Our Ref.: B10/1C

3 August 2001

The Chief Executive
All authorized institutions

Dear Sir/Madam,

Anti-money Laundering Initiatives
- Non-cooperative countries and territories
- Accounts opened through intermediaries_

We wrote to you on 28 February 2001 about the work of the Financial Action Task Force (FATF) (Note 1) in respect of non-cooperative countries and territories (NCCTs).

In June 2001 the FATF Plenary meeting reviewed the progress made by the 15 jurisdictions it had identified in June 2000 as NCCTs in the fight against money laundering, and decided to remove four of these jurisdictions in recognition of their efforts to address deficiencies through the enactment of legal reforms. These jurisdictions are the Bahamas, the Cayman Islands, Liechtenstein, and Panama. Consequently, the application of Recommendation 21 of the Forty Recommendations (Note 2) has been withdrawn.

Following a review of another 13 jurisdictions, FATF identified serious deficiencies in the anti-money laundering regimes of six jurisdictions and added them to the NCCT list. These countries are Egypt, Guatemala, Hungary, Indonesia, Myanmar and Nigeria.

The revised list of the 17 NCCTs is as follows:

The FATF calls on its members to remind their financial institutions to give special attention to businesses and transactions with persons, including companies and financial institutions, in these NCCTs. This is in line with Recommendation 21 of the Forty Recommendations which states that:-

"Financial institutions should give special attention to business relations and transactions with persons, including companies and financial institutions, from countries which do not or insufficiently apply these Recommendations. Whenever these transactions have no apparent economic or visible lawful purpose, their background and purpose should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies."

Authorised institutions ("AIs") are advised to comply with the above Recommendation by giving special attention to business relations and transactions with persons, including companies and financial institutions, from the above NCCTs. This is in addition to the requirements set out in the HKMA Guideline on Prevention of Money Laundering.

In view of the inadequate progress made by Nauru, the Philippines and Russia to address the serious deficiencies in their anti-money laundering regimes, the FATF has also decided to recommend the application of additional countermeasures from 30 September 2001 in respect of these jurisdictions unless their governments enact significant legislation which addresses identified money laundering concerns. Details of the proposed countermeasures are set out in the attached copies of the Executive Summary of the June 2001 NCCTs Report and the related Press Release recently issued by the FATF (Annex 1). The industry will be consulted in due course on the detailed countermeasures to be applied.

Another area of concern relates to the opening of accounts through intermediaries. This has been communicated to you through your industry association in our letter of 15 January 2001. A copy of this letter is attached for your easy reference (Annex 2 - A. To the Hong Kong Association of Banks, B. To the DTC Association). As indicated in the letter, AIs should, before relying on intermediaries to verify the true identity of new customers on their behalf, conduct proper due diligence on the intermediaries themselves to ensure that they have adequate "know your customer" standards and effective procedures for verifying the bona fides of customers. In addition, AIs should be careful in reviewing the documentation provided by intermediaries and, in case of doubt, should consider seriously whether a business relationship should be established with such customers.

It must be emphasized that it remains the ultimate responsibility of AIs to know their customers and their business, notwithstanding the reliance on intermediaries in this regard. AIs should, if they have not already done so, review and revise accordingly their policies, practices and procedures for account opening through intermediaries. In particular, AIs should ensure that they obtain satisfactory confirmation from the intermediaries with respect to the proper verification of the identity of the underlying principals and their source of funds. I would be grateful for your written confirmation by 3 September 2001 either that the necessary review has been concluded or that the issue is not relevant to your institution because it does not conduct account opening through intermediaries. The HKMA will monitor compliance with the appropriate use of intermediaries through its regular examination of anti-money laundering controls.

If you have any questions, please contact Ms. Maggie Leong at 2878 1912.

Yours faithfully,

Raymond Li
Executive Director (Banking Development)

Encl.

Note 1: FATF is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering. FATF currently consists of 29 jurisdictions and two international organizations: Argentina; Australia; Austria; Belgium; Brazil; Canada; Denmark; Finland; France; Germany: Greece; Hong Kong, China; Iceland; Ireland; Italy; Japan; Luxembourg; Mexico; the Kingdom of the Netherlands; New Zealand; Norway; Portugal; Singapore; Spain; Sweden; Switzerland; Turkey; the United Kingdom, the United States; the European Commission; and Gulf Cooperation Council.

Note 2: The Forty Recommendations were promulgated by the FATF as standards and international best practices in countering money laundering. All members of the FATF, including Hong Kong, China, are encouraged to adopt these measures to help combat money laundering.