(Guideline Chapter 7)

CDD and ongoing monitoring of business relationship with customers provide the basis for identifying unusual and suspicious transactions and events. Once GRDA identifies or suspects that a transaction is related to ML/TF activity, GRDA must report the transaction to JFIU.

suspicious transactions

What is the statutory requirements for reporting suspicious transactions ?

Section 25A of the DTROPO and section 25A of the OSCO make it an offence if a person fails to disclose to an authorized officer (i.e. JFIU) where the person knows or suspects that property represents the proceeds of drug trafficking or of an indictable offence. Likewise, section 12 of the UNATMO makes it an offence to fail to disclose knowledge or suspicion of terrorist property. Under the DTROPO, the OSCO and the UNATMO, failure to  report the knowledge or suspicion carries a maximum penalty of three months’ imprisonment and a fine of HK$50,000.

What is the statutory defence for GRDA ?

The filing of a report to the JFIU provides GRDA a statutory defence to the offence of ML/TF in respect of the acts disclosed in the report, provided that:

  • the report is made before GRDA undertakes the disclosed acts and the acts or transactions are undertaken with the consent of the JFIU; or
  • the report is made after GRDA has performed the disclosed acts or transactions and the report is made on GRDA’s own initiative and as soon as it is reasonable for GRDA to do so.

How to identify suspicious transactions ?

An effective systemic approach to identify suspicious transactions will safeguard GRDA from the risk of being involved with ML/TF. GRDA adopt the “SAFE” approach promoted by JFIU.

Four steps are involved in the SAFE approach:

  1. Screen the account for suspicious indicators;
  2. Ask the customers appropriate questions;
  3. Find out the customer’s records; and
  4. Evaluate all the above information.

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

When and how to report suspicious transactions to JFIU?

When GRDA knows or suspects that certain property represents the proceeds of crime or terrorist property, a disclosure must be made to the JFIU as soon as it is reasonable to do so. GRDA mainly uses the e-reporting system named Suspicious Transaction Report And Management System (“STREAMS”) to report suspicious transactions to JFIU.

STRs will be made to the JFIU before GRDA deals with a suspicious transaction or activity (whether the intended transaction ultimately takes place or not) for its customer, or, where the relevant knowledge or suspicion arises only after the transaction or activity has been completed, be made to the JFIU as soon as reasonably practicable and on GRDA’s own initiative after the transaction or activity has been completed.

The law requires the STR be made together with any information or other matter on which the knowledge or suspicion is based. The need for prompt reporting is particularly important where a customer has instructed the GRDA to move funds or other property, carry out significant changes to the business relationship, etc. In such circumstances, GRDA would consider contacting the JFIU urgently.

Internal reporting procedure of GRDA

GRDA maintains a STR reporting system where all suspicious activities could be entered into the system and will be channeled only to the MLRO without undue delay. In urgent cases, suspicious activities may be reported verbally, e.g. over the telephone (must be tape-recorded), to be followed by documentation.

The MLRO will acknowledge receipt of the report and, at the same time, issue a reminder to the reporting staff of the obligation regarding tipping-off. The tipping-off provision also applies to circumstances where a suspicion has been raised internally, but has not yet been reported to the JFIU.

When evaluating an internal report of suspicious transaction, the MLRO will take reasonable steps to consider all relevant information, including CDD and ongoing monitoring information available within GRDA concerning the entities to which the report relates.

If after completing the evaluation the MLRO decides that there are grounds for knowledge or suspicion of transactions related to ML/TF activity, he/she should file a STR to the JFIU as soon as reasonable together with the information or matters on which that knowledge or suspicion is based. If the MLRO decides not to file a STR with JFIU, provided that the MLRO acts in good faith and reasonable manner and concludes that there is no suspicion after taking into account all available information, it is unlikely that there will be any criminal liability for failing to report. The MLRO should keep proper records of the deliberations and actions taken to demonstrate he/she has acted in reasonable manner.

Reporting further suspicious transactions of the same customer

The reporting of a suspicion in respect of a transaction or event does not mean that further suspicious transactions or events in respect of the same customer need not be reported. Further suspicious transactions or events, whether of the same nature or different to the previous suspicion, must also be reported to the MLRO who should make further reports to the JFIU as appropriate.