Consultation with money changers and remittance agents

At the meeting on 21 July 1999, Members requested further details about the consultation conducted by the Administration with money changers and remittance agents on the proposed money laundering legislation. In particular, Members requested information on the questionnaire used, the views and findings obtained in related surveys and information on daily average transaction amount handled by money changers and remittance agents.

2.The Administration had conducted two questionnaire surveys before the drafting of the Organized and Serious Crimes (Amendment) Bill 1999.The first survey was conducted by the Police Narcotics Bureau, with assistance from the Customs and Excise Department, in February 1997, covering 94 money changers and 78 remittance agents (of these, 40 money changers and all remittance agents were also visited by the Police). The aim of the survey was to obtain an overview of the activities of these two businesses and their readiness to comply with anti-money laundering measures, with a view to assessing Government's future approach. A detailed report of this survey is at Annex I.

3.The second survey was conducted by the Narcotics Division of the Security Bureau with assistance from Police and Customs in November 1998.The survey covered 92 money changers and 87 remittance agents (of these 19 money changers and remittance agents representing a cross section of the two businesses were also visited).The aim of the survey was to obtain the views of the two businesses on the proposed requirements to identify customers and keep transaction records, with a view to facilitating the drafting of the Organized and Serious Crimes (Amendment) Bill 1999. The questionnaire used in this survey, the summary as well as detailed findings, are at Annex II.

4.According to the 1997 survey, the amount of transactions by customers of money changers varied from several thousands to several hundred thousand Hong Kong dollars (HKD) for individual transactions (paragraph 28 of Annex I).The monthly turnover claimed by the remittance agents surveyed was between $0.1 million HKD and $370 million HKD.64% of the remittance agents claimed between $0.1 million HKD and $10 million HKD turnover per month.As the number of customers, transactions and monthly turnover vary greatly amongst remittance agents, an "average transaction" can be calculated as being from several tens of thousands of HKD, up to a few hundred thousand HKD (paragraphs 19 to 20, and paragraph 40 of Annex I).In the 1998 survey, the average amount of each transaction per day was asked.36% of the money changers who responded indicated that the amount was less than $10,000 HKD, and 18%, between $10,000 HKD and $50,000 HKD, while 20% of the remittance agents who responded indicated that the amount was between $100,000 HKD and $500,000 HKD (item 3 in Tables 1 and 2 of Annex II).

Money Changers Ordinance (Cap 34)

5.Members requested information on the number of prosecutions under section 11 of the Money Changers Ordinance (Cap 34), a copy of which is at Annex III.

6.As section 11 of Cap 34 does not create an offence, there cannot be any prosecutions.The offences under Cap 34 are created by sections 4, 6, 7, 8 and 10, and include mainly failure to provide transaction note to customers, failure to display exchange rates and non-compliance with advertising provisions, etc.There are no statistics on these offences as they are not considered to be "major" offences.

Notification System

7. Members requested examples of business activities which require the trade to notify the relevant authorities of the names and addresses of the persons/companies involved instead of obtaining an operating licence. Members also requested information on overseas experience where money changers and remittance agents are regulated by a similar notification system, instead of a licensing system.

8. In Hong Kong, the idea of keeping a register of and regulating business activities without some form of discretionary licensing or approval by authorities is new.The Department of Justice cannot find any examples in other Ordinances that have similar provisions.However, it should be noted that the objective of the Bill is different from Ordinances regulating other businesses.The Administration is trying to regulate money changers and remittance agents from the viewpoint of preventing or detecting avenues for money laundering presented by these businesses, and not from the viewpoint of regulating or improving the membership of and services provided by them.

9. In fact, some overseas jurisdictions, e.g. France and the U.S., use systems similar to that being proposed by the Administration to regulate money changers and remittance agents to prevent these businesses from engaging in illegal activities, including money laundering.The salient features of their systems are at Annex IV.

Narcotics Division
August 1999

INTRODUCTION

The Financial Action Task Force (FATF) has identified Remittance Agencies and Money Changers as playing an important role in international money laundering.FATF's Mutual Evaluation Report on Hong Kong's anti-money laundering efforts produced following their 1994 evaluation of Hong Kong concluded that, "further efforts should be made to cover non-bank financial institutions such as remittance houses and bureaux de change".

