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SFC reprimands and fines Guotai Junan Securities HK$25.2 million for AML regulatory breaches

On 23rd June 2020, the SFC reprimands and fines Guotai Junan Securities (Hong Kong) Limited HK$25.2 million for multiple internal control failures and regulatory breaches in relation to anti-money laundering, handling third party fund transfers and placing activities, and detection of wash trades and late reporting issues (Please refer to the SFC Statement of Disciplinary Action at https://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/openAppendix?refNo=20PR58&appendix=0&lang=EN, or other details at https://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=20PR58).


The Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporation) was first published under section 7 of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) and section 399 of the Securities and Futures Ordinance (Cap. 571) in April 2012. It has been evolving and tightening up over the years into the present fifth edition issued in November 2018 in an attempt to harmonize it with the international standard and trend, alerting the SFC licensed corporations to various signs for potential criminal activities, to name but a few:-

  1. Placement - Dealing with the physical disposal of cash proceeds derived from illegal activities.

  2. Layering - Separating illicit proceeds from the source by creating complex layers of financial transactions designed to disguise the source of money, subverting the audit trail and cultivating anonymity.

  3. Integration - Creating the impression of apparent legitimacy to criminally derived wealth, whereby the laundered proceeds could be ultimately returned, riding on or by way of a layering process or integration scheme, back into the general financial system resulting in the proceeds appearing to be clean or derived from legitimate business activities.

According to the well-established internal control and compliance industry practice, "third party receipt, third party payment or third party fund transfer" arrangement has been long classified as a high risk area in money laundering and ought not to be accepted by any SFC licensed corporation for whatever reason or in any circumstance no matter whether there is good justification or such arrangement is supported by proper documentation or even if there is a responsible officer who ventures to approve it under any managment by exception rule. As a matter of fact, "third party receipt, third party payment or third party fund transfer" is a typical money laundering path for arriving at placement, layering and/or integration which ought to have been strictly prohibited as inherently stated in the SFC licensed corporations' internal control and compliance manuals.


According to the well-established internal control and compliance industry practice, the SFC licensed corporations have a duty to verify the ultimate beneficial owners of the clients' accounts and their source of fund as part of their KYC due diligence procedures, and to have appropriate system control and policy in place to detect such market misconduct activities as wash trades.


It is noteworthy that failure by the SFC licensed corporations or persons to pay attention to these internal control and compliance issues would result in severe sanctions by the SFC, regulators and other judicial bodies.


Please note that nothing herein shall constitute, or can be regarded as a substitute of, specific or formal legal advice. If you wish to seek legal advice or assistance from us, please email your questions to info@mokco.com.hk.


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