Reporting Suspicious Transactions - Points to Note

The Statutory Requirements

Under the Drug Trafficking (Recovery of Proceeds) Ordinance (Chapter 405), the Organized and Serious Crimes Ordinance (Chapter 455), and the United Nations (Anti-Terrorism Measures) Ordinance (Chapter 575), when a person knows or suspects that any property represents proceeds of drug trafficking or an indictable offence, or is terrorist property, a disclosure must be made to the Joint Financial Intelligence Unit (JFIU) of the Hong Kong Police as soon as it is reasonable to do so. These obligations apply to any person, including a company and every officer of a company. Failure to report such knowledge or suspicion is a criminal offence and may be liable on conviction to a fine and to imprisonment.

Adopting the “SAFE” Approach

Implementing an effective systemic approach to identify suspicious transactions will safeguard you and your company from the risk of being involved with money laundering and terrorist financing. You may adopt, where applicable, the “SAFE” approach as recommended by JFIU in identifying and reporting suspicious transactions. Four steps are involved in the SAFE approach:

• Screen the relevant account for suspicious indicators

• Ask the customer appropriate questions

• Find out the customer’s records

• Evaluate all the above information

Details of the SAFE approach are available at JFIU’s website (www.jfiu.gov.hk).

How to submit a Suspicious Transaction Report (STR)?

You are strongly encouraged to use the STR proforma or the e-reporting system named Suspicious Transaction Report and Management System (STREAMS) to report suspicious transactions. Please visit JFIU’s website at www.jfiu.gov.hk for full details of the reporting methods and advice.

Examples of indicators for identifying suspicious transactions under the SAFE Approach

Customer

• The corporate structure of the customer is complex and/or comprising entities from different jurisdictions.

• The beneficial ownership of the customer is obscured.

• The customer or a beneficial owner of the customer is a politically exposed person.

• The customer is from a high-risk jurisdiction.

• The customer has no known nexus with Hong Kong.

Transaction

• Payment is made by a 3^rd party or by means of cashier order or other unusual means of payment.

• Payment made or received is not related to the business of the customer.

• Off-shore bank account is used with no apparent legitimate business, economic or other reason.

• The frequency of transactions with the customer is unusually high.

• The property related to the transaction is unusually over-valued or under-valued.

• The transaction is to deal with unrelated party or party in unrelated jurisdiction.

Issues revealed by further enquiries

• Unfavourable information of the customer is revealed by checking against commercially available databases or open sources.

• The customer fails to disclose specific role / relationship / ownership of property in question.

• The customer refuses or is reluctant to respond to questions or the answers are not convincing.

• The customer refuses or is reluctant to provide supporting documents.

Evaluation of customer and transaction

• Information provided by the customer is not commensurate with the records of the customers or transactions in hand.

• Information provided by the customer cannot be verified.

• The customer has little knowledge of the details or nature of the transaction.