Last week, the Hong Kong Securities and Futures Commission (SFC) signed a tripartite memorandum of understanding (MOU) with the China Securities Regulatory Commission (CSRC) and the Ministry of Finance of the People’s Republic of China (MOF) regarding audit working papers in the Mainland arising from the audits of Hong Kong-listed Mainland companies.
Welcome to the Spring 2019 edition of our corporate crime update – our round up of developments in relation to corruption, money laundering, fraud, sanctions and related matters. Our update now covers a number of jurisdictions.
Authors: Kyle Wombolt, Jeremy Birch, Karen Ip and Mark Chu
On 17 April 2019, the Financial Action Task Force (FATF) released its fourth round mutual evaluation report (Report) on the effectiveness of China’s measures on anti-money laundering (AML) and combating terrorist financing (CTF). The FATF is an intergovernmental organization which, in addition to developing AML and CTF policies, conducts periodic evaluations of member countries in order to evaluate the effectiveness of their AML and CTF policies.
What changes can institutions anticipate based upon the FATF’s recommendations?
Based on the FATF’s recommendations and recent developments within China, financial institutions and others falling within the AML Law’s ambit are likely to see increased regulatory scrutiny of their compliance with AML and CTF obligations. From a practical perspective, this is likely to result in an increased frequency of regulatory inspections, higher levels of enforcement activity and elevated penalties being sought.
What are the FATF’s findings in the Report?
Some key findings include the following:
- The effectiveness of China’s financial intelligence unit (FIU) is hampered by the incomplete sharing of information, inconsistent reporting practices for suspicious transaction reports (STR), and a lack of information regarding beneficial ownership (BO).
- The effectiveness of China’s Financial Institutions’ (FIs) preventative measures is limited by the market’s current level of understanding of ML/TF risks, a lack of implementation of requirements related to BO and ongoing due diligence, and gaps relating to the reporting of STRs.
- Designated Non-Financial Businesses and Professions’ (DNFBPs) (such as lawyers, real estate agents, and dealers in precious metals) implementation of preventative measures to address ML and TF is very limited.
What are the FATF’s recommendations in the Report?
The FATF has made several recommendations in the Report, including the following:
First, the FATF recommends that the People’s Bank of China (PBOC) increase onsite inspections in the banking sector, ensure adequate supervision of the DNFBP sectors, and extend the Anti-Money Laundering Law (AML Law) to the online lending sector. With regards to supervision of the DNFBP sectors, the PBOC issued a notice in July 2018 (link in Chinese) that would apply the AML Law’s AML and CTF obligations to DNFBPs. In October 2018, China’s top financial regulators – the PBOC, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission – also issued joint guidelines (link in Chinese) to expand AML and CTF oversight to internet financial service providers, including those conducting online payment and lending services.
Second, the FATF recommends that China should review the effectiveness of its financial sanctions for AML and consider substantially increasing the size of penalties for violations of the AML Law. There are already indications that China is moving in this direction. In particular, supporters of a motion to amend to the AML Law (link in Chinese) have proposed expanding the scope of the crime of money laundering beyond the current seven categories of predicate crimes. The supporters of the motion have also proposed ensuring that obligations under the AML law reach DNFBPs such as real estate agents, precious metals exchanges and law firms. Finally, they have proposed increasing the monetary penalties available under the AML Law which are currently capped at 5 million yuan (or approximately US$742,170).
Third, the FATF recommends that guidance and training should be provided to FIs and DNFBPs to enhance their understanding of the concept of beneficial ownership. The Report highlighted that institutions sometimes had varying, incomplete understandings of the concept of beneficial ownership. The FATF also states that whilst China’s National Enterprise Credit Information Publicity System can serve as a starting point to obtain BO information, it does not indicate whether the registered legal owner or the shareholders is the BO.
Authors: Kyle Wombolt, Jeremy Birch and Charlotte Benton
The US Department of Justice Criminal Division (DOJ) has issued updated guidance on the Evaluation of Corporate Compliance Programs (guidance). Under the guidance, DOJ prosecutors evaluate the effectiveness of a company’s compliance programme when conducting an investigation, determining whether to bring charges or negotiating plea or other arrangements.
“Whether in the US, Asia Pacific or elsewhere, the guidance sets out useful prompts for a best practice compliance framework” observes Hong Kong corporate crime and investigations partner, Jeremy Birch. “Given the propensity of regulators to borrow from each other’s procedures and practices, it will also be of interest to companies subject to regulatory scrutiny, investigation or enforcement outside the US, as a benchmark for appropriate remediation and resolution.”
The guidance covers many of the same areas as the previous version, providing additional context to the multifactor analysis of a compliance programme.
Welcome to the Winter 2019 edition of our corporate crime update – our round up of developments in relation to corruption, money laundering, fraud, sanctions and related matters. Our update now covers a number of jurisdictions.
For the full update on each jurisdiction, please click on the name of the jurisdiction below. Below we provide a brief overview of what is covered in each update.
Authors: Kyle Wombolt and Anita Phillips
Kyle Wombolt, global head of corporate crime and investigations, and Anita Phillips, professional support consultant, have updated their guide to corporate investigations in China. This forms part of GIR’s acclaimed text, The Practitioner’s Guide to Global Investigations 2019, third edition. It is regarded as the only text covering the nuts and bolts of multi-jurisdictional corporate investigations.
The People’s Republic of China recently enacted a new law that will impact foreign authorities, corporations and individuals involved in overseas criminal enforcement actions. The Law on International Judicial Assistance in Criminal Matters allows Chinese authorities to block requests for documents, testimony and assets requested in international criminal investigations. Continue reading
Late last month, the Securities and Futures Commission (SFC) announced that agreement had been reached with the China Securities Regulatory Commission (CSRC) to implement the investor identification model for Stock Connect Northbound trading (NB Investor ID Model) on 17 September 2018. This will apply to Northbound trading under both the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect. Continue reading
China is advancing its policies to open up its markets and attract more foreign investment. This year, the financial sector is one of the focus areas for liberalisation. On 11 April 2018, Yi Gang, the governor of People’s Bank of China announced a detailed timetable (Timetable) for certain liberalisation policies in respect of the financial sector. In this e-bulletin, we summarise the key aspects of the Timetable and some of the other related regulations which have been issued recently. Please click here to read our full briefing.
Kyle Wombolt, global head of corporate crime and investigations, and Anita Phillips, a professional support consultant, have published a guide to corporate investigations in China. This forms part of GIR’s acclaimed 2018 text, The Practitioner’s Guide to Global Investigations, available in print and online. Our chapter covers the legal and regulatory framework in China, running an internal investigation, dealing with cross-border investigations and responding and reporting to the Chinese authorities. Continue reading