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CEO's Ruminations: On (Anti) Money Laundering

While celebrating or bemoaning (depending upon your perspective) the resumption of sovereignty or handover or takeover of Hong Kong to China (depending upon your politics), I had time to contemplate the soon to be enacted Cross-boundary Movement of Physical Currency and Bearer Negotiable Instruments Ordinance of Hong Kong (the “Ordinance”). No doubt the luvly bubbles of Krug pulsating down my palate inspired me to put chubby fingers to keys in anticipation of what I have dubed “No Cash Day” on 16th July.

Prior to what you no doubt will consider to be a rivetting repartee, how about the World Cup? Japan? Russia? Jolly Ole England? No Germany, Argentina, Portugal or Spain? No Messi or Ronaldo? I almost thought I would wake up, pinch myself and discover China or even Hong Kong in the Quarters with Xi Jiping or Carrie Lam leading the charge. Oh my ears and whiskers…

Back to business. The Financial Action Task Force (the “FATF”), an inter-governmental body with 37 members (35 out of 195 countries), was established in 1989 “…to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.” Despite representing only 18% of the sovereign states on the planet, the FATF states quite unashamedly that it “…has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction.”

Bottom line: the FATF is an undemocratic, battering ram of global heavyweights – China, Europe, Russia and the USA – seeking to impose “standards” upon the other 82% of financially and militarily less powerful liliputian states.

Alas, Hong Kong is set to succomb to the almighty FATF after successfully withstanding the onslaught of five iterations of the Recommendations since 1990. On or after “No Cash Day”, if you visit Hong Kong with HKD120,000 (or equivalent thereof) or more of currency or bearer negotiable instruments, then you must disclose the same to the relevant Custom’s officer. Singapore, the island state to which Hong Kong is often compared/contrasted, fell prey to the FATF much earlier, and in 2014 decreased the the threshold for reporting to SGD20,000 (USD15,000).

Let’s have a brief, critical look at the most recent, 2012 Recommendations (in particular number 32) and the Ordinance while positing possibilities of legally sidestepping the same.

“In God We Trust…All Others Pay Cash” – Novel by Jean Shepherd

Since the 1800s, “In God We Trust” has been emblazoned upon the currency – coin and paper – of the USA. The Yank novelist had a bit of fun with the phrase while recalling childhood memories. Good read.

Bin that phrase! Many of us may still trust in God, however defined, but cash no longer seems to be acceptable. Many a car park in Hong Kong posts signs clearly stating “no cash”.

Thus, I make a leap to number 32 of the Recommendations with a slightly edited version reproduced as follows:

“Countries should have measures in place to detect the physical cross-border transportation of currency and bearer negotiable instruments…should ensure that their competent authorities have the legal authority to stop or restrain currency or bearer negotiable instruments that are suspected to be related to terrorist financing, money laundering or predicate offences, or that are falsely declared or disclosed.…should ensure that effective, proportionate and dissuasive sanctions are available to deal with persons who make false declaration(s) or disclosure(s).”

Yes, even when edited, that is a mouthful. Let’s give it some thought.

First, please do not be fooled by the word “recommendation”. The FATF states quite clearly in its Glossary that “For the purposes of assessing compliance with the FATF Recommendations, the word should has the same meaning as must.” Translation: it is our way or the financial-ruination-highway.

Second and not surprisingly, the Ordinance albeit using fancier language like “conveyance” rather than “transportation” and “import”/”export” rather than “in-bound”/”out-bound”, largely follows Recommendation 32. I gather the drafters felt a need to earn their keep (our tax dollars) by improving on the language. Kudos!!!

Third, while I was perusing the Glossary, I noticed the FATF defines physical cross-border transportation as “any in-bound or out-bound physical transportation of currency or BNIs from one country to another country…including (1) physical transportation by a natural person, or in that person’s accompanying luggage or vehicle; (2) shipment of currency or BNIs through containerised cargo or (3) the mailing of currency or BNIs…”; currency as …banknotes and coins that are in circulation as a medium of exchange”;…and “bearer negotiable instruments”, “…monetary instruments in bearer form such as: traveller’s cheques; negotiable instruments (including cheques, promissory notes and money orders) that are either in bearer form, endorsed without restriction, made out to a fictitious payee, or otherwise in such form that title thereto passes upon delivery; incomplete instruments (including cheques, promissory notes and money orders) signed, but with the payee’s name omitted.”

Hmmm…does that cover diamonds or gold bullion? Nothing specific in the FATF or the Ordinance. The Yanks address the issue in the Customs Declaration Form 6059B if and only if you happen to turn over the form and read explanatory note 13, which uses the language “…$10,000 or more in U.S. dollars or foreign equivalent in any form…”

Hey, what about cryptocurrencies? If I flew into Hong Kong with the username, password and whatever other form of access code may be required (Ethereum calls it a “wallet”), did not disclose my possession of the same and then used that information to exchange my cryptocurrency into Hong Kong in excess of the threshold amount of HKD120,000, would I be facing the Ordinance’s maximum fine of HKD500,000 and two years in prison? What if I flew into the UK (similar FATF laws) and used a Bitcoin ATM?

Finally, is this sort of FATF-compelled legislation really achieving the stated objectives? In 2017, the Hong Kong Tourist Association reported total visitor arrivals of 58,472,157 of which 44,438,839 were from Mainland China. Let’s say 0.1% of our friends from the Motherland each legally imported HKD110,000 into Hong Kong. HKD5 billion or approximately USD630 million!!! (As an aside, I should have thought these figures would make one wonder why Hong Kong is the most expensive real estate market in the world).

Call me crazy, but even if 1% of that money (USD6.3 million) was used for, say, terrorist financing, then I think it fair to say one of the objectives, if not the most important, of Recommendation 32 and the Ordinance easily could have been flouted by naughty actors.

Something to ponder when 18% of the countries of the world with all the power treat the other 82% like naughty children by imposing rules that Little Johnny seemingly can quite easily sidestep.

Shudder the thought but perhaps the members of the FATF have other, undisclosed, objectives, i.e. even greater control by government of the people?

“It is the people who control the Government, not the Government the people.” – Winston S. Churchill

Really Winston!? Perhaps a better time. Just a thought…cheers!

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