2.As Hong Kong's Remittance Agencies operate in a totally unregulated and unlicensed environment the Government has no overview, or consolidated statistics, regarding their numbers or activities.As Remittance Agencies have frequently surfaced during Police investigations into money laundering the Police Force agreed to carry out a survey of Remittance Agencies and Money Changers with a view to assessing Government's future approach.This report summarizes what is known about Remittance Agencies and Money changers, and the progress of the survey.Finally it draws conclusions and makes recommendations for future Government action.

BACKGROUND INFORMATION

Remittance Agencies

Definition

3.Remittance Agencies are businesses which provide customers with a service for sending money to, or receiving money from, other countries. They do not provide other forms of financial services normally provided by banks, e.g. savings, cheque and loan accounts.

Nomenclature

4.Remittance Agencies are also known as Underground Banks" and "Unregulated (or Unlicensed) Remittance Centres" (URC's).

Types of Remittance Agencies

5.Remittance Agencies take various forms.In many instances the Remittance Agency will be situated in a shop or office type premises offering remittance services either alone, or more commonly, along with a variety of other services, e.g. money exchange, and international fax facilities.Numerous Remittance Agencies are also operated in trading companies and guest houses in addition to the main business being carried on.As the operation of a remittance business requires little more than a fax machine, Remittance Agencies are often located in residential premises, operated by a member of the occupant family as a part-time job.

Business practise of Remittance Agencies

6.If a customer wishes to send money overseas from Hong Kong he must first find a Remittance Agency with the ability to remit money to the overseas country in question.Normally a Remittance Company will operate in parallel with a sister company, or companies, overseas and will specialize in providing remittance services to the country or countries in which their sister companies are located.To remit money from Hong Kong the customer must deposit money into the Hong Kong bank account of the remittance company and provide the details of the overseas person or bank account to which the money is to be sent.The remittance company then contacts its sister company in the overseas country concerned and instructs it to pay the money to the nominated person or account. If money is remitted to Hong Kong the same process is used in reverse.

Reasons for customers using Remittance Agencies

7.Legitimate customers normally use Remittance Agencies because of their quick and cheap international remittance service.Normally a Remittance Agency will charge customers less than a bank for international remittance services.

8.Persons wishing to deliberately conceal the source, or destination, of international remittances, or break the audit trail, use Remittance Agencies because of their generally inferior customer background checks, customer identification records, transaction records, and lack of adherence to suspicious transaction reporting requirements, compared to banks. Persons using Remittance Agencies for these reasons include international criminals, notably narcotics traffickers, and those wishing to avoid overseas tax and currency regulations.

Remittance Agency profits

9.Remittance Agencies make their profit by charging their customers more than the costs incurred in making the remittance.Costs are kept to a minimum in Remittance Agencies were, during a given period of time, the total amount of money remitted from Hong Kong is roughly the same as the amount remitted to Hong Kong.In such instances a "balance system" exists.The Remittance Agency will receive roughly the same amount of money from customers wishing to send money overseas as it must pay out to customers receiving money in Hong Kong.In such instances the need, and thus the cost, of making international transfers is avoided. The Remittance Agency then profits by the amount of service charge levied on the customer.In Remittance Agencies where the difference in the amount of money to be paid in Hong Kong and overseas is significant, the difference is balanced by transferring money by low cost methods, e.g. the cheapest (and slowest) of the international transfer services offered by banks, or use of cash couriers.As Remittance Agencies make their money on very narrow profit margins it is easy to see why, for business to be worthwhile, the volume of money dealt with must be high.The huge volumes of money dealt with by some Remittance Agencies can be seen from the list of examples at Annex A and the results of the survey summarized in paragraph 19.

Remittance Agencies involvement in money laundering

10.No Remittance Agency has ever been charged with the offence of "Money Laundering".In many investigations however it has been proved that Remittance Agencies have handled the international transfer of the proceeds of drug trafficking and other serious offences.The fact that no Remittance Agency has ever been charged with money laundering is due to the need to prove that the Agency "knew or believed" that the money concerned was the proceeds of drug trafficking or an indictable offence. In the vast majority of cases no such evidence exists as the Remittance Agency has merely carried out his business, i.e. the remittance of the funds, without knowing of their source.

11.It is generally true to say therefore that Remittance Agencies are not knowingly involved in money laundering, they are merely used by criminals for the purpose of money laundering.Examples of cases in which Remittance Agencies have handled the proceeds of crime are given at Annex B.

