ANTI-MONEY LAUNDERING & COUNTER-TERRORIST FINANCING

Anti-Money Laundering &

Counter-Terrorist Financing

A Practical Guide for:

Accountants
Estate Agents
Published by the Narcotics Division, Security Bureau Precious Metals and Precious Stones Dealers
June 2009
Trust and Company Service Providers
A
 Contents

Contents
Part 1 – The Objectives 4

Part 2 – International Standards and 6

Way Forward

Part 3 – The Basics 10

A. What is Money Laundering? 11

B. What is Terrorist Financing? 13

C. Why is Anti-Money Laundering and 13

Counter-Terrorist Financing Important to You? 

D. What Do You Need to Do? 15

E. The Role of the Narcotics Division and 21

the Joint Financial Intelligence Unit 

1
 Contents (continued)
Part 4 – The Risks 22

A. Accountants 23
(a) Suspicious Activity Indicators 24
(b) Case Example 1-3 26

B. Estate Agents 29
(a) Suspicious Activity Indicators 29
(b) Case Example 1-4 31

C. Precious Metals and Precious Stones Dealers 35

(a) Suspicious Activity Indicators 35
(b) Case Example 1-3  38

D. Trust and Company Service Providers 40

(a) Suspicious Activity Indicators 40
(b) Case Example 1-4 42

2
 Contents

Contents (continued)
Part 5 – Quiz 46

A. General Questions 47

B. Sector Specific Questions 49

(a) Accountants 49
(b) Estate Agents 52
(c) Precious Metals and Precious Stones Dealers 55
(d) Trust and Comany Services Providers 58

C. Answers 62

3
PART1
The Objectives

4
 PART 1 | Objectives

1.1  his guide is designed to help accountants, estate agents,

T
precious metals and precious stones dealers and trust and
company service providers, and their employees, gain a
better understanding of the following:
• money laundering and terrorist financing;
• suspicious transaction reporting and suspicious activity
indicators;
• customer due diligence and record keeping; and
• international regulatory standards.
1.2 After reading this guide, you should be able to:
• understand your responsibilities in respect of anti-money
laundering and counter-terrorist financing;
• appreciate the risks of money laundering and terrorist
financing specific to your sector;
• identify suspicious transactions in the course of your
business; and
• understand your legal obligations to report suspicious
transactions.
1.3  his guide consists of five parts. The first part (The
T
Objectives) covers the objectives to be achieved. The
second part (International Standards and Way Forward)
covers the latest international developments and the way
forward to comply with the international standards. The
third part (The Basics) provides a basic introduction to
anti-money laundering and counter-terrorist financing. The
fourth part (The Risks) sets out examples of suspicious
activity indicators specific to each sector; and explains, by
means of case examples, how your sector can be abused
for money laundering and terrorist financing. The last part
(Quiz) comprises a short quiz of 25 questions to test how
much you have learned from this guide.

5
 PART2
International
Standards and
Way Forward

6
 PART 2 | International Standards and Way Forward

2.1  he Financial Action Task Force on Money Laundering

T
(FATF) is an inter-governmental body formed in 1989. It sets
international standards, develops and promotes policies
to combat money laundering and terrorist financing. It
currently has 34 members and 30 international and regional
organisations which are associate members or observers.
Hong Kong has been a member of FATF since 1991.

2.2  he original FATF Forty Recommendations, which set the

T
international standards against money laundering, were first
drawn up in 1990. The Recommendations were revised in
1996 and 2003. In 2001, the FATF expanded its mandate
to deal with the issue of the financing of terrorism, and
introduced the Special Recommendations against terrorist
financing. The latest version of the Forty Recommendations
7
 extend the anti-money laundering requirements to six
Designated Non-financial Businesses and Professions,
which include accountants, casinos, estate agents, lawyers,
precious metals and precious stones dealers, and trust and
company service providers. Similar to financial institutions,
they are required to conduct customer due diligence,
record keeping and suspicious transaction reporting.
The Recommendations specifically require these three
requirements to be stipulated in the laws of the member
jurisdictions. While the suspicious transaction reporting
obligation has already been set out in the relevant legislation
of Hong Kong, legislation for the obligations of customer
due diligence and record keeping would be our next
task. You may then be required by law to, when doing a
transaction with a customer, with or without a threshold:
• ask the customer to produce his/her proof of identity for
your inspection;
 • identify the beneficiary of the transaction (if the transaction
is done through an agent or an intermediary); and
• keep record of each and every transaction for a specified
period; etc.

8
 PART 2 | International Standards and Way Forward

2.3  ou may also need to put in place anti-money laundering

Y
programme for your company and provide anti-money
laundering training to your employees. Your company may
be subject to compliance inspection by the authorities, and
you may be sanctioned if you or your company fails to fulfil
the legal obligations.
2.4  he Government is still deliberating the best regulatory
T
model for your professions. At this stage, we consider a
capacity building and educational approach rather than a
punitive approach more appropriate. We will strike a good
balance between compliance with international standards
and your business interest, and we will certainly consult you
before finalising the model.

9
PART3
The Basics

10
 PART 3 | The Basics

A. What is Money Laundering?

3.1  ut simply, “money laundering” covers all kinds of methods
P
used to change the identity of illegally obtained money (i.e.
crime proceeds) so that it appears to have originated from a
legitimate source.
3.2  money laundering scheme will therefore usually involve a
A
combination of several different techniques and vehicles,
which may not necessarily involve the conventional financial
sector. Accountants, estate agents, precious metals and
precious stones dealers and trust and company service
providers, are all known to have been employed in money
laundering schemes.
3.3  hile the techniques for laundering funds vary considerably
W
and are often highly intricate, there are generally three stages
in the process: 
• Placement: involves placing the
crime proceeds in the financial
system (e.g. depositing cash into a
bank account, exchange currency of
small denominations to currency of
large denominations);
• Layering: involves converting the
proceeds of crime into another
form and creating complex layers
of financial transactions to disguise
the audit trail and the source and
ownership of the funds (e.g. buying
precious metals or stones with
cash, buying and selling of stocks,
commodities or properties; taking
out and repaying a loan); and 
• Integration: involves placing the
laundered proceeds back in the
economy under a veil of legitimacy.

11
 3.4  hese three stages are not distinct. They are very often
T
overlapping with each other and repeated, making tracing of
crime proceeds and their sources difficult.

3.5 In Hong Kong, crime proceeds are generated from various
illegal activities. They can be derived from drug trafficking,
smuggling, illegal gambling, bookmaking, blackmail,
extortion, loan sharking, tax evasion, controlling prostitution,
corruption, robbery, theft, fraud, copyright infringement,
insider dealing and market manipulation.
3.6  hen crime proceeds are laundered, criminals would then
W
be able to use the money without being linked easily to the
criminal activities from which the money was originated.

