Recently, the Financial Services and the Treasury Bureau (“FSTB”), a governmental department in Hong Kong, issued a public consultation document on Enhancing Anti-Money Laundering Regulation of Designated Non-Financial Businesses and Professions (“DNFBP’s”) and in particular for the Trust & Company Service Providers (“TCSP’s”) in Hong Kong which introduces the licensing of trust & company service which license would be issued by the Registrar of Companies in Hong Kong.

In addition, there would be introduced statutory client due diligence and record-keeping requirements for the TCSP’s when they would be engaged in certain specified transactions.

Questions that Should be Raised about Licensing of Trust & Company Service

• Has there been any studies, balancing off exercises, how many of the current TCSP’s present in Hong Kong do not already collect customary client due diligence in order to protect their business?
• Should the FTSB not collect information on this matter first, before considering FTSB’s as a real potential risk for laying out a platform for money laundering / terrorist financing? In fact, many TCSP’s can be found inside law firms or accounting firms.
• Should there not be first a study to find out how enhanced client due diligence information can actually and /or practically be obtained and the costs that are associated with this, i.e. would this for example mean that all those TCSP’s should become subscribed to databases such as World Connector, thereby forcing small TCSP’s to go out of business?

Another question that rises is whether the Registrar of Companies in Hong Kong is the correct body to monitor TCSP’s and to provide TCSP’s with the relevant licenses. Within the FSTB consultation document, a connection is for example made between financial institutions that are currently subject to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615) (“AMLO”) and DNFBP’s that are not subject to the AMLO.

• Therefore, should such monitoring and providing licenses then not be carried out by the Hong Kong Monetary Authority instead?
• Also, in order to reduce compliance costs, why not setting up a separate body that monitors TCSP’s, i.e. if there is a separate ‘body’ for solicitors, accountants and real estate agents, why not setting up also such a body for TCSP’s?

Competent Tribunal for Review of Licensing of Trust & Company Service

Further, within the FTSB consultation document, a reference is made to a ‘review tribunal’, which may assists against negative decisions made by the Registrar of Companies, such as in respect of not allowing a TCSP a license, or because the sanctions it has imposed on the TCSP. However, the consultation paper does not reveal

• Who is going to be on board of this tribunal and
• Whether or not the incorporation of such tribunal board would significantly increase the (compliance) costs for the TCSP’s.
• How judicial independence of such a board would be guaranteed

Conclusion

Fact is though, how many money laundering / terrorist financing activities will be really stopped as a result of regulating the DNFBP’s, especially the TCSP’s, as the real culprits will always finds  ways to avoid being caught by the TCSP’s by using nominee shareholders and /or third party directors.