The need for a survey on Remittance Agencies

12.Remittance Agencies operate without the need for a licence, and without supervision or regulation from any Government or private body. Government has no overview of, or statistics on, their activities.

Money Changers

Definition

13.Money Changers are retail outlets which buy and sell currencies, normally cash.Generally they do not offer credit or loan facilities. Foreign Exchange (FOREX) Dealers who generally do not deal in cash but do offer credit are not regarded as Money Changers for the purpose of this report.

The need for a survey of Money Changers

14.Money Changers in Hong Kong are unregulated and unlicensed. As FATF's 1994 report on Hong Kong categorized Money Changers together with Remittance Agencies as requiring further attention it was decided that Money Changers would be included in the Remittance Agency survey.

THE SURVEY OF REMITTANCE AGENCIES AND MONEY CHANGERS

Methodology of the survey

15.In February 1997, 78 suspected Remittance Agencies previously identified during Police financial investigations and 94 Money Changers identified by Census and Statistics Department were sent a letter and a set of administrative guidelines concerning money laundering.The purpose was to inform the Remittance Agencies and Money Changers of the provisions of DTROP (Cap. 405) and OSCO (Cap. 455) and advise them to adopt measures such as customer identification, record keeping, and suspicious transactions reporting procedures.A questionnaire was also sent to all the remitters.Of the 78 remitters, only eight completed and returned the questionnaire.Because of the low response rate, it was decided that follow-up visits be conducted to all of the Remittance Agencies and Money Changers to seek their opinion on issues relating to money laundering and information on their common business practices.

16.The addresses of the 78 suspected Remittance Agencies and 40 of the Money Changers have been visited so far.Details of the visits are described in the following paragraphs.Readers should note that the information contained in the following paragraphs comes from answers to questions posed to the Remittance Agencies and Money Changers. No attempts were made to verify the information provided, thus a degree of inaccuracy does exit.

Response from the Remittance Agencies

17.Of the 78 Remittance Agency visited, 26 had either moved or closed, 17 had ceased remittance business, one claimed never to have been in the remittance business, and one refused to be interviewed.Thus, the actual number of currently active Remittance Agencies that have been successfully interviewed is 33, yielding a response rate of 42%. Most of the interviewees admitted that they had received their guidelines and questionnaires but were too busy, or just forgot, to complete the questionnaires. This generally negligent attitude to anti-money laundering measures has been found, both during the survey and during previous investigations, to be prevalent throughout the remittance industry.

Facts relating to their customers and transactions

18.Most of the Agencies visited are well established and have been in the remittance business for at least five years.11 have been in operation for more than 20 years.Their customers were mainly local Chinese, but also included many other nationalities including Taiwanese, Vietnamese, Indian, Nepalese, Thai, Filipino and Australian.The remittances were made to, or from, many countries including Taiwan, Vietnam, Philippines, Thailand, Middle East, Europe and the United States. The Remitters claimed their customers were usually in the trade of import/export of commodities such as precious stones, garments, seafood, electronics, leather products and travel Agencies.

19.The number of customers varied significantly between the Agencies but 87% were in the range of 30 to 200 per month.There was one Agency who has only one customer while another had about 1,000.The number of claimed transactions per month ranged from 2 to 1,600, with 52% claiming between 2 to 100 per month.For all URC's surveyed the monthly turnover claimed was between $0.1 million HKD and $370 million HKD.64% of Agencies claimed between $0.1 million HKD and $10 million HKD turnover per month.

20.From the above figures it can be seen that the number of customers, the number of transactions and the monthly turnover vary greatly between URC's.It is noticeable however that 52% of URC's claim to handle up to 100 transactions per month, and that 64% claimed a turnover of less than $10 million HKD per month.An "average transaction" can therefore be calculated as being from several tens of thousands of HKD, up to a few hundred thousand HKD.

21.During the survey each URC was asked for an estimate of its monthly turnover, rather than its annual turnover.When the monthly turnover figures are extrapolated to give annual turnover figures, the total annual turnover for the URC's surveyed is $ 1,932 million HKD.