12
 PART 3 | The Basics

B. What is Terrorist Financing?

3.7  errorist financing can be defined
T
in simple terms as the financial
support, in any form, of terrorism
or of those who encourage, plan,
or engage in terrorism. Money
laundering and terrorist financing
manipulations are similar, mostly
having to do with concealment and
disguise.
3.8  oney launderers will send crime
M
proceeds through legal channels in
order to conceal its criminal origin,
whilst terrorist financiers will transfer
funds that may be legal or illicit in
origin in such a way as to conceal
their source and ultimate use, which
is the support of terrorism.

C.  hy is Anti-Money Laundering and

W
Counter-Terrorist Financing Important to you?
3.9  s one of the major financial centres in the world, it is very
A
important for Hong Kong to maintain an effective anti-money
laundering (AML) and counter financing of terrorism (CFT)
regime, which is vital for maintaining the integrity and stability
of our financial system. Money laundering and terrorist
financing can have devastating consequences to the whole
community. If we do not put in place an effective regime in
accordance with the international standards, we will open
the floodgates to illicit funds and provide a good refuge for
criminals and terrorists. They can then use the illicit funds
to further their illegal activities. We will all suffer as a result of
criminals or terrorists taking charge of our businesses and
economic sanctions by the international community, which
would adversely affect our livelihood.

13
 3.10  oth money laundering and terrorist financing are criminal
B
offences under the Laws of Hong Kong. According to
the Drug Trafficking (Recovery of Proceeds) Ordinance
(Cap.405) and the Organized and Serious Crimes
Ordinance (Cap.455), a person commits the offence of
money laundering if he deals with any property, including
money, which he knows or has reasonable grounds to
believe to be proceeds of crime. Under the United Nations
(Anti-Terrorism Measures) Ordinance (Cap.575), a person
commits the offence of terrorist financing if he provides or
collects funds knowing or with the intention that the
funds will be used to commit terrorist act(s).
3.11  aking an indifferent attitude or turning a blind eye to a
T
transaction you know or have reasonable grounds to believe
that crime proceeds/terrorist funds are involved, may result
in your conviction for the above offences.

14
 PART 3 | The Basics

D. What Do You Need to Do?

3.12  nti-money laundering and counter-terrorist financing is
A
everyone’s responsibility. However, some sectors face a
greater risk of coming across crime proceeds or terrorist
property than others, e.g. accountants, estate agents,
precious metals and precious stones dealers and trust and
company service providers, etc.
3.13 When you come across any property, which you know or
suspect to be drug or crime proceeds or terrorist property,
you should make a suspicious transaction report (STR) to
the Joint Financial Intelligence Unit (JFIU).
3.14  hilst there is no prescribed manner of reporting, it is
W
advisable to make STRs in writing. A standard form has
been designed to assist individuals in making STRs. The
form can be downloaded from the JFIU website (www.jfiu.
gov.hk). A STR should include the following information:
• Personal particulars and contact details of the individuals
or entities involved in the suspicious activity;
• Details of the suspicious activity;
• The suspicious activity indicators observed; and
• Any explanation provided by the subject of the STR when
questioned about the transaction or activity.

15
 3.15  ailing to report knowledge or suspicion of crime proceeds
F
or terrorist property is a criminal offence. If you go on to
deal with such property knowing or having reasonable
grounds to believe that the property is crime proceeds,
then you may have committed the offence of money
laundering.
3.16 It should be noted that the crime from which the proceeds
were derived does not need to have taken place in Hong
Kong, e.g. if you come across certain property in Hong
Kong, which you know or suspect is proceeds of drug
trafficking in an overseas country, you should also report
your knowledge or suspicion to the JFIU. Again, failure to
report knowledge or suspicion of such property and dealing
with such property are criminal offences.
3.17  o prevent your sector from exploitation by money
T
launderers and terrorist financiers, and protect yourself from
unwittingly committing the money laundering and terrorist
financing related offences described above, in addition to
reporting suspicious transactions, it is advisable that you
should always conduct Customer Due Diligence (CDD),
maintain proper records of transactions and have in
place a proper internal control system.
3.18  esides reporting suspicious transactions, CDD and record
B
keeping are two of the “core” money laundering and terrorist
financing counter-measures adopted by the international
community and have been implemented in the banking,
securities and futures, and insurance sectors in Hong Kong
in compliance with the anti-money laundering guidelines
issued by the respective sector regulators.

16
 PART 3 | The Basics

3.19  DD means “Know Your Customers and their transactions”

C
in general terms, i.e.:
• know who you are actually dealing with;
• know the beneficiaries of the transactions;
• know the purposes and nature of the transactions; and
• know the sources of the funds involved.
3.20  he ways of gathering
T
this information may vary
from business to business.
For some businesses,
the relevant information
about the clients and the
transactions may have
been required by applicable
laws or established practices. For others, members of
the trade may need to do their own checks. In most
cases, asking the customers for the information skillfully
would do, e.g. by tactfully posing questions in the midst of
promoting products or services that may be of interest to the
customers.
3.21  ersons engaged in legitimate business activity, generally,
P
will have no objection to, or hesitation in answering such
questions. Persons involved in illegal activity, however, are
more likely to be evasive, to refuse to answer or provide
a fabricated answer. The manner in which a customer
answers such questions may be an indication of the
suspicious nature of the transaction or activity.

17
 3.22  he JFIU has developed a “SAFE” approach to assist you in
T
identifying suspicious transactions and business activities.
 • Screen the customer and transaction for suspicious
activity indicators;
• Ask the customer appropriate questions to clarify
suspicious circumstances;
• Find out whether the transaction commensurates with
what is expected from the customer by reviewing the
information already known about the customer; and
• Evaluate all the above information and decide whether
the transaction relating to the customer is genuinely
suspicious.
In case of doubt, the JFIU is happy to advise (Tel no.:
2866 3366, Fax no.: 2529 4013, Email: [email protected]).

Evaluate

Find

Ask

Screen
3.23  s for record keeping, many businesses may have the
A
practice of keeping records of customers and transactions
in accordance with applicable legal requirements,
e.g. taxation etc. Record keeping is important to anti-
money laundering investigation which allows for swift
reconstruction of individual transactions and provides
evidence for prosecution of criminal activities including
money laundering.

18
 PART 3 | The Basics

3.24 In order to prevent money laundering and terrorist financing,

it is important that businesses in various sectors should
establish and maintain internal policies, procedures and
controls. These policies, procedures and controls, which
must be communicated to employees, should cover CDD,
record keeping and suspicious transaction reporting.
3.25  t a minimum, businesses should designate an AML/
A
CFT compliance officer at the management level,
whose responsibilities should include overseeing the
implementation of the above-mentioned internal policies,
procedures and controls. To this end, the compliance officer
and other appropriate staff should have timely access to
information/data obtained in the CDD process, transaction
records and other relevant information.
3.26 Independent audits should be carried out to test compliance
with the internal policies, procedures and controls.
3.27 Induction and on-going employee training programmes
should be introduced in order to establish and maintain
employees’ vigilance in AML/CFT matters, in particular,
CDD, record keeping and suspicious transaction reporting.
3.28  usiness should put in place screening procedures to
B
ensure high standards in the recruitment process.

