au-yeung, cheng, ho & tin1 1 au-yeung, cheng, ho & tin rme course: property deception &...

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Au-Yeung, Cheng, Ho & Tin

RME Course: Property Deception & AML Laws (2019) on

29 August 2019(2 hours)

Presented by Ivan Ho

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(I) Property Deception (財產欺詐財產欺詐財產欺詐

財產欺詐)

In Hong Kong, there are 5 main kinds of deception:-(1) e-mail deception(2) telephone deception(3) cyber love(4) property investment(5) landed property

資料來源：香港警務處

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2015 2016 %

1) no. of deception cases 9353 7260 22.4% ↓

2) Telephone deception 2880 1138 60.5% ↓

3) Online love deception 62 114 84% ↑

4) blackmail 1366 994 27.2% ↓

Nb: (i) 70% of blackmail casesare nude talk (i) no: 697online deception (ii) amount: HK$2.40M

(ii) cryptoviral deception(i) no. : 63 reported cases(ii) no. of case with loss: 6 (amount: HK$73,000.00)

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(1) Email Deception

- most notably the Nigeria scam but it is less popular today- now includes

(i) inheritance scam(ii) lottery scam(iii) Civil wars or coups scam

(2) Telephone Deception

Modus operandi includes:-

(i) Impersonating couriers / relatives

(ii) Pretending to be PRC law enforcement agents

(iii) Officials of the Liasion Office of CPG in HK

(iv) Other public officials電話騙案統計 (2016年1-11月)

類別

類別類別

類別舉報個案

舉報個案舉報個案

舉報個案有損失個案

有損失個案有損失個案

有損失個案損失金額

損失金額損失金額

損失金額

假冒官員 577 376 1億8,097萬元

虛構綁架 259 89 643萬元

猜猜我是誰 171 125 985萬元

其他 8 8 11萬元

總數 1015 598 1億9,736萬元

資料來源：警方商業罪案調查科

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(3) Cyber Love

- most victims are female (23-66), highly educated with attractive salary & easily fall pray to sweet words & deceived.

- Fraudsters pretend to be European or USA professionals

Nb: 73 港人受害最高損失HK$9M (total amount: HK$60M)

(4) Investment scams

(i) Financial Intermediaries Deception

: Victims did not read the details of the loan agreements carefully and they had to pay exorbitant handling fees and interests

: FI did not belong to money lender i.e. not subject to the control of the relevant ordinances. They highlight “no success, no fees”.

: Financial Services & the Treasury Bureau introduced new measure on 01.12.2016.

(ii) Loco London gold fraud

(iii) Virtual commodities trading

(iv) Pyramid and Ponzi schemes

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Sector No. of STR received in 2018

Percentage (%)

Banks 68,146 92.23

Insurance 1,236 1.67

Securities 1,337 1.81

Money Service Operator

1,219 1.65

Money Lender 39 0.06

Stored Value Facilities Licensees

529 0.72

Real Estate 47 0.06

Dealers in Precious Products

70 0.09

Legal 416 0.56

Accounting 22 0.03

Trust & Corporate Services

81 0.11

Others 747 1.01

Total 73,889 100

Breakdown of STR filed by different sectors in 2018.

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(5) Property Deception

M.O:-

(i) Pretend to be the owner of the property which is free of mortgage & being vacant for long-time by producing

(i) False ID card & open new bank account

(ii) False title deeds

(iii) Deed poll impersonating the true owner

(iv) Filing the CR forms in the Companies Registry and claiming the new director

(ii) Kinds

(I) 假扮業主出售物業

(II) 假扮業主申請按揭貸款

No. HK$

2013 to 5/2016 52 (75) 2.3億

2015 13 (17) 48M

1-5/2016 8(13) 87M

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(III) Case study

(1) 福佬村道唐樓

(2014)

F1 impersonated the true owner by using false ID, & claimed the loss of t/d, & authorised F2 to sign assignment by using PA to sell it at HK$6M

(2) 凱旋門及嘉亨灣 (2)