Record keeping of customer identity

22.70% of the Agencies made and retained some sort of record of their customers identity.30% had no such record.For those keeping records of their customer's identity, the information kept varied from only the name of the customer scribbled on a loose sheet of paper to including full identification particulars, the address and telephone number.The retention time for the customer records also varied. Some remitters disposed of the customer records immediately following the successful completion of the transaction.Others kept records for a given period, up to 6 years.Many of those that did not keep records of their customer's identity claimed that they had been doing business with their customers for a long time, they knew them well, and there was no need to keep such records.One stated that all customers' records were kept in the main office in Taiwan.

Record keeping for transactions

23.Almost all the Remittance Agency interviewed maintained some sort of record for each transaction.Only 9% stated that no such record was kept.However, as with records of customer, the contents of transaction records varied from simply putting down the name, date and amount of a transaction on a loose sheet of paper to detailed records in files and computers.Again the period of retention of transition records varied from immediate disposal following completion of the transaction, up to 6 years.

Reporting of suspicious transactions

24.No suspicious transaction report has ever been received from any Remittance Agency.When asked for the reason why, most interviewees stated that they had not come across any transactions which they found suspicious.A few claimed that they dealt only with customers who were known to them and were involved in legitimate business, while one stated that he did not know how to make such a report.

Views on legislation and guidelines

25.During the interview the Remittance Agencies, their views were sought on the money laundering legislation, the reporting of suspicious transactions, and the usefulness of the administrative guidelines. Most of the Agencies claimed to support anti-money laundering efforts. Only one expressed the opinion that no legislation would be better as it would be more convenient for him to conduct business.

26.As to the usefulness of the guidelines, many considered them useful, as they included clear instructions for them to follow.The absence of any suspicious transaction report since the interviews were conducted indicates the guidelines are not being following however. Three Remitters stated that they had been following procedures similar to those in the guidelines all along.Only one stated that he did not consider them useful as his relationship with his customers were only short term, and there was no need for him to know much about the customers.

Response from Money Changers

27. A total of 40 suspected Money Changers have been visited so far. Two addresses were found not to be Money Changers however, thus the actual number of Money Changers interviewed was 38.It was learned from the interview that out of these 38 Money Changers, 14 were also engaged in the remittance business.Of the 38 Money Changers interviewed only 21 remembered receiving the letter and guidelines.

Facts relating to customers and transactions

28. 39% claimed to have been operating for over 10 years.Fifteen of them, mainly those dealing in Reminbi exchange, stated that their customers were mainly local people.The other 13 stated that their customers were mainly foreigners and tourists while the rest stated that it was half-and-half. About half of the visited Money Changers claimed to have regular customers while the rest had not.For those that had regular customers, the numbers ranged from 2 to 20 plus.The usual amount of transactions by these customers varied from several thousands to several hundred thousands HKD for individual transactions.

29. With regard to customers making transactions of large amounts, 39% of Money Changers made no attempt to find out about the background of such customers or the source of the money.21% stated that they knew their customers' backgrounds.One stated that he would enquire with the customer if a transaction was over RMB100,000.Many stated that they did not conduct transactions involving large amounts.

Record keeping of customer identity

30. 50% of Money Changers stated that they did not check their customers identity, nor did they keep records of their identity.25% claimed that they did check and retain records, of their customers identity. 25% stated that they only checked a customer's identity when dealing in traveler's cheques.The retention time for customer identification records varied from disposal immediately after the transaction up to 2 years.

Record keeping for transactions

31. 52% claimed to make and retain partial accounting records on each transaction.18% stated that they retained no transaction records. 30% claimed to retain a record of each transaction.

Reporting of suspicious transactions

32. No suspicious transaction report has ever been received from any Money Changer.Almost all stated that they had not come across any transactions they regarded as suspicious.Only one stated that she had identified a suspicious transaction and passed the information to her superior who had done nothing.

33. 26% of the Money Changers claimed to have taken measures to prevent their business from being used for money laundering.74% stated they had done nothing in this respect.For those claiming to have some measures, the methods they adopted varied.Some claimed they would check the customers identity or background while others claimed they would only make transactions with well-established firms.Some stated they set limits on transaction amounts while others required large transaction clients to open an account with them.

Views on legislation and guidelines

34. Most Money Changers had no opinion on the Government's anti-money laundering effort.All of the 21 Money Changers who claimed to have received the letter and administrative guidelines on money laundering claimed to find them useful.Some made the valid comment that identifying money laundering activities was difficult.