19
 3.29  hough CDD, record keeping, suspicious transaction
T
reporting and internal controls have been practiced in our
banking, securities and insurance sectors for years, they are
certainly new to your sectors and may present challenges
to you. Apart from possible resource implications,
management commitment, capacity building and culture
change in your sectors and amongst your customers may
be required. It may take some time to incorporate these
measures in your daily practice. Most important of all is to
start practicing them now:
• Customer Due Diligence
• Record Keeping
• Suspicious Transaction Reporting
• Internal Control

20
 PART 3 | The Basics

E.  he Role of the Narcotics Division and

T
the Joint Financial Intelligence Unit
3.30  he Financial Services and the Treasury Bureau (FSTB)
T
is the overall co-ordinator for anti-money laundering
and counter-terrorist financing policy in Hong Kong. It
monitors the compliance of various sectors with the 40+9
Recommendations made by the Financial Action Task Force
on Money Laundering (FATF).
3.31  he Narcotics Division (ND) of Security Bureau assists
T
FSTB in overseeing the implementation of those FATF
Recommendations that are related to the non-financial
sectors and the non-profit organisations with a view
to ensuring that the anti-money laundering/counter-
terrorist financing measures taken by those sectors and
organisations are in step with the established international
standards. For more details of ND, please visit ND’s website
(www.nd.gov.hk).
3.32  he Joint Financial Intelligence Unit (JFIU) is jointly operated
T
by the Police and the Customs and Excise Department.
It is housed in the Police Headquarters. It was set up in
1989 to receive, analyse and disseminate STRs to four law
enforcement agencies in Hong Kong, namely, the Police,
the Customs and Excise Department, the Independent
Commission Against Corruption and the Immigration
Department, for investigation. Further details about the unit
can be found at its website (www.jfiu.gov.hk).

21
 PART 4
The Risks

22
 PART 4 | The Risks

4.1 In this part, suspicious activity indicators and case examples
specific to individual sectors are presented. You may learn
more about money laundering and terrorist financing risks
specific to your sector by going through the information
provided. Though the information is sector specific,
you are recommended to go through the case studies
of the other three sectors as well. That will certainly
enhance your understanding of money laundering
and terrorist financing. Please note that the suspicious
activity indicators listed are not exhaustive. Suspicious
transactions usually involve a number of indicators. In
making assessment, businesses should not rely on this
alone and should consider all pertinent information.

A. Accountants
4.2  he term “accountants” used in this guide refers to the
T
definition adopted by the Financial Action Task Force
on Money Laundering (FATF). The FATF employs an
“activity-based” approach to determine the types of
activities that accountants engage in should be subject
to its Recommendations on Anti-Money Laundering and
Counter Financing of Terrorism. In addition to complying
with the other Recommendations that are applicable to
Designated Non-financial Businesses and Professions,
accountants who prepare for or carry out transactions for
their clients concerning the following activities as stated in
FATF’s Recommendation 12(d) are specifically subject to its
Recommendations 5, 6 and 8 to 11:
• Buying and selling of real estate;
• Managing of client money, securities or other assets;
• Management of bank, savings or securities accounts;
• Organisation of contributions for the creation, operation or
management of companies; and
• Creation, operation or management of legal persons or
arrangements, and buying and selling of business entities.
23
 4.3  ollowing on from the above and for the avoidance of doubt,
F
the term “accountants” used in this guide should not be
confined to mean any particular types of accountants, such
as certified public accountants, chartered accountants,
management accountants, or cost accountants. The FATF
definition includes those who work in the private sector
whether or not they hold accounting qualifications from the
professional bodies or institutes. It should be noted that
“internal” professionals who are employees of other types
of businesses, or professionals working for government
agencies, who may already be subject to measures that
would combat money laundering/terrorist financing, are
excluded.
4.4  he accounting profession provides a wide range of
T
services, including financial and tax advice, auditing, book-
keeping, company formation and administration, trust,
property transactions and introduction to banks, etc. While
these activities have their legitimate purposes, they are a
very attractive gateway which criminals/terrorists would
want to use for laundering crime proceeds/financing
terrorism.
4.5  iven the likelihood of being used for money laundering/
G
terrorist financing purposes, accountants must be vigilant at
all times and report anything suspicious to JFIU.

(a) Suspicious Activity Indicators

The following are some indications of potentially
suspicious activities:
(i) Clients come from jurisdictions which lack
appropriate AML/CFT laws, regulations or other
counter-measures;
(ii) Clients come from jurisdictions where corruption
or other criminal activities are of significant
concern;

24
 PART 4 | The Risks

(iii) Complex corporate structures which obscure

the ultimate beneficial ownership;
(iv) Frequent changes in the legal structure
of a client’s company which has no clear
justifications;
(v) The level of activities of a client’s company does
not match its volume/frequency of fund flows;
(vi) Over/under invoicing of goods/services;
 (vii) Payments received from an un-related party
without supporting business activities;
(viii) Clients are “politically exposed persons” (PEPs)
or their relatives/friends;
(ix) A dormant client suddenly becomes active; and
(x) Large/frequent international payments without
underlying business transactions.

25
 (b) Below are three case examples for
illustration.
Case Example 1: Business entity misused
for money laundering
Mr. X was a drug trafficker who had to dispose of
a large amount of cash. He decided to employ an
accountancy firm to set up a company, purportedly for
trading purposes.
Through the introduction of the accountancy firm,
company bank accounts were opened. Cash
deposits were made into the bank accounts both by
Mr. X and staff of the accountancy firm.
Some of the money was then used to invest in the
local property market while certain amount was sent
overseas for purchase of electronic components
which were then shipped to the local market for sale.
By such activities, Mr. X successfully laundered over
US$500,000.
Key Message
Professional service of accountants and their
professional standing may be seen by criminals
as vehicles to be abused in order to launder crime
proceeds.

26
 PART 4 | The Risks

Case Example 2: Establishment of

company/trust for money laundering/
terrorist financing purposes
Mr. J and Mrs. J are citizens of a western country.
They visited Hong Kong and employed an
accountancy firm to establish a limited company so
that they can take advantage of the local property
market slow down and purchase luxury property
for long term investment purpose. They presented
the firm with a US$50 million cashier order issued
by ABC Casino and requested the cashier order be
deposited into the company account to be opened.
They claimed that the money was won in ABC Casino.
Additionally, they also requested to set up a trust for
charitable purposes. It was intended that 5% of the
money would be transferred to the trust.
Later on, the firm received instruction from the couple
that they had changed their mind and wanted to
invest the money elsewhere. They requested the
money be telegraphic transferred to their bank
account in another jurisdiction.
As to the money in the trust, Mr. J and Mrs. J
requested that US$2 million be split into four equal
amounts and sent to charity organisations for medical
relief purposes. Moreover, an amount of US$5,000
be sent to a country of terrorist concern for charitable
purpose.
Key Message
By abusing the professional service of the
accountancy firm and the professional status
of accountants, criminals could easily set up
companies/trusts for money laundering/terrorist
financing purposes. It should be noted that the
amount of money required for terrorist financing
could be comparatively small (e.g. it only takes a
small amount of money to purchase the materials
required to assemble a bomb). 27
 Case Example 3: PEPs abuse accounting
service for money laundering purpose
Mr. K was a senior government official of Jurisdiction A
which has a major corruption problem. Through his
corrupt activities, Mr. K had in his possession a large
amount of cash that he wanted to launder.
Mr. K came to Hong Kong and asked a local
accountancy firm to establish a limited company for
him. After company bank accounts were opened,
substantial deposits were made for the purchase of
shares in the local stock market. The bank deposits
were also used to purchase real estate in Hong Kong.
Through these activities, a total of US$10 million was
laundered.
Key Message
Accountants should exercise great care to prevent
PEPs from abusing their professional services for
money laundering purposes. They should conduct
CDD and make STRs to JFIU if circumstances are
suspicious.

