The Guidelines
When applying for an MSO license, the applicant must, among others, submit a Business Plan and a AML/CFT Policy to the Money Service Supervision Bureau (MSSB). The Business Plan is a comprehensive overview of the applicant’s business, which allows the MSSB to understand the applicant's business operations from an anti-money laundering and counter-terrorist financing perspective. The AML/CFT Policy sets out, among others, the applicant's own policies, procedures, and controls which aim to mitigate the money laundering and terrorist financing risks to which the applicant is exposed. The Business Plan, together with the AML/CFT Policy, forms the basis of a MSO license application and demonstrates to the HKCE the licensee's compliance with anti-money laundering obligations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO).
The Guidelines for Submission of Business Plan provide the minimum items that should be included in the Business Plan, including, among others, the company's history, key executives of senior management, targeted customers, its business operation and delivery channels, details of bank accounts, and details of computerized systems. Under each heading, the applicant must provide information and elaborate in detail how their business will be run. In addition, applicants are required to confirm in writing that it will notify the HKCE within one month if there are changes to the particulars provided. As stated in the Guidelines, the failure to provide such information may delay or hinder the process of the MSO application.
In terms of setting the AML/CFT Policy, the MSSB acknowledges that each licensee has its unique ways of conducting business and therefore applicants should adopt a risk-based approach when drafting its AML/CFT Policy and set procedures and controls based on the applicant's risk assessment and risk profile. The Guidelines for Submission of AML/CFT Policy provide guidance to assist applicants to draw up their policies such that applicants can meet their statutory and regulatory obligations under the AMLO. As a risk-based approach is adopted, the Guidelines do not prescribe the exact measures a licensee should implement to address AML/CFT issues, rather, the Guidelines provide a detailed summary of what it should include. Within the Guidelines, there's a big focus on the customer due diligence (CDD) exercise, which requires applicants to state what its transaction thresholds are and to elaborate its procedures for carrying out CDD and customer risk assessments. It is noted that the items listed in the Guideline are non-exhaustive, applicants will have to consider whether there are any additional issues which are peculiar to their business model, which should also be covered in its AML/CTF Policy.
The Guidelines are key documents used by the HKCE when making a decision as to whether the applicant is a "fit and proper" MSO licensee. Therefore, applicants are reminded to consider both their legal obligations under the AMLO as well as their regulatory obligations under these Guidelines prior to making an application.
HKSAR v. Fu Guangmiao [2020] HKCFI 1783
The recent case of HKSAR v. Fu Guangmiao [2020] HKCFI 1783 provides additional guidance on how the AMLO is enforced. In Fu Guangmiao, the appellant was an officer of the Hong Kong University of Science and Technology (HKUST). On an online forum between teachers and students, he expressed to members that he would provide them with a service that would let them deposit Hong Kong dollars into his Bank of China account in Hong Kong, and he would, following their instructions, transfer money in Renminbi from his Mainland Chinese bank account into the designated recipient's Mainland Chinese bank accounts. The appellant admitted to transmitting fees pursuant to the above arrangement some 20 to 30 times, amounting to HK$300,000 to HK$500,000. At the relevant time, the appellant did not hold a valid MSO license.
Under Section 29 of the AMLO, any person operating a money service is required to obtain a MSO license. Money services means:
- A money changing service, i.e., a service for the exchanging of currencies that is operated in Hong Kong as a business; or
- A remittance service, i.e., operating in Hong Kong as a business a service of (i) sending, or arranging for the sending of, money to a place outside Hong Kong, (ii) receiving, or arranging for the receipt of, money from a place outside Hong Kong, or (iii) arranging for the receipt of money in a place outside Hong Kong.
A person who operates a money service without a license commits an offence and is liable on conviction to a fine of up to HK$100,000 and imprisonment of up to six months.
The appellant was convicted after trial at the Magistrate’s court contrary to section 29 of the AMLO and sentenced to a community service order of 100 hours. The appellant appealed against his conviction and sentence.
The judgment
The appellant argued that his actions did not amount to "remittance" as there was no cross-border money transaction. However, the court disagreed and held that even though money did not cross borders, as a result of the appellant's acts, an extra sum in Hong Kong dollars was made available for the appellant's use in Hong Kong while an equivalent amount of Renminbi was made unavailable for his use in Mainland China, therefore, this amounted to "remittance" as envisaged under the AMLO.
Further, the appellant argued that: (i) the remittance was made for the appellant's personal needs and not for any business purposes, (ii) the appellant was only looking for teachers and students within HKUST as targets for remittance thus the transactions were "private" in nature, and (iii) the money service he provided only operated "one-way" and recipients could not, vice versa, deposit Renminbi in exchange for Hong Kong dollars, therefore his actions did not amount to carrying on a money service "as a business" under the AMLO.
However, in rejecting his arguments, the court held that the appellant was not acquainted with all the people who used his service. In addition, the service provided was open to all the people using that particular online forum leading to the conclusion that the transactions were not purely private in nature. Further, in addition to pecuniary gains, the arrangement allowed the appellant to evade Mainland China's foreign exchange controls and saved him the trouble from travelling back and forth to Mainland China. Differentiating between the current case and the case of HKSAR v. Yip Wai Cheong HCMA 359/2015 (where the appellant was held not to have engaged in providing money services for running a "top-up" business depositing funds into customers' Alipay accounts), the court held that the service provided by the appellant was for "remittance purposes" as the nature of the appellant's business is to remit funds and thus not only an ancillary part of the service provided by the appellant. Therefore, the court dismissed the appeal against conviction and held that the acts of the appellant amounted to operating a remittance service "as a business."
An "international obligation"
The court reiterated that the offence in question was very serious as "Hong Kong is under an international obligation to combat money laundering and terrorist activities." Therefore, given the international obligation, the sentence for this type of offence should generally be one of deterrence. However, considering that the defendant had carried out the remittance for the sole purpose of transferring a sum of money he obtained from the sale of his property in Mainland China, and the fact that his money changing service would last only until the entire sale proceeds have been exhausted, the appellant's actions in this particular case were not money-laundering-related and therefore did not warrant a deterrent sentence. As a result, the original community service order was set aside and replaced by a fine of HK$20,000.
What this means for payment businesses in Hong Kong?
The updates on the Guidelines, coupled with the recent judgment, show the HKCE's and the Hong Kong courts' attitude in cracking down on illegal money service operations. The Guidelines set out clear and unequivocal items that applicants need to critically consider before making an application for a MSO license. Further, the recent judgment highlights the seriousness of the offence of operating a money service without a license. Money service operators, whether big or small, should be aware of the obligations under the AMLO. Further, prospective MSO applicants should note that operating a money service without first obtaining a license is a serious criminal offence which warrants a deterrent sentence.
The above shows that enforcement actions are being picked up by the HKCE in recent years. Enforcement actions are not always publicly released, but the HKCE maintains an enforcement news page on their website to highlight notable enforcement actions. In recent years, we have seen the HKCE taken more innovative investigation methods in combatting unlicensed money service operators, including targeting their enforcement actions against online operators and platforms.
Authored by Mark Parsons, Tommy Liu, and Nicola Choi.