(2016)

fraudster used false t/d to cheat the finance company “永豐信貸”for HK$40M as the properties with tenancy

(3) 大圍名城

(2016)

Centaline Property agent was cheated by F who claim to be the owner and the purchaser's loss of HK$2.9M

(4) 海典灣 (2016) The property owner ran away with the initial deposit of HK$0.5M as the property is subject to several charges

(5) 青衣盈翠半島 (2016) The owner ran away with HK$0.6M and it is also subject to several charges

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Checklist:-

1. check Smart ID Card / passport / 回鄉證/ tax return2. 查水電單3. on-site inspection4. avoid “loss of title deeds” cases5. Deposits to be stakeheld in solicitors firm

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(II) Relevant laws

1. conspiracy to defraud : a common law offence2. using a false instrument : s.74 of the Crime Ordinance (Cap.200)3. obtaining property by deception: s.17(1) of the Theft Ordinance (Cap.210)4. deception: s.18D(1) of Cap.2105. money laundering

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(III) Money Laundering

(1) Definition:

Money obtained from certain crimes such as extortion, insider trading, drug trafficking, and illegal gambling is “dirty”. It needs to be cleaned to appear to have been derived from legal activities so that banks and other financial institutions will deal with it without suspicion. Money can be laundered by many methods, which vary in complexity and sophistication.

(2) 3 steps of ML

(1) Placement: introducing cash into the financial system by some means.(2) Layering: carrying out complex financial transactions to camouflage

the illegal source of the cash.(3) Integration: acquiring wealth generated from the transactions of the

illicit funds.

(3) Legal definition:

Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, Cap.615 (“AMLO”)“money laundering” means an act intended to have the effect of making

any property-

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(3) Legal definition:

(a) that is the proceeds obtained from the commission of an indictable offence under the laws of Hong Kong, or of any conduct which if it had occurred in Hong Kong would constitute an indictable offence under the laws of Hong Kong; or

(b) that in whole or in part, directly or indirectly, represents such proceeds.not to appear to be or so represent such proceeds

(4) There are two AML risk issues that legal practitioners in Hong Kong face1. Legal risk issues

‧Compliance with legal obligations and avoid committing criminal offences

‧The AML laws that currently applies to law firms are the Organized and Serious Crimes Ordinance (Cap.455) and Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405)

‧DTROP provisions are similar to OSCO provisions except the DTROP deals specifically with illegal drug proceeds‧The AMLO (as the title suggests) applies to financial institutions and

does not apply to law firms/legal practitioners in Hong Kong

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(4) There are two AML risk issues that legal practitioners in Hong Kong face2. Regulatory risk issues

‧Compliance with regulatory requirements issued by the Law Society of Hong Kong

‧Regulatory obligations applies to any law firm, solicitor or foreign lawyer practicing in Hong Kong

The penalties for failure to comply with legal and regulatory risks may be severe

‧For legal firms‧Negative reputation risk / regulatory admonishment

‧For individual legal practitioners‧Fines / imprisonment = career threatening event

(5) 1. Section 25 and 25A OSCO sets put the general “money laundering” obligations and offences in Hong Kong

2. Legal reporting obligation under section 25A of the OSCO‧To disclose to the authorities any knowledge or suspicion that any property represents the proceeds of an indictable offence; or will be used in connection with an indictable offence

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Section 25A(1) OSCO: Disclosure of knowledge or suspicion that property represents proceeds, etc. of an indictable offence

Where a person knows or suspects that any property-(a) in whole or in part directly or indirectly represents any person’s

proceeds of;(b) was used in connection with; or(c) is intended to be used in connection with an indictable offence,he shall as soon as it is reasonable for him to so do disclose that knowledge or suspicion, together with any matter on which that knowledge or suspicion is based, to an authorized officer.