28
 PART 4 | The Risks

B. Estate Agents
4.6  he purchase of real estate is commonly used as part of
T
the last stage of money laundering (integration). Large
amount of illicit funds can be concealed in such a purchase,
which in turn projects an appearance of financial stability
for the criminal. Hence, estate agents should be vigilant
in exercising the CDD by obtaining customer’s information
and should comply with the record-keeping requirement
and internal control procedures as stipulated by the Estate
Agents Authority.

(a) Suspicious Activity Indicators

Customer Identification
(i) Incommensurate background of property
purchaser/seller (e.g. profession and age versus
the value of transaction);
(ii) Property purchaser/seller is a shell company/
offshore company (residential address/
registered in a tax haven e.g. British Virgin
Islands); and
(iii) Transactions conducted by a third party (e.g.
under a power of attorney).

29
 The Transaction
(i) Cash transactions in large amounts;
(ii) Substantial difference between the transaction
price and the market price without apparent
reason;
(iii) Unknown source of funds for purchasing the
property;
(iv) Unusually short period for completion of sale
and purchase;
(v) The transaction proceeds are directly transferred
between the purchaser and the seller, not
routing through a law firm; and
(vi) Unreasonably high commission is offered to the
estate agent.

Others
(i) The person who negotiates the transaction and
the ultimate purchaser are not the same person;
(ii) The property seller and the purchaser know
each other but choose to act through an estate
agent as if they did not know each other;
(iii) Frequent sale and purchase of properties within
related parties; and
(iv) Unusual ownership history of a property.

30
 PART 4 | The Risks

(b) Below are four case examples for illustration.

Case Example 1: Use of shell company in
sale and purchase of property to conceal
crime proceeds
A drug trafficker Mr. X purchased a property
at HK$6.5 million. He made a downpayment of
HK$2.5 million in cash and took out a HK$4 million
mortgage. Three months later, he sold the property
to a shell company Y, which he controlled. The
company Y further sold the property to an innocent
third party for the original purchase price in a month.
By this means, Mr. X concealed his proceeds of
crime in a shell company Y, and thereby attempted to
disguise the origin of the original purchase funds.
Key Message
This case illustrates that the sale and purchase of
property by a shell company could be used to conceal
crime proceeds. The ownership history of a property
can be an indicator of suspicion.

31
 Case Example 2: Direct purchase of
property to launder crime proceeds
A drug trafficker Mr. Z had made several investments
in real estate and was planning to buy a hotel. An
assessment of his financial situation did not reveal
any legal source of income. He was subsequently
arrested and charged with an offence of money
laundering. Further investigation substantiated the
charge that part of the invested funds were proceeds
of his own drug trafficking.
Key Message
This case illustrates that the purchase of real estate
is commonly used as part of the last stage of money
laundering (integration). Such a purchase offers the
criminal an investment which gives the appearance
of financial stability. The purchase of a hotel has an
added advantage for money laundering as hotel
business is often a cash intensive business.

32
 PART 4 | The Risks

Case Example 3: Unusual property

transactions between family members
of a drug trafficker via a third party
A drug trafficker Mr. A was arrested. Fearing that his
assets would be restrained and confiscated, he asked
his wife to immediately arrange to sell their property to
a friend, who would then sell the property back to his
sister-in-law. It is worth noting that these consecutive
sale and purchase transactions were arranged
through the same estate agent who just turned a
blind eye on the suspicious circumstances of these
property transactions.
Key Message
This case illustrates that unusual property
transactions would be an indicator for money
laundering. The estate agent should have made a
suspicious transaction report to the Joint Financial
Intelligence Unit.

33
 Case Example 4: Direct purchase of
property to launder crime proceeds by
family member
Mr. B in Country S was the leading member of a
syndicate involving smuggling of refugees. From
1998 to 2003, Mr. B received 81 money orders for
a total amount of HK$40 million from 14 different
individuals from four foreign countries. This money
was believed to be derived from organising illegal
migration. The main portion of this money remained
in Country S and was used for investment into
real estate and was also distributed among other
syndicate members. In 2000 alone, Mr. B’s wife who
did not file an income tax statement for that year,
used HK$14 million to buy real estate. Investigation
revealed that Mr. B and Mrs. B had made transactions
representing several times their apparent incomes.
They were finally charged and convicted, in
connection with the amount of HK$40 million, for
organising illegal migration.

The case showed the following patterns:

(i) Very high fees were paid for the money transfers
which could have been executed at much lower
costs; such economically illogical transactions
are, as a rule, highly likely to be connected with
money laundering; and
(ii) The monies spent by Mrs. B to buy real estate
amounting to HK$14 million did not originate
from her, but was given to her by Mr. B, who
received it for organising illegal migration. In the
real estate purchase contract, the buyer was
Mrs. B. That was to conceal the source and the
real beneficiary of the dirty money.

34
 PART 4 | The Risks

Key Message
This case illustrates that the purchase of real estate by
relatives of criminals is not uncommon as a practice
for money laundering.

C. Precious Metals and Precious Stones Dealers

4.7  recious metals and stones, particularly gold and
P
diamond, offer the advantage of having a high
intrinsic value in a relatively compact form.
They can be “cashed” easily in most areas
of the world. Hence, they are vulnerable
to be used in money laundering for
their ease to be hidden and transported.
Terrorist groups have engaged in the
gemstone trade for a long time. Historically, they
engaged extensively in the profit-making trade in diamond,
tanzanite, amethyst, ruby and sapphire. However,
according to recent intelligence, gemstones, diamonds in
particular, are being used as a way of storing terrorist assets
outside the formal financial sector. The aim is no longer
only in turning a profit but also acquiring as many stones
as possible with crime proceeds that are being kept out of
banks and businesses.