CONCLUSIONS

35. The following conclusions can be drawn from experience gained in previously conducted investigations into the activities of Remittance Agencies, and the results of the survey of Remittance Agencies and Money Changers. Although many more Remittance Agencies and Money Changers exist in Hong Kong than have been previously investigated, or visited as part of the survey, it is believed that a sufficiently large number have been visited to represent a cross section of the sector as a whole and to enable accurate conclusions to be drawn.

Numbers and addresses of Remittance Agencies

36. The survey demonstrated that at present there is no reliable list of the numbers of, or addresses of, Remittance Agencies.The list of Remittance Agencies used in the survey came from Police financial investigations of money laundering activity.In many instances the list was found to be out of date.At 56% of the addresses visited the occupants claimed that no remittance business was carried on therein, either because the Remittance Agency had moved on, closed or just ceased doing remittance business.It can be concluded therefore that, at present, the Government has no accurate means of establishing the numbers or addresses or Remittance Agencies.

Numbers and addresses of Money Changers

37. Of the 40 addresses of suspected Money Changers which have been visited, 95% admitted to being still involved in the money changing business. 37% of the Money changers admitted also to be engaging in the remittance business, a demonstration of close linkage between these two financial services.

Record keeping in respect of customers

38. Visits to both Remittance Agencies and Money Changers revealed that the majority retained insufficient details of their customers to allow for retrieval of records of transactions by any particular customer. It can be concluded therefore that, despite receiving written guidelines on the subject, most Remittance Agencies and Money Changers do not comply with FATF recommendations regarding customer identification and record retention.

Record keeping in respect of transactions

39. Visits to Remittance Agencies and Money Changers revealed that a large proportion retained insufficient details of transactions to allow for an audit trail to be reconstructed.From this it can be concluded that, despite receiving written guidelines on the subject, a large percentage of Remittance Agencies and Money Changers do not comply with the minimum FATF requirements regarding the making and retaining of transaction records.

Turnover of Remittance Centres

40. As we have no accurate idea of the number of Remittance Centres operating in Hong Kong we have no way of assessing the amount of business they carry out.An estimate of the annual turnover of the Remittance Centres visited during the survey alone is $1,932 HK million (paragraph 21 refers).During the 1995 visits to the six Remittance Centres summarized in Annex A no attempt was made to estimate their annual turnover. By mere addition of the turnovers dealt with in single months the total turnover is $1,159 HK million.Although neither of these figures is an accurate estimate of the total turnover of all Hong Kong's Remittance Centres, the enormity of the figures allows for the conclusion to be drawn that Remittance Centres are involved in a significant proportion of financial transactions conducted in Hong Kong.

Suspicious transaction reporting

41. No Remittance Agency or Money Changer has ever made any suspicious transaction report.Even those which received written guidelines eight months ago and verbal and written advice when visited during the survey still refuse to make suspicious transaction reports.Although many stated that they supported attempts to curb money laundering their refusal to report suspicious transactions gives the lie to this claim. From this refusal by the Remittance Agencies to report suspicious transactions it can be concluded that, until there is some requirement for them to follow Government and FATF anti-money laundering guidelines, they will not do so.

42. When asked why they had made no reports of suspicious transactions, the majority of both Remittance Agencies and Money Changers stated that they had never dealt with what they regarded as a suspicious transaction. As well as being the most common explanation given during the survey, this response is also the most commonly given in the many investigations were Remittance Agencies can be proved to have handled the proceeds of crime and are later asked by Police to explain their actions.The reason Remittance Agencies refuse to find any transaction suspicious is given below.

43. Remittance Agencies believe that the less they know about a customer, and his business, the safer they themselves will be in terms of protection from arrest and prosecution.Despite the protection offered in law to those who make suspicious transaction reports, it seems that the "ask no questions, hear no lies" approach is more attractive to the remittance industry.Unfortunately this attitude is at the opposite end of the spectrum from the anti-money laundering principle of "know your customer". Remittance Agencies know that they only commit the offences of "Money Laundering", or "Failing To Report A Suspicious Transaction", if they can be proved to have "known or believed" they were dealing in the proceeds of crime. The advantage of knowing little about a customer or his business is that the Remittance Agency can claim that he did not know enough to form the necessary suspicion that he or she was dealing in the proceeds of crime. When viewed from this perspective it is not surprising that they do not report suspicious transactions.

