelligence Unit (JFIU) (without delay) or document reasons for no Suspicious Transaction Report (STR). Each new suspicion = new report.

Suspicious Transaction Report (STR) overrides confidentiality — disclosure to Joint Financial Intelligence Unit (JFIU) is NOT breach of contract.

🛡️ Sanctions & Terrorist Financing (F-650)

Name-check everyone

Screen clients AND beneficial owners against UN + HK designated lists. At relationship start + ongoing (monthly minimum; weekly for high-risk).

Terrorist Financing (TF) ≠ Money Laundering (ML)

Money Laundering (ML) cares about source (dirty money). Terrorist Financing (TF) cares about destination (clean money for bad purposes). Both trigger Suspicious Transaction Report (STR) duty.

Information sharing for Terrorist Financing (TF) prevention is not restricted by HK privacy law (Cap.486).

📁 Record Keeping (F-660)

Format: originals, microfilm, or computer database. Must be available to AFRC on request.

🎓 Staff Training (F-670)

• Train all staff on: Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) Schedule 2, Suspicious Transaction Report (STR) duties, Policies, Procedures and Controls (PPC), tipping off, emerging Money Laundering / Terrorist Financing trends
• Before new staff start — critical
• COs/managers: extra training on full Anti-Money Laundering / Counter-Financing of Terrorism regime + supervision
• Money Laundering Reporting Officer: specific Suspicious Transaction Report (STR) assessment training + latest developments
• Keep records: who, when, what type — 3 years minimum
• Test effectiveness: check understanding + monitor compliance quality
• Use Financial Action Task Force (FATF) papers and typologies as training materials

⚖️ All Penalties at a Glance