(a) Suspicious Activity Indicators

For retail market
(i) Incommensurate background of buyer (e.g.
profession and age of buyer versus value of
transaction and type of precious stones and
metals involved);
(ii) High value transactions conducted in cash
but not in other popular and safe methods of
payment (e.g. credit card or cashier order);

35
 (iii) Unusual payment method (payment by
negotiable instruments in bearer form, e.g.
travellers cheques and cashier orders so that the
source of fund cannot be traced);
(iv) Unusual buying behaviour/pattern (e.g. repeated
purchases of luxury products without apparent
reasons);
(v) Unusual behaviour of the person or persons
conducting the transactions (e.g. unusual
nervousness); and
(vi) Request for over/under-invoicing of purchases.

For wholesale market

(i) Incommensurate background of buyer/seller
(e.g. profession and age of buyers versus value
of transaction and type of precious metals and
stones involved);
(ii) Unknown business background of buyer/seller;
(iii) Transactions conducted by third party (e.g.
under a power of attorney);
(iv) Transactions conducted by shell company/
offshore company (business address/registered
in a tax haven e.g. British Virgin Islands);
(v) Unknown source of precious metals/stones;
(vi) Unknown purpose of transactions;

36
 PART 4 | The Risks

(vii) Buyers/Sellers apparently not having

reasonable expertise/experience in the precious
metals/stones sector;
(viii) Abnormally low pricing or with substantial
discount in order to speed up transactions;
(ix) Large amount transaction from an unfamiliar
dealer;
(x) Request for over/under-invoicing of purchases;
(xi) Unusual payment method
(payment by third party/
payment by negotiable
instruments in bearer
form, e.g. travellers
cheques and
cashier orders, so
that the source of fund
cannot be traced);
(xii) Buyers/Sellers refuse
to use other means of
payment other than cash,
while cash may be in foreign currencies (or in
different foreign currencies) without apparent
reasons; and
(xiii) Unusual business pattern (e.g. business
transactions of a particular dealer are rather
frequent when compared to the trading history
or to that of other dealers/a sudden increase in
the trading volume without apparent reasons).

37
 (b) Below are three case examples for
illustrations.
Case Example 1: Retail gold purchases
serve as direct method of laundering
A foreign national bought 265 ingots of gold with a
total value of about US$2.5 million and paid in cash
in Country X. These transactions took place over a
period of 18 months. The buyer, who did not have a
bank account, alternated temporary jobs with periods
of unemployment, claimed that he was acting on
behalf of a third party, who was probably involved in
organised and serious crimes.
Key Message
This case illustrates the direct purchases of precious
metal by a buyer of incommensurate background to
disguise the source of crime proceeds.

Case Example 2: Direct purchase of

precious stones with crime proceeds
A lawyer of Country Y absconded with millions of US
dollars from his “client escrow” account. Investigation
revealed that part of these funds was used to
purchase loose diamonds and jewellery from a local
jeweller in Country Y.
Key Message
This case illustrates the use of direct purchase of
precious stones to launder the crime proceeds. In
particular, it shows the way for an absconder to
conceal and move the proceeds of crime across
different countries.

38
 PART 4 | The Risks

Case Example 3: Diamond trading used as a

cover for laundering illicit funds
A company in Country Z, with its registered office
in an offshore centre and diverse businesses,
encompassed diamond trading. The account of this
company in Country Z was found to have numerous
international funds transfers in foreign currencies
originating from a tax haven. The funds, in very large
sums, were then systematically and immediately
withdrawn in cash. These withdrawals were made
in large denominations of foreign currencies by the
authorised signatory of the account who was the
director of a number of companies which were also
active in diamond trading. Given the regularity of
these systematic fund flows, which were deviated
from the usual practice in the diamond sector, it
appeared that this account was only used as a
channelling account with the aim of disguising the
origin and ultimate destination of the funds. Upon
investigation, the funds were found to be associated
with illicit activities.
Key Message
This case illustrates that the
diamond trading may be
used as a smokescreen
for the laundering of
crime proceeds.

39
 D. Trust and Company Service Providers
4.8  rust and corporate entities provide the basis for a range
T
of economic activities in modern economies. Although
they have many legitimate applications (such as business
finance or estate and tax planning), they can be misused
by criminals for illegal purposes such as hiding the
ultimate beneficial ownership of assets, legitimatising the
integration of crime proceeds with the financial system,
or layering of crime proceeds through various forms of
investment such as in the stock market.
4.9  rust and
T corporate structures may be set up by terrorists
and used wholly or partly for financing of terrorist activities.
Trust, for example, may be established for charitable
purposes and subsequently misused to finance terrorist
activities.
4.10 In view of the risks involved, trust and company service
providers must be vigilant at all times and report anything
suspicious to JFIU.

(a) Suspicious Activity Indicators

The following are some indications of potentially
suspicious activities:
(i) Multi-jurisdictional and/or complex structure of
corporate entities and/or trusts are established
without valid grounds;
(ii) Payments (local or foreign) are made or received
without a clear connection to the actual
activities of the corporate entity;
(iii) Use of off-shore bank accounts without
legitimate economic necessity;
(iv) Customer’s unwillingness or refusal to provide
information/documentary proof on himself/
herself or beneficial owner(s) of trusts/
companies;
40
 PART 4 | The Risks

(v) Sources and/or destinations of funds are

unknown;
(vi) Transactions are heavily cash-based which
should normally be carried out through other
payment facilities;
(vii) Customer’s background is not commensurate
with the value of transactions carried out by
the customer or on behalf of the company;
(viii) A company is established primarily for the
purpose of collecting funds from various
sources which are then transferred to local/
foreign bank accounts that have no apparent
ties with the company;
(ix) Incorporation of a company by a non-resident
with no links or activities in the jurisdiction where
the company is established; and
(x) The money flow generated by a company is not
in line with its underlying business activities.

41
 (b) Below are four case examples for illustration.
Case Example 1: A structure of trusts
misused for fraud
Mr. X was a trust service provider in Jurisdiction A. He
established a number of domestic trusts to carry out
a fraud scheme, defrauding over 500 investors of
about US$56 million.
The scheme involved Mr. X, in the name of the
domestic trusts, wiring large amounts of money to
domestic and off-shore bank accounts. The money
came from the 500 odd innocent investors who were
convinced to form trust organisations and to place
their savings into these trusts, which were tied to
the off-shore bank accounts. The investors were
promised favourable returns and reduced tax liabilities
as the money was deposited into off-shore bank
accounts. Once the investors put in their money to
the trusts, Mr. X would inform them that the money
would be managed by an international investment
agency. In fact, this has never happened and
Mr. X and his associates defrauded the trust owners
(investors).

Key Message
The above case illustrates that a structure of trusts
together with off-shore bank accounts can give the
appearance of a legitimate purpose, which can then
be used to lure investment from innocent third parties
for illegal purpose.

42
 PART 4 | The Risks

Case Example 2: Overseas trust to mask the

beneficial owner of assets
An overseas resident (Mr. Y) living in Jurisdiction B
opened a bank account for the purpose of receiving a
substantial transfer from Jurisdiction C. The transfer
originated from the closure of a bank account of an
overseas trust, which has been in existence for one
month and managed by lawyers in Jurisdiction C. As
soon as the money was credited to the newly-opened
bank account, Mr. Y requested to withdraw the
amount in cash and close the bank account.
Key Message
The beneficial owner of the substantial sum of money
was masked by the overseas trust. If the lawyers in
Jurisdiction C have performed proper “customer
due diligence”, the reasons for forming the trust and
its subsequent closure should trigger suspicion for
filing a “Suspicious Transaction Report” with the
competent authority concerned.

