Frequently Asked Questions

Money Laundering

The term "money laundering" is defined in section 1 of Part 1 of Schedule 1 to the AMLO and means an act intended to have the effect of making any property:
(1) 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
(2) that in whole or in part, directly or indirectly, represents such proceeds, not to appear to be or so represent such proceeds.
Q1: What is Money Laundering (ML)?
A1: Put simply, "money laundering" covers all kinds of methods used to change the identity of illegally obtained money (i.e. crime proceeds) so that it appears to have originated from a legitimate source. A money laundering scheme will therefore usually involve a combination of several different techniques and vehicles.
Q2: What are the three stages in the money laundering cycle?
(1) Placement:  Involves placing the crime proceeds in the financial system. Often, this is accomplished by placing the funds into circulation through financial institutions, casinos, shops and other businesses, both domestic and international. This phase can involve transactions such as:
  • Breaking up large amounts of cash into smaller sums and depositing them directly into a bank account.
  • Transporting cash across borders to deposit in foreign financial institutions, or to buy high-value goods (such as artwork, antiques, and precious metals and stones) that can then be resold for payment by check or bank transfer.
(2) Layering: Involves converting the proceeds of crime into another form and creating complex layers of financial transactions to disguise the audit trail and the source and ownership of the funds. This phase can involve transactions such as:
  • Sending wire transfers of funds from one account to another, sometimes to or from other institutions or jurisdictions.
  • Converting deposited cash into monetary instruments (e.g. traveler’s checks).
  • Reselling high-value goods and prepaid access/stored value products.
  • Investing in real estate and legitimate businesses.
  • Placing money in investments such as stocks, bonds or life insurance.
  • Using shell companies or other structures whose primary intended business purpose is to obscure the ownership of assets.
(3) Integration: Involves placing the laundered proceeds back in the economy under a veil of legitimacy. This stage entails using laundered proceeds in seemingly normal transactions to create the perception of legitimacy. The launderer, for instance, might choose to invest the funds in real estate, financial ventures or luxury assets. By the integration stage, it is exceedingly difficult to distinguish between legal and illegal wealth. This stage provides a launderer the opportunity to increase his wealth with the proceeds of crime.
These three stages are not distinct. They are very often overlapping with each other and repeated, making tracing of crime proceeds and their sources difficult. In Hong Kong, crime proceeds are generated from various illegal activities. They can be derived from drug trafficking, smuggling, illegal gambling, bookmaking, blackmail, extortion, loan sharking, tax evasion, controlling prostitution, corruption, robbery, theft, fraud, copyright infringement, insider dealing and market manipulation.
When crime proceeds are laundered, criminals would then be able to use the money without being linked easily to the criminal activities from which the money was originated.
Q3: What is Terrorist Financing (TF)?
A3: Terrorist financing can be defined in simple terms as the financial support, in any form, of terrorism or of those who encourage, plan, or engage in terrorism. Money laundering and terrorist financing manipulations are similar, mostly having to do with concealment and disguise. Money launderers will send crime proceeds through legal channels in order to conceal its criminal origin, whilst terrorist financiers will transfer funds that may be legal or illicit in origin in such a way as to conceal their source and ultimate use, which is the support of terrorism.
Please note: (1) Please proceed to our Forum of more discussions in relation to Money Laundering; (2) The above information is for reference only.