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Cablegate: Hong Kong Anti-Money Laundering Legislation

VZCZCXRO1240
RR RUEHCN RUEHGH RUEHVC
DE RUEHHK #2175 3310416
ZNR UUUUU ZZH
R 270416Z NOV 09
FM AMCONSUL HONG KONG
TO RUEHBJ/AMEMBASSY BEIJING 3738
RUEHC/SECSTATE WASHDC 9052
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS HONG KONG 002175

SENSITIVE
SIPDIS

STATE FOR EAP/CM
BEIJING FOR TREAS ATTACHE
TREASURY FOR DAS GLASER

E.O. 12958: N/A
TAGS: ECON EFIN HK
SUBJECT: HONG KONG ANTI-MONEY LAUNDERING LEGISLATION
UPDATE: MONEY CHANGERS EMBRACE LICENSE PROPOSAL

REF: HONG KONG 289

1. (SBU) Hong Kong is making progress on Financial Action
Task Force (FATF)-compliant anti-money laundering (AML)
legislation that would establish licensing and oversight
requirements for Hong Kong's remittance agents and money
changers (RAMCs). On October 8, the Financial Services and
Treasury Bureau (FSTB) completed the first round of public
AML legislation consultations. A second round of
consultations, lasting two months, will start in December.
Hong Kong's Legislative Council would receive a draft of the
proposed legislation in the second quarter of 2010. FTSB's
Principal Assistant Secretary Angelina Kwan expected the
bill's implementation by early 2011, with RAMCs "embracing"
the proposed AML framework in hopes a government-issued
license would facilitate more access to banking services.

2. (SBU) The proposed legislation would address weaknesses in
Hong Kong's AML regime identified in FATF's 2007 Mutual
Evaluation of Hong Kong. Specifically, it would create
statutory requirements and civil penalties for customer due
diligence and record-keeping in the banking, securities and
insurance sectors (reftel). Additionally, the legislation
would establish a robust licensing program for RAMCs under
the authority of the Hong Kong Customs and Excise Department
(HKCED), Trade Controls Branch. This new licensing program
would replace existing Hong Kong Police Force RAMC
registration procedures for over 2,100 RAMCs and give HKCED
enforcement powers.

3. (SBU) FSTB presented the legislation's objectives and
collected feedback from affected sectors during a three-month
public consultation period that ended October 8. Most RAMCs
"surprisingly" embraced the sector's unprecedented licensing
regime, Kwan told us. Traditionally considered "high-risk"
ventures, Hong Kong's RAMCs had complained that Hong Kong
banks would often refuse to provide them needed banking
services. RAMCs now hope HKCED's licensing approval will
open the door to normal banking relationships. Kwan
predicted the RAMC industry would likely undergo
consolidation as small operators pooled resources to meet the
legislation's administrative requirements.

4. (SBU) FTSB's proposed legislation still does not meet all
of Hong Kong's FATF-identified weaknesses, however. For
example, it does not establish regulatory oversight and
supervision over non-financial professions (e.g., lawyers,
accountants, real estate agents, etc.) and does notestablish
a cross-border bulk cash declaration ad disclosure system.
However, Kwan stated Hong Kog's Security Bureau would take
up these issues in the near future and had already begun
discussions with law enforcement an cross border agencies on
the feasibility of estblishing a cash declaration mechanism.

MARUT

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