43
 Case Example 3: Corporate vehicle misused
to channel bribes
A railway builder (Company Z) in Jurisdiction K has
employed a law firm to form a complex structure of
companies so that bribes can be transferred through
these companies’ bank accounts to officials in various
other jurisdictions to thank them in “facilitating” the
award of contracts to Company Z. Whilst there was
no legitimate business in these series of companies,
the overseas money transfers were substantial. After
the bribes were transferred, the companies and their
bank accounts became dormant.
Key Message
Corporate vehicles were used to channel bribe
payments so as to veil the connection between the
party which offers bribe and their ultimate recipients.

44
 PART 4 | The Risks

Case Example 4: Multi-jurisdictional

corporate structure to launder money
Mr. B traveled to Jurisdiction M and went to
Notary A to set up a company solely for the
purpose of buying real estate. The shareholders of
the company were family members of Mr. B, who
also resided abroad. Shortly after incorporation,
Company X bought a luxury detached house in
Jurisdiction M. The property was paid by several
transfers from an overseas Company Y. Despite
repeated requests, Mr. B refused to provide details of
Company Y to Notary A.
Key Message
Multi-jurisdictional corporate structures and
international movement of funds are readily available
vehicles to conceal the source of money for
investment and the beneficial owner of the assets.

45
 PART5
Quiz

46
 PART 5 | Quiz

5.1  efore concluding this guide, let’s have a small test to see
B
if you understand what we have just discussed.

A. General Questions
1. Which of the following acts does not constitute a
money laundering offence?
a. Dealing with any property, knowing the property
is proceeds of a crime
b. Dealing with any property, believing the property
is proceeds of a crime
c. Dealing with any property, suspecting the
property is proceeds of a crime

2. Which of the following is a statutory requirement?

a. Reporting a suspicious transaction
b. Reporting corruption
c. Reporting a crime

47
 3. When should a suspicious transaction report be
made when you deal with your customer?
a. Whenever there are suspicious activity
indicators making the transaction with the
customer suspicious
b. Whenever there are suspicious activity
indicators and the transaction with the
customer remains suspicious, after all the
information has been reviewed and attempt to
clarify the issues with the customer has failed
c. For all transactions of HK$200,000 and above

4. To which organisation a suspicious transaction report

should be made?
a. Narcotics Division, Security Bureau
b. Hong Kong Monetary Authority
c. Joint Financial Intelligence Unit

5. Which of the following is not normally required for
“Customer Due Diligence”?
a. Know the spouse of the customer
b. Know the customer
c. Know the transaction

48
 PART 5 | Quiz

B. Sector Specific Questions

(a) Accountants
6. A walk-in customer, Mr. X, visited your accountancy
firm. He handed you a bag of cash and asked that
a company be set up and the money be deposited
into the company bank account. What is the most
appropriate course of action?
a. Refuse Mr. X’s business as the circumstances
are suspicious
b. Proceed with the business and conduct CDD
on Mr. X
c. Proceed with the business but make a
suspicious transaction report to JFIU because it
looks suspicious

7. Following upon Q.6, you interviewed Mr. X with a

view to conducting CDD. Mr. X was very evasive and
claimed that the money was given to him by his wife
and that he had no idea where did the money come
from. He stated that his wife had returned to the
Mainland to stay with her parents. She will not return
to Hong Kong in the near future. What should you
do?
a. Ask Mr. X to ascertain from his wife where does
the money come from before you proceed with
the business
b. Refuse the business as the circumstances are
suspicious
c. Make a STR to JFIU in order to report your
suspicion

49
 8. Following upon Q.7, Mr. X and Mrs. X visited your
accountancy firm. Mrs. X told you that she was a
housewife for the past 20 years with no income. The
cash, which amounted to HK$2 million, was her
savings and earnings from share trading. However,
no documentary proof was given by Mr. X and
Mrs. X. The couple requested you to go ahead setting
up the company. What should you do?
a. Refuse the business as the circumstances are
suspicious
b. Make a STR to JFIU in order to report your
suspicion
c. Proceed with the business as you have
completed CDD with Mrs. X

9. Your accountancy firm established a trust for

Mr. Z a few years ago for charitable purposes. The
aim is to provide food and medical care for people
who live in the remote and hilly area in western
part of the Mainland. Regular donations were
made to charitable organisations accordingly. A
few years later, you received instructions from Mr. Z
to remit US$8,000 to a personal bank account in a
jurisdiction in the Middle East which lacks AML/CFT
legislations. Mr. Z explained that the money was for
purchasing medicine for the local poor people to cure
a mysterious disease. What is the most appropriate
course of action?
a. Refuse Mr. Z’s instruction as it is not in line with
the way that the trust has been operated.
b. Obtain further information from Mr. Z about
the proposed transaction (e.g. details of the
recipient of the remittance, details of the
disease, etc)
50
 PART 5 | Quiz

c. Make a STR to JFIU because the

circumstances are suspicious

10. Following upon Q.9, Mr. Z stated that the recipient of

the remittance was his personal friend. He provided
you with the full name of his friend and asked you
to proceed with the remittance. You checked the
name against the Gazetted list of terrorists and found
that it matched with a terrorist on the list. What should
you do?
a. Refuse to proceed with the remittance and take
no further action
b. Proceed with the remittance as a name hit
does not mean that the transaction is terrorist
financing-related
c. Make a STR to JFIU because the
circumstances are suspicious

51
 (b) Estate Agents
6. You are approached by a walk-in customer
who wishes to purchase a luxury apartment for
HK$8 million. Following a brief visit to the subject
apartment, the customer offers HK$2 million as
initial deposit. Moreover, the customer requests a
completion date as soon as possible. For the initial
deposit, he declines to provide any other form of
payment other than cash. If you were the agent,
which of the following would be your best course
of action in this situation:
a. Ask for the reason(s) for the urgency for
completion of the transaction and the
abnormally high amount of initial deposit and
advise the customer to use other form of
payment such as a cheque or a cashier order
as initial deposit
b. Accept the initial deposit and try to complete
the transaction as soon as possible
c. Decline the transaction

7. Following upon Q.6, you have tried to conduct some

“Know Your Customer” on your customer. However,
the customer refuses to answer any of your enquiries
and insists on paying cash as initial deposit. What
will be your best course of action to take?
a. Accept his request immediately for fear that
the business will be lost
b. Decline the transaction and make a suspicious
transaction report
c. Decline the transaction but do not make a
suspicious transaction report as the predicate
crime is not known
52
 PART 5 | Quiz