Remittance Agencies involvement in money laundering

44. Findings from numerous criminal investigations, not only those listed at Annex B, lead to the conclusion that Hong Kong's Remittance Agencies are being used for money laundering.Unfortunately, the extent of the criminal use of the remittance business cannot be estimated as no reliable list of remitters exists.

45. Given the very large amount of money being dealt with by Remittance Agencies, the general lack of proper customer and transaction records, the refusal to comply with reporting requirements, and from the experience gained from previous money laundering investigations it is reasonable to conclude that the amount of money laundered by Remittance Agencies in Hong Kong is substantial.

Money Changers involvement in money laundering

46. Compared to Remittance Agencies, Money Changers seldom surfaced during money laundering investigations.Money Changers are also rarely the subject of suspicious transaction reports by banks, although the generally inadequate customer and transaction records kept by Money Changers, and their failure to make suspicious transaction reports, make them ideal conduits for money laundering.

Recommendations

47. As Hong Kong's Remittance Agencies have been proved to have had significant involvement in criminal money laundering, but have shown a complete disregard for self-regulatory anti-money laundering measures, Government must now take action to require compliance with anti-money laundering standards.

48. Although there is much room for improvement in record keeping and suspicious transaction reporting on the part of Money Changers, intelligence from Police investigations into money laundering suggests that Hong Kong's Money Changers are not involved in criminal money laundering at a significant level.However, as the potential for the use of Money Changers as conduits for criminal money laundering clearly exists, policy should be formulated to require compliance with anti-money laundering measures.

Financial Investigation
Narcotics Bureau
Police Headquarters
13 October 1997
(ra&ml.doc)

The following six examples demonstrate the large amounts of money handled by some Remittance Agencies.All six examples surfaced during investigations by the Organized Crime & Triad Bureau and refer to business conducted in the six month period from March to August, 1995.

1. A Hong Kong Remittance Agency specializing in remittances between Guangdong Province, PRC and Hong Kong was identified.During 3-95 alone a total turnover of $78HK million was revealed by examination of the Agencies bank accounts. The operator kept no records of customers or transactions.

2. A Hong Kong Remittance Agency handling remittances between Hong Kong and Tung Koon, PRC was identified.During 3-95 alone the Agency handled $50HK million of remittances.The operator kept no records of customers of transactions.

3. A Hong Kong Remittance Agency dealing in very large amounts of money was identified.The matter was of particular concern as the operator was believed to be a triad member.During 4-95 alone a total of $431HK million passed through the Agencies accounts.

4. A Hong Kong Remittance Agency receiving funds from Macau was identified.During 4-95 alone the Agency handled $130HK million. No records of customers or transactions were kept by the operator.

5. A Hong Kong Remittance Agency handling remittances between Hong Kong and Zhuhai, PRC was identified.In 5-95 alone $250HK million was handled by the agency.No business records were kept.

6. A Hong Kong Remittance Agency conducting business mainly with Shenzhen, PRC was identified.In 8-95 alone $220HK million passed through the Agencies bank accounts.

The following are examples of cases in which Remittance Agencies have been proved to have dealt in the proceeds of crime.

1. In 1989 a Hong Kong based heroin trafficking syndicate which had been sending heroin from South East Asia to North America was neutralized. In the subsequent investigation of the syndicates financial dealings it was established that a total of $300HK million of the syndicates money had been transferred between Hong Kong and Taiwan by Hong Kong Remittance Agencies.
   
   
2. In 4-90 a $260HK million ransom was paid in the hope of securing the release of a businessman kidnapped in Hong Kong.The majority of the ransom was subsequently remitted to Taiwan through various Remittance Agencies.Due to the lack of records kept by the Remittance Agencies, investigators were unable to establish the ultimate beneficiaries of the funds.Fortunately an unconnected investigation into the activities of Taiwanese Remittance Agencies by Taiwanese authorities surfaced the money in Taiwan and led to the recovery of $235HK million.Despite the fact that the majority of the ransom was recovered this case demonstrates the difficulties experienced by investigators when attempting to trace funds handled by Remittance Agencies.

3. In mid-1990 the daughter of a powerful druglords in Burma, remitted $20HK million through a Hong Hong Remittance Agency.Given the background of druglords these funds were almost certainly the proceeds of drug trafficking.