‧that the source of funds of property be illicit for reporting obligation to arise

‧Note that the legal reporting obligation is to make reports on property

that is KNOWN or SUSPECTED‧To represent the proceeds of crime; or ‧Will be used in connection with a crime

‧Separate reporting obligations arise for separately identifiable property – not for a person/entity

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3. Section 25(1) OSCO: Dealing with property known or believed to represent

proceeds of an indictable offence

Subject to section 25A, a person commits an offence if, knowing or having

reasonable grounds to believe that any property in whole or in part directly or

indirectly or indirectly represents any person’s proceeds of an indictable offence,

he deals with that property

Fine of up to HK$5,000,000 and 14 years imprisonment

The legal defence against this offence is for the person to fulfill the disclosure obligation set out under s.25A, i.e. file a suspicious transaction report (“STR”); or

[s.25(2)] That the person intended to make a STR in accordance with s.25A and there is reasonable excuse for failing to make a STR in accordance with section

25A(2)

4. Section 25A(7) OSCO: Failing to make a report under section 25A(1)

Fine of up to HK$50,000 and 3 years imprisonment

[s.25A(4)] Staff in employment may fulfill their legal reporting obligation under section 25A by following suspicious reporting procedures established by the person’s employer

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5. Section 25A(5) OSCO: “Tipping off” offence

A person commits an offence if, knowing or suspecting that a disclosure has

been made subsection (1) or (4), he discloses to any other person any matter

which is likely to prejudice any investigation which might be conducted following

that first-mentioned disclosure

In summary:

‧If a person knows or suspects that a STR has been made (either internally inan organization, by external organization or externally to the authorities); and

‧the person “discloses” to anyone anything that prejudices an investigation resulting from the STR,

the person will be guilty of an offence under this section

Fine up to HK$500,000 and 3 years imprisonment

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(6) OSCO – key definitions

Section 2 Interpretation

“property” includes both movable and immovable property within the meaning of

section 3 of the Interpretation and General Clauses Ordinance (Cap 1);

“dealing” in relation to property referred to in section 15(1) or 25, includes-

a) receiving or acquiring the property;

b) concealing or disguising the property (whether by concealing or disguising

its nature, course, location, disposition, movement or ownership or any

rights with respect to it or otherwise);

c) disposing of or converting the property;

d) bringing into or removing from Hong Kong the property;

e) using the property to borrow money, or as security (whether by way of

charge, mortgage or pledge or otherwise)

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1 Effect of OSCO definitions “property” and “dealing”:‧ “Money laundering” offences are not limited to transactions involving

cash, “property” as defined in the OSCO is essentially anything of financial value

‧ The offence is not limited to money laundering activities (making illicitly derived property appear to be derived from legal activities)

‧ The offence is “dealing” with property that a court decides a person knew or ought to have known represents the proceeds of a criminal offence

‧ “Dealing” does not need to involve a transaction‧ For lawyers, simply receiving the property or assisting a client

use the property may expose the lawyer to money laundering offences under the OSCO

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2 Section 25(1) OSCO: Dealing with property known or believed to

represent proceeds of an indictable offence

Subject to section 25A, a person commits an offence if, knowing or having

reasonable grounds to believe that any property in whole or in part directly

or indirectly represents any person’s proceeds of an indictable offence, he

deals with that property

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(7) Legal defence against s.25(1) OSCO “money laundering” offence

1. s.25(2) of OSCOIn proceedings against a person for an offence under subsection (1), it is

defence to prove that-

(a) he intended to disclose to an authorized officer such

knowledge, suspicion or matter as is mentioned in section 25A91)

in relation to the act in contravention of subsection (1) concerned;

and

(b) there is a reasonable excuse for his failure to make disclosure

in accordance with section 25A(2)

2. s.25A(1) of OSCOWhere a person knows or suspects that any property –

(a) in whole or in part directly or indirectly represents any proceeds

of;

(b) was used in connection with; or

(c) is intended to be used in connection with,

an indictable offence, he shall as soon as it is reasonable for him do so

disclose that knowledge or suspicion, together with any matter on which

that knowledge or suspicion is based, to an authorized officer.