8. You are introduced to a new customer, Mr. Gold, who

seems to be very affluent and is involved in property
investment. Mr. Gold now offers very attractive
commission for the sale of a number of properties.
You hear from your friends that he is allegedly involved
in triad activities including the sale of pirated discs.
Now, Mr. Gold approaches you again and says that he
would like you to be the agent for a chain transaction –
he will sell a property to a third party who will then sell
the property to his family member within nine months.
A very attractive commission of 3.5% for each
transaction is offered. What will be your best course
of action upon his request?
a. Accept the deal without hesitation
b. File a “Crime Information” to the Police alleging
that the customer is a triad member
c. Make a suspicious transaction report to
JFIU regarding this transaction and provide
information you have regarding Mr. Gold

9. A month ago, a Mr. Hui purchased an

investment property in the name of a British Virgin
Islands (BVI) company, White Power Ltd., through
your estate agency. The transaction was
completed by means of a cash payment of
HK$4 million by Mr. Hui. You learned from the
newspaper yesterday that Mr. Hui had been arrested
for drug trafficking. What is the best course of action
to be taken upon knowing the facts?
a. Make a suspicious transaction report to
the JFIU about the transaction and the BVI
company
b. Make a report to the local police station about
the transaction and the BVI company
53
 c. No action is needed as the transaction took
place some time ago

10. Mr. Au has recently been arrested for organising

a series of serious crimes. His wife, Mrs. Au,
approaches you to urgently arrange the sale of her
property (as you have been acting as their estate
agent in the past). A very attractive commission
and sale price are offered by Mrs. Au for speedy
completion of the sale. However, you are aware
that the property was actually purchased by Mr. Au
four years ago as you were in fact involved in the
transaction. The property was assigned to Mrs. Au
as a gift following her marriage to Mr. Au. Should
you accept the offer to act as her estate agent in this
transaction?
a. Yes. Mrs. Au is not arrested in this case. It
should be legal to deal with her
b. Yes. I just act as an agent to find a buyer for
Mrs. Au and I should have no legal responsibility
for such act
c. No. The transaction may involve property
derived from crime proceeds. I will also make a
suspicious transaction report to JFIU regarding
this transaction

54
 PART 5 | Quiz

(c) Precious Metals and Precious Stones Dealers

6. Mr. Kan approaches a jewellery
retailer in order to purchase
some loose diamonds. He
requests 10 loose diamonds,
each of around one carat,
for a total purchase price
of around HK$800,000.
Mr. Kan appears nervous,
does not examine the diamonds in detail
nor negotiates over the price. Upon payment,
Mr. Kan insists on settlement in US banknotes. If you
were the shopkeeper, which of the following would
be the best description of the immediate action(s)
you should take regarding the above situation:
a. Complete the deal as usual
b. Advise the customer to use other form of
payment such as a credit card or a cashier
order and obtain some information of Mr. Kan
tactfully regarding his background and the
purpose of his transaction
c. Decline the deal

7. Following upon Q.6, you try to ascertain more

information, but Mr. Kan refuses to answer any of your
questions and insists on using cash to settle payment.
What will be your best course of action?
a. Proceed with the deal immediately and make a
suspicious transaction report afterward
b. Proceed with the deal immediately but do not
make a suspicious transaction report as the
predicate crime is not known
c. Decline the deal and make a suspicious
transaction report 55
 8. Your jewellery shop has a customer, Mrs. Tsao,
who appears affluent and is interested in
buying a number of luxury watches and jewellery
accessories. You recently read an article in the
newspaper suggesting Mrs. Tsao’s husband is a
prominent triad figure who has allegedly made a lot
of money out of the sale of pirated discs and other
counterfeit products. Mrs. Tsao has spent over
HK$6 million last year in your shop. All purchases are
settled by personal cheques drawn on her husband’s
account. What will be your best action?
a. Continue to do business with Mrs. Tsao as she
is a VIP customer
b. Make a suspicious transaction report to the
JFIU regarding these transactions and provide
information you have regarding Mrs. Tsao
c. File a “Crime Information” to the Police alleging
that Mr. Tsao is a triad member

56
 PART 5 | Quiz

9. A Mr. Chu who is unknown to you and claims to be

engaged in precious stones trade, has offered a batch
of high quality precious stones to you at a substantial
discount. However, he requests the payment to be
made in cash and refuses any other safer methods of
payment. Which is the best course of action for you?
a. Accept the deal as it will be a profitable
business for you
b. Conduct more enquiries with Mr. Chu regarding
the source of these precious stones and his
background
c. Make a suspicious transaction report to JFIU
immediately

10. During an exhibition and trade fair of jewellery and

diamonds, a raw diamonds wholesaler, Mr. Shing
approaches you and asks if you can act as a third
party buyer and seller at the same time. He will sell
a batch of raw diamonds to your company and
you should then sell it to another designated British
Virgin Islands company at his direction. He offers you
a very attractive commission. What should be your
immediate action in response to his request?
a. Accept his request, as it is a quick and profitable
transaction
b. Ask for more details regarding this wholesaler
and the purpose of this transaction
c. Refuse the transaction immediately

57
 (d) Trust and Company Service Providers
6. A walk-in customer, Mr. Roberts, came to your
company which provides company service and asked
to set up a limited company, Company A. He asked
this to be done quickly because he will be returning to
the United States soon. He provided the name of his
wife as another shareholder of the company to be set
up. He claimed that he would supply copies of both
his and the wife’s passport at a later stage. What is
the most appropriate course of action?
a. Refuse Mr. Roberts’ business as the
circumstances are suspicious
b. Proceed with the business and conduct CDD
on Mr. Roberts and his wife
c. Proceed with the business but make a
suspicious transaction report to JFIU because it
looks suspicious

58
 PART 5 | Quiz

7. Following upon Q.6, you interviewed Mr. Roberts with

a view to conducting CDD. He stated that he was a
company director in the United States (with no further
details provided) and claimed that he had not had his
passport or picture ID with him. His wife was busy in
the United States and could not travel to Hong Kong
to sign the documents for setting up the company.
Mr. Roberts stated that a “Power of Attorney” will be
sent to your office by courier tomorrow so that he is
properly authorised to act for his wife. He requested
that action be taken now to set up a company in
Hong Kong. What should you do?
a. Ask Mr. Roberts to be patient and come back
tomorrow with the proof of ID of himself and
his wife as well as documentary proof of his
directorship in the Unites States company
b. Refuse the business as the circumstances are
suspicious
c. Make a STR to JFIU in order to report your
suspicion

59
 8. Following upon Q.7, Mr. Roberts told you that he
came from the United States and would stay in Hong
Kong for a few days only. He claimed that he wanted
to deposit the proceeds of a declared dividend
he obtained in the United States and invest in real
estate in Hong Kong. As he is too busy to open a
bank account, he requested to deposit the money
(in traveller’s cheques and cash) into your company’s
bank account so that the money could be transferred
to the bank account of Company A for property
investment. What should you do?
a. Ask your staff to deposit the traveller’s cheques
and cash into your company’s bank account
and wait for further instruction from Mr. Roberts
b. Make a STR to JFIU as the circumstances are
suspicious
c. Refuse the business but no need to make a
STR to JFIU

