How Russian money launderers boosted the clean-up drive in Hong Kong

David Ogilvie says Hong Kong’s secrecy rules and US-dollar peg make it an attractive destination for money launderers, and only all-round cooperation can help stop the flow

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Even as banks in Hong Kong pump more resources into tackling money laundering, greater cooperation and information-sharing between local authorities and financial institutions are vital. Photo: Nora Tam

Published: 2:18pm, 18 Jul 2017Updated: 7:11pm, 18 Jul 2017

A shocking report in March by the Organised Crime and Corruption Reporting Project revealed that up to US$80 billion may have been funnelled out of Russia from 2010 to 2014, via amenable banks in Latvia and Moldova. Involved were all corners of the Russian elite, from oligarchs to shadowy figures linked to the FSB, Russia’s main security agency.

A silence has since fallen over this scandal which has enveloped some of Hong Kong’s largest financial institutions. But this should not minimise what these allegations mean for the city’s efforts in fighting the laundering of financial crime proceeds.

Banks in Hong Kong have invested increasingly vast sums in anti-money laundering resources. HSBC spent US$800 million on compliance resources in the first quarter of 2017, a 12 per cent increase over the previous year, despite a nearly 20 per cent fall in first-quarter profits. With banks facing further regulatory pressures, this trend is unlikely to be reversed any time soon. Perhaps the most surprising revelation unveiled by the investigation is the role that Hong Kong has played.

Hong Kong’s currency issuing banks processed money laundered by Russian criminals

Over the four-year period, US$717 million is believed to have been routed through the Bank of China’s Greater China branches, US$545 million through HSBC’s global network (with the majority transferred via Hong Kong), US$51 million through Hang Seng Bank in Hong Kong and mainland China, and US$29 million passed through Standard Chartered in Hong Kong.

Hong Kong’s corporate secrecy rules ensure that a fund’s origin can ... remain opaque