3. s.25A(2)(a) Making a report before dealing with the Property

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(8) The regulatory risks

1. Lawyers in Hong Kong are required to comply with the Practice Direction P (“PDP”) issued by the HKLS‧Failure to comply with the mandatory requirements may result in

disciplinary action‧The mandatory requirements may also include “Transaction based

client due diligence” measures even when the client profile is a low risk client such as a regulated financial institution or listed company

‧The information obtained to comply with the regulatory requirements is information a lawyer possesses to determine the presence of suspicion for the purpose of applying the OSCO

2. Objectives of the PDP‧Require compliance by legal practitioners of prescribed requirements to

prevent money laundering and terrorist financing through the detection and reporting of suspicious transactions.

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3. Main requirements of PDP‧Client due diligence recommendations – identify and verify the identity if

their clients when asked to act in any matter‧Transaction based client due diligence requirements – for certain types

of activities [para.20 PDP], conduct additional measures:‧Obtain information on the nature & purpose of the transaction‧Obtain information on the business relationship between the

client and other interested parties to the transaction‧Obtain information on the source of funding‧Where appropriate, check new client’s name against published

list of terrorist suspects‧High risk instruction requirements – for instruction that present higher

risks, carry out additional measures to:‧Ensure that there is no suspicion of money laundering by

obtaining and verifying further transaction details‧Take reasonable steps to establish source of funds/wealth‧Require management approval before accepting instruction‧Conduct enhanced ongoing monitoring of business relationship

‧Timing for completion of client due diligence‧Record keeping, staff awareness and training

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4. Client due diligence recommendations‧identify and verify the identity of the client by using reliable and

independent source documents‧Original documents should be used. If original are not available,

measures should be taken to ensure reliability, e.g. certified by a regulated professional

‧Individuals‧Required: Name, ID number, verified address,

occupation/business‧Companies

‧Identify identity of persons giving instruction and verify their authority

‧Obtain proof on legal status‧Identify and understand beneficial ownership and control‧Verify identities of persons having ownership and control

‧Power of Attorney‧Verify identity of principal/agent‧Document relationship between principal/agent ‧Inspect original authority

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4. ‧Trusts‧Identify all parties involved in a trust and verify their identities‧Understand nature of trust‧Obtain copy of trust agreement

‧Charities‧Obtain copy of constitutive documents‧Verify status from reliable source‧Verify identities of individuals who have effective control‧Assess purpose of charities and risk that it is connected to

suspicious entities

5. “Specified Activity”

‧Refers to the following specific activities identified in legal instructions [para.20 PDP]:

‧Financial transactions‧Managing client money, securities or other assets‧Management of bank or securities accounts‧The formation, structure, re-organization, operation or

management of companies and other entities

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5. “Specified Activity”

‧Insolvency cases and tax advice‧Transactions involving custody of funds as stakeholder or

escrow agent or transfer of funds through their (the law firm’s) bank accounts

‧For specified activities, the following information and measure are required:

‧Obtain information on the nature and intended purpose of transaction

‧Obtain information on the business relationship between the client and other interested parties to the transaction

‧Obtain information on the source of funding; and‧Where appropriate, check new client’s name against list of

terrorist suspects

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(9) Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ord

The amendments took effect from 01.03.2018(i) Requirements of CDD and RK extended to DNFBPs including the lawyers(ii) DNFBPs apply to (1) lawyers

(2) accountants(3) Estate agents(4) TCSP

(iii) TCSP (Trustee or Company Service Providers) are reqid to apply for a licence for the Registrar of CR and satisfy a fit and proper test

(iv) Such effects are that L.S.(1) will remain the sole authority to regulate S’ matters of AML regulations(2) would have the sole discretion to decide on the contents of PDP i.e.

the existing regulatory regime under PDP will remain intact.

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(10) Revision of terminology

(1) AML/CTF(2) DD(3) KYC(4) STR(5) PEP(6) JIFU(7) PDP(8) OSCO(9) DTROP(10) CDD(11) RK

au-yeung, cheng, ho & tin1 1 au-yeung, cheng, ho & tin rme course: property deception &...

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