9. Following upon Q.8, Mr. Roberts sent you a letter
from the United States saying that as the Hong Kong
property market seemed to go down, he had decided
to change his investment plan. He requested your
company to telegraphic transfer the money to his
friends’ bank accounts in the United States. What is
the best course of action?
a. Proceed with the transfer as the money belongs
to Mr. Roberts
b. Refuse the request as you suspect that it is a
money laundering scheme
c. Make a STR to JFIU to explain the suspicion you
have in this case

60
 PART 5 | Quiz

10. Mr. Smith came to your office and asked to set up

a trust for charitable purposes. The aim is to help
under-privileged children in Africa with their education.
After the trust is formed, donations were received
from overseas countries and money was sent to
various African countries for building schools. A few
months later, Mr. Smith instructed you to telegraphic
transfer US$100,000 to a personal bank account
opened in a country known to be of a terrorist
concern. Mr. Smith said that the money is to buy
material to build schools in Africa. What should
you do?
a. Proceed with the transaction which you consider
is relevant to the purpose of the trust
b. Refuse the transaction but do not report to JFIU
c. Make a STR to JFIU because the transaction is
not in line with the normal activities of the trust

61
 C. Answers
General
1. Answer: c
A person commits the offence of money laundering
when he/she deals with any property knowing or
having reasonable grounds to believe it to be
crime proceeds or terrorist property. If a person
knows or suspects any property to be crime
proceeds or terrorist property, he/she should report
his/her knowledge or suspicion to the Joint Financial
Intelligence Unit. Failing to report is an offence.
2. Answer: a
3. Answer: b
4. Answer: c
5. Answer: a

Sector Specific Questions

(a) Accountants
6. Answer: b
You need to conduct “CDD” when establishing
business relationship with your clients. If after CDD is
conducted and you found it suspicious, you should
then make a STR to JFIU.

7. Answer: a
You should continue your effort of conducting “CDD”
on Mr. X. It may be premature at this stage to make a
STR.

62
 PART 5 | Quiz

8. Answer: b
You should make a STR to JFIU because the
circumstances are suspicious enough to warrant
such action (e.g. no income but with substantial cash;
no documentary proof to support the claim).

9. Answer: b
Although the proposed transaction is not in line with
the normal activities of the trust, it is advisable to
obtain further information from Mr. Z before you come
to a decision whether you should make a STR to JFIU
or not.

10. Answer: c
A name hit against the terrorist list should give rise
to suspicion that the transaction may be terrorist
financing-related. A report should be made to JFIU.
It is up to the Police to investigate the case.

(b) Estate Agents

6. Answer: a
You need to “Know Your Customer” before deciding
whether you should establish business relationship
with the customer.

63
 7. Answer: b
If you consider the case still suspicious even though
you have done “Know Your Customer”, it is better
for you to decline the transaction and report your
suspicion to the Joint Financial Intelligence Unit. In
declining the transaction, you may explain to the
customer that it is in accordance with the anti-money
laundering practices of your company, that you
need to be satisfied with the result of “Know Your
Customer” before proceeding with the transaction for
the customer. In making a report, there is no need for
you to establish the predicate crimes.

8. Answer: c
There are reasonable grounds for you to suspect that
his assets are proceeds of crimes.

9. Answer: a
 here is no time limit for reporting a suspicious
T
transaction. The report should be made as soon
as practicable once you have the knowledge or
suspicion.

10. Answer: c
 he suspicious activity indicators include (i) husband
T
arrested for crimes, (ii) urgent disposal of property,
and (iii) transaction not consistent with normal
business/commercial activities.

64
 PART 5 | Quiz

(c) Precious Metals and Precious Stones Dealers

6. Answer: b
 ou need to “Know Your Customer” when establishing
Y
business relationship with your customers. Mr. Kan’s
response to your suggestion of changing the method
of payment should form part of your “Know Your
Customer” process.

7. Answer: c
There are suspicious circumstances, which you
cannot clear after doing “Know Your Customer”. The
suspicious activity indicators include (i) new customer
and unusual purchase, (ii) cash of foreign currency
in large amount, and (iii) suspicious demeanour of
the customer and his evasiveness. In declining the
deal, you may explain to the customer that it is in
accordance with the anti-money laundering practices
of your company, that you need to be satisfied
with the result of “Know Your Customer” before
proceeding with the transaction for the customer.

8. Answer: b
There are reasonable grounds for you to suspect that
the property of Mrs. Tsao may be proceeds of crime.
Suspicious activity indicators include (i) husband
involved in crimes, and (ii) making purchases in large
amount.

9. Answer: b
You need to “Know Your Customer” before deciding
whether the offer should be accepted or a suspicious
transaction report be made.
65
 10. Answer: b
The proposed transaction has no business
sense at all and more “Know Your Customer” is
needed. Suspicious activity indicators include
(i) transaction with no business sense, and (ii)
British Virgin Islands company is involved.

(d) Trust and Company Service Providers

6. Answer: b
Y
 ou need to conduct “CDD” when establishing
business relationship with your customers.
If after CDD is conducted and you found it
suspicious, then you should make a STR to
JFIU.

7. Answer: a
 ou should continue to conduct “CDD”
Y
with a view to getting more information on
Mr. Roberts. It may be a bit too early to say that
the case is so suspicious that a STR should be
made.

8. Answer: b
The circumstances (e.g. dividend in the form
of traveller’s cheques and cash; request the
money to go through your company account)
are suspicious enough to warrant a STR to be
made to JFIU.

66
 PART 5 | Quiz

9. Answer: c
Make a report to JFIU so that the case can be
referred to the appropriate law enforcement
agency for follow up action.

10. Answer: c
T
 he transaction may be related to terrorist
activities. A report should be made to JFIU.

67
 So, what is your score?
Please see the scale below:

0 2 4 6 8 10

Poor Unsatisfactory Average Satisfactory Good

If you get five or more correct answers out of a total of ten questions
in the general and industry-specific sections, then you pass the
test. Otherwise, you may need to go over this guide again, refer to
your training or compliance officer, or consult the JFIU for further
assistance.

Reference Materials:
• Legal bulletin of the Hong Kong Institute of Certified Public
Accountants
• Anti-money Laundering and Counter Terrorist Financing Guidelines
of the Hong Kong Institute of Chartered Secretaries
• Practice Circulars of the Estate Agents Authority

68
 Report Suspicious Transactions
Joint Financial Intelligence Unit
Tel: 2866 3366   Fax: 2529 4013   Email: [email protected]

Published by the Narcotics Division, Security Bureau

June 2009
 ANTI-MONEY LAUNDERING & COUNTER-TERRORIST FINANCING
Anti-Money Laundering &
Counter-Terrorist Financing

A Practical Guide for:

Accountants
Estate Agents
Published by the Narcotics Division, Security Bureau Precious Metals and Precious Stones Dealers
June 2009
Trust and Company Service Providers