PREVALENT MONEY LAUNDERING IN HONG KONG AND MACAU

Andreas Frank’s Conclusions:

The Survey forms part of the biennial 2014 PwC Global Economic Crime Survey on economic crime which involved more than 5,000 respondents from 95 countries worldwide.

Money laundering is more prevalent in Hong Kong and Macau than in most parts of the world, with rates far above the global average, according to an economic crime survey by PwC. In Asia, Hong Kong has the highest reported rate of money laundering and the ninth highest globally.

A poll by the accounting firm found 37 per cent of companies in Hong Kong and Macau, mainly banks and casinos, had experienced money laundering in the past two years. That compared with a global average of 11 per cent, the Asia-Pacific average of 11 per cent, Singapore’s 5 per cent and mainland China’s 4 per cent.

Hong Kong had the highest reported rate of money laundering in Asia and the ninth highest globally, behind Britain, South Africa, the Czech Republic, Russia, Zambia, Australia, Kenya and Ukraine.

PwC polled 5,128 company executives from 95 countries and territories, including 116 respondents in Hong Kong and Macau, of whom 49 per cent worked for listed companies.

It was the first time the survey, which began in 2001, took a substantive look at money laundering in Hong Kong and Macau.

“The concentration of financial services in Hong Kong and gaming in Macau drives the significance of money laundering in the local marketplace,” said John Donker, the lead PwC partner in forensic services for China and Hong Kong.

“The No1 concern found among financial services companies globally is money laundering. In Hong Kong, it is one of the top concerns.”

PwC’s poll found 27 per cent of financial services companies globally had experienced money laundering.

On Monday, a Hong Kong court found Carson Yeung Ka-sing, owner of English soccer club Birmingham City, guilty of laundering HK$721 million through Hong Kong bank accounts.

This case was a more substantive target prosecuted under the recent money laundering legislation. “It is important that targets are carefully selected to make sure the big fish, not the minnows, are selected”, Steve Vickers, chief executive of Steve Vickers Associates, a Hong Kong risk consultancy said.

The two previous major cases of money laundering in Hong Kong involved an elderly woman and a young man, and both of them received prison terms, Vickers noted.

A new law against money laundering and terrorist financing took effect in Hong Kong in 2012. Courts convicted 140 people of money laundering last year, 166 in 2012 and 246 in 2011. The government recovered HK$639.74 million of laundered money last year, HK$23.6 million in 2012 and HK$1.6 billion in 2011.

The crisis-ridden United Bank of India is under the Central Vigilance Commission’s scanner for under reporting its NPAs or bad loans.The anti-corruption watchdog has sought a report from the Finance Ministry about the bank underreporting its gross NPAs that rose by 188.3 per cent to `8,546 crore at the end of December 2013. It had `2,963.8 crore of bad loans as on March 31, last year.

The CVC has asked for the report on the basis of a complaint filed about the alleged irregularities in the bank.  “A factual report has been sought from Department of Financial Services (DFS) under Finance Ministry on a complaint against the United Bank of India (UBI),” a senior CVC official said.

According to laid out rules, DFS has a maximum of 90 days to send the factual report to the anti- corruption watchdog. The Commission has already received a report on the matter from the bank’s Chief Vigilance Officer (CVO), who acts as a distant arm of the CVC.

Sources said there were allegations against the bank about ‘underreporting’ of NPAs and officials said that a DFS probe will lead to detailed understanding of the enormity of the situation.

Meanwhile, with an administrative probe in the matter already underway, the Finance Ministry recently accepted the bank chairman, Archana Bhargava’s application in which she has sought voluntary retirement citing health grounds.

Bhargava, took over as CMD on April 23, 2013, her term was due to end on February 28, next year. The government is looking for a replacement for Bhargava. Sources said that it is probably after Bhargava’s voluntary retirement that the Department of Personnel and Training had come out with a directive that no such request can be accepted if a probe is pending.

According to the new rules notified by the DoPT on February 27, it shall be open to the appropriate authority to withhold permission to a government servant if the he or she is under suspension or if a charge sheet has been issued and the disciplinary proceedings against him or her are pending.

The DoPT said that the rules were revisited as per a 2010 judgment by the Central Administrative Tribunal. (With agency inputs)

During a Senate hearing, Credit Suisse bank laid out a detailed defense, saying that the perpetrators were a small group of Swiss-based bankers, and that while it wanted to hand over more client names, it was caught between U.S. and Swiss law.

“Credit Suisse is ready to provide the additional information requested by the U.S. authorities on U.S. account holders, but we have been unable to do so,” the bank said in a statement provided at the hearing.

Credit Suisse had provided as much information as allowed under Swiss law, it said, and while it wanted to provide more client names, the U.S. Senate had not ratified a bilateral treaty with Switzerland that would allow it to do so.

Subcommittee Chair Carl Levin, a Michigan Democrat, poured cold water on that argument, saying the treaty will only expose U.S. accounts at Swiss banks after 2009, when it was signed.

If U.S. customers closed their accounts before 2009, they could evade detection and years of U.S. tax bills, Levin said, which Credit Suisse bankers acknowledged.

“We can’t collect taxes owed by those folks, which is what the heart of the problem is. … Don’t tell us the treaty is going to get us what we want,” he said. “It won’t.”

Levin also scolded the Justice Department for only having retrieved 238 client names from Credit Suisse – and none from the other banks under investigation. But the Justice Department officials said their work did show good progress.

Credit Suisse said it was a “demonstrably inappropriate assumption” that all 20,000 U.S. clients were tax cheats, saying many U.S. clients, such as expatriates living in Switzerland, had a valid reason to hold a Swiss bank account.   Senators accused the Department of Justice of dragging its feet.  Department of Justice Testimony
Member Statements for Download

Our correspondent Andreas Frank points out efforts by the US Financial Crimes Enforcement Network to crack down on money laundering by using the Patriot Act.  Jennifer Shasky Calvery, director of the network, wants to put more muscle behind it.  Calvery noted:  TV watchers know Saul Goodman simply as a sleazy lawyer. But there’s a more formal way to describe the character played by comic actor Bob Odenkirk on the hit series “Breaking Bad.”  Saul Goodman would be a third party money launderer.”

Calvery was illustrating the point that money laundering by third parties is a growing concern at Fincen.  “Third party money launderers are professional money launderers,” Calvery said at an anti-money laundering conference in Miami. “Using their connections, professional expertise, and influence, third party money launderers transfer funds on behalf of others, knowing that the funds are involved in illicit activity.”  She described various schemes that these individuals use to infiltrate banks, including “using false documentation.”

For the uninitiated, “Breaking Bad” is about a meth producer in Albuquerque, N.M. Saul Goodman is the drug dealer’s lawyer. He eagerly creates false documents in order to launder money, and also serves as the show’s comic relief.

“I’ll generate false currency transaction reports out the wazoo,” Goodman exclaims in one Season 3 episode, “as well as the necessary W-2Gs, and a couple of casino managers who will jump at the chance to report false losses. It’s a win-win for everyone!”