Money laundering is “huge” in Hong Kong and Macau; Mixed judicial response to money laundering

By Christine Duhaime | March 5th, 2014

Money laundering is more prevalent than elsewhere

According to a recent survey of business people who operate and do business in Hong Kong and Macau, money laundering is a huge problem and in fact, is more prevalent there than anywhere else in the world.

The results of the survey which were reported in South China Morning Post, show that more than 37% of companies in Hong Kong and Macau experienced money laundering in some form and half of those were listed (public) companies. Hong Kong remains the top concern for global money laundering according to the survey.

Macau’s instance of money laundering derives from it being the gambling mecca of the world. Its casinos earn almost 80% of their revenues from junket operations which bring wealthy gamblers from Mainland China to gamble, often with proceeds of crime.

The survey found that in China, proceeds of crime are reportedly mostly derived from procurement fraud. Companies reported procurement fraud in 91% of vendor selections, 55% in bid process and 55% in vendor contracts.

Mixed judicial response to money laundering in Hong Kong

The Courts of Hong Kong have had a mixed approach to money laundering. The recent conviction of Carson Yeung, the Hong Kong businessman who admitted accepting funds wired from a junket operator from a Macau casino who is alleged to be the head of a Hong Kong Triad gang, may signal that the state is clamping down on money laundering.

Last year, the Court of Appeal for Hong Kong increased the prison term to two years for a woman charged with money laundering for acting as a money mule for funds wired from Canada that needed to be imported into China (HKSAR v. Ngai Fund Sin Apple).

Canada appears to be a key destination for laundered funds from Hong Kong and China. In this case, Bank of China v. Kwong Wa Po and Others HCA5291/2001, the defendants washed $485 million to Canada and the US through banks in Vancouver and Hong Kong and at various casinos in Macau and the US and were convicted in Hong Kong, China and the US.

Previously, however, a number of decisions on money laundering in Hong Kong appeared to signal a relaxed approach. For example, in HKSAR and Yan Suiling, the Court of Appeal quashed a conviction of a woman who admitted using the Chinese and Hong Kong illegal underground currency exchanges to receive proceeds of crime from fraudulent transactions. The Court noted, as part of its Reasons, that there was a well-known underground banking economy in Hong Kong for illegal currency exchanges and overturned the conviction despite the admission of the accused that her activities were illegal and the fact that she dealt with proceeds of crime to launder them.

An earlier decision, HKSAR v. Tam Hung, was also interesting. The accused operated several land based casinos and online gambling sites illegally in Myanmar. He imported over $27 million to Hong Kong and China from Myanmar. In order to open up bank accounts in China to accept wired funds, employees were frequently used due to banking restrictions. The accused was convicted of dealing with proceeds of crime and sentenced to four years imprisonment. He appealed and his conviction for money laundering was overturned because of the lack of expert testimony on the legality of gambling in Myanmar. The prosecution admitted evidence by the Government of Myanmar and the Myanmar criminal law, that gambling was prohibited in that country, which was rejected as not expert enough.

The Court of Appeal went on to reason that because illegal land-based casinos operated openly in buildings in Myanmar and were not shut down, a reasonable person in the place of the accused could make the inference that gambling was legal in Myanmar and his activities were permitted. Because his activities were not, in his mind unlawful, the proceeds were not derived from crime and no money laundering offence took place. The Court made no mention of the online gambling proceeds and how that figured into the reasonable person analysis on open gambling. The decision seemed to suggest that unless criminal activities (in this case illegal gambling online and on land) are stopped by government officials, a reasonable person could infer that such activities are legal despite express wording to the contrary in written legislation, and avoid prosecution.

In 2008, a Macau Court came down hard in one of the toughest money laundering cases ever wherein a whole family was incarcerated for the money laundering actions of the head of the household, who was a government official convicted of public procurement fraud and money laundering in connection with an infrastructure project.

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