4. In early 1993 a total of $7.7HK million of confirmed proceeds of methylamphetamine trafficking were remitted through a Hong Kong Remittance Agency to Taiwan.

5. In 5-96 $643,000HK of heroin trafficking proceeds were remitted from Australia to Hong Kong via a Remittance Agency.Due to a lack of any records kept by the Agency the ultimate beneficiary of the money cannot be traced.

6. In 5-96 $4.5HK million of confirmed drug proceeds were remitted from Hong Kong to Bangkok, Thailand by a Hong Kong Remittance Agency on the instructions of a drug trafficker.The trafficker was subsequently arrested for trafficking 1.8 tonnes of cannabis from Thailand to the UK. As the Remittance Agency involved kept records of the customer and the transaction, evidence of the financial aspect of the trafficking activity has been collected for use at trial.

7. In 11-96 a known triad and drug trafficker was murdered in Kowloon.Investigation revealed that $860,000HK had been paid into a bank account controlled by the Deceased on the day before his murder. No legitimate source of these funds could be established.Investigators attempted to establish the source of the money in order to assess whether the transaction was connected to the murder.Unfortunately the money was found to have been deposited by two Remittance Agencies, both of which kept insufficient records to allow for an audit trail to be established.

8. An investigation by Japanese Police revealed that the proceeds of smuggling and illegal immigration offences were being remitted from Japan, through Hong Kong Remittance Agencies, to Fujian Province, China. During the period from 3-96 to 2-97 a total of $694HK million was so remitted.

9. In early 1997 a Taiwanese banker stole $9.3HK million from his employer in Taiwan.He then fled to China.The stolen money was brought to Hong Kong in cash and then remitted to China through Remittance Agencies.Investigation led to the restraint of $1.9HK million in the account of one of the Remittance Agencies.The rest of the money cannot be traced due to poor record keeping by the Remittance Agencies involved.

10. In 4-97 $4.2HK million worth of CD ROM equipment was stolen in Malaysia.A suspect was subsequently arrested in Hong Kong with some of the stolen property and the proceeds of earlier sales of the remainder seized.The suspect claimed to have bought the stolen property and to have made payment through a Remittance Agency.Due to inadequate record keeping by the Remittance Agency the suspects story could neither be corroborated nor disproved and he was released without charge.

DATA COLLECTION

On 24 November 1998, a questionnaire was sent to 92 money changers and 87 remittance agents known to the Hong Kong Police Force (the Police) and the Customs and Excise Department (the Customs).A total of 19 money changers and remittance agents weresubsequently visited by officers from the Police and the Customs.By the deadline on 9 December 1998, 33 completed questionnaires were received from money changers and 45 from remittance agents, representing a response rate of 36% and 52% respectively.

MAJOR FINDINGS

Money changers

2.The salient findings of the survey are summarised below.

Existing business practice/establishment

3.Most (45%) of these 33 money changers had an establishment between 2 to 5 staff.About 91% of them had claimed that they kept some records of transactions.Customers' name (79%), date of transaction (79%), type and amount of currency transacted (73%) are the most common information recorded in transactions.

Views on the proposed amendments

4.More than 72% of the money changers agreed to the basic principles of the proposed amendments.Among them, more than half of the respondents agreed to the proposed details regarding customer identification (75%), record retention period (67%), details to be recorded in each transaction (58%).However, the majority (52%) of money changers had no comments on details regarding the proposed penalty.

5.The findings also indicated that a detailed guideline should be drawn up to assist them in client identification and record keeping.

Remittance agents

6.The salient findings of the survey are summarised below.

Existing business practice/establishment

7.The majority (64%) of these 45 remittance agents had an establishment of no more than 5 staff.Over 91% of them had kept some records of transactions.Name of recipient (87%), type and amount of currency to be received (80%), receiving bank account number (78%), date of transaction (69%) and telephone number of fund recipient (64%) are the most common information recorded in transactions.

Views on the proposed amendments

8.More than 66% of the remittance agents agreed to the basic principles of the proposed amendments.Among them, more than half agreed to the proposals regarding details to be recorded in each transaction (70%), record retention period (60%) and customer identification (57%). However, the majority (62%) of remittance agents had no comments on details regarding the proposed penalty.

DETAILED FINDINGS

9.Detailed findings in respect of money changers and remittance agents are at Tables 1 and 2 enclosed.

Narcotics Division
Security Bureau
August 1999