EXPLORACIÓN DIRECTA POR MEDIO DE CALICATAS

What does this example involving Bank of East Asia tell us about how the requirement

The IMF criticised Hong Kong for its failure to regulate corporate services providers. Credit: Michael McDonough/ Creative Commons

cases they settle for the trustees to be accepted as the owners. I’ve been talking to compliance

officers about this for a long time and they’ve

never given me a satisfactory answer.’ This means that banks in some jurisdictions are ticking the box to say that they have found out the ‘owner’, even though that owner is just another company in an offshore haven standing in the way of the real owner. This is an empty

gesture, sufficient maybe to tick a regulatory

requirement but powerless to prevent

politically exposed persons using the financial

system to move the proceeds of corruption. Possibility 3: The bank did know that the

ultimate beneficial owner was not ‘Orient Investments and Pacific Investments’, the

owners of the shares in Long Beach, but then

relied on assurances from Orient Investments,

the signatory on the account, that it had

verified the identify of the beneficial owner of

Long Beach. While it was permitted to do this by Hong Kong money laundering regulations,

as long as Orient Investments is itself properly

regulated, the bank retains the ultimate responsibility for knowing its customer. However, if this last option was the case, then Bank of East Asia would have been relying for its customer due diligence on a company services provider that seems to have

ignored even more red flags than the bank itself. The ICS companies, including Orient

to do customer due diligence is interpreted in practice? There are four possibilities, all of which are legitimate interpretations of the available evidence. Without further information, Global Witness does not know which, or indeed if any, of these happened. Possibility 1: Bank of East Asia did carry out its own due diligence on Long Beach,

discovered that its beneficial owner was

Mr Sassou Nguesso, opened the account anyway, and allowed him to use it to pay his private bills with what appears, unless proven otherwise, to be corruptly misappropriated Congolese public money. Possibility 2: Bank of East Asia accepted

that the owners of Long Beach were Orient Investments and Pacific Investments.

Both Hong Kong’s regulation and the FATF recommendations on which they are based require banks to establish the

identity of the ultimate beneficial owner.

If Bank of East Asia took this course, it would not necessarily be breaking any of the rules. According to international anti money

laundering and offshore finance experts

consulted by Global Witness, the interpretation of this requirement varies from jurisdiction to jurisdiction. As one expert told Global

Witness: ‘Strictly speaking, they should find the ultimate beneficial owner. But in many

Denis Christel Sassou Nguesso’s credit card statement, showing his designer shopping in Spain during August 2006. His credit card bills were paid from an account at Bank of East Asia that received Congo’s oil revenues.

The Hong Kong Monetary Authority allows the banks it regulates to rely on third parties such as company service providers to verify the identity of their customers.

Credit: Kay Poon/ Creative Commons

that any enquiries had been made; the ICAC said ‘we have looked into the circumstances including examination of relevant court papers… We have arrived at a decision of taking no further action as the matter does not reveal any allegation of corruption which comes under Hong Kong jurisdiction.’175 In June 2003, five months before the Long

Beach account was opened at Bank of East Asia, the IMF had criticised Hong Kong’s anti-money laundering standards on precisely the issue that may be at stake in this case:

can a bank rely on intermediaries such as company service providers to verify beneficial ownership of a company opening an account? The IMF’s regular Report on Observance of Standards and Codes176 _{for Hong Kong’s anti-}

money laundering system found that while

‘with respect to the customer identification

framework… the rules are adequate and are generally well implemented,’177 _{there were}

particular problems:

‘…identification of beneficial owners of shell •

companies, especially within the banking sector. Some domestic banks may use intermediaries who may not undertake

adequate customer identification.’178 ‘Some compliance officers, especially •

in the domestic banks, are not as expert as they could be in recognising suspicious transactions.’179

‘In general there is little investigation

•

of, or enforcement action taken, with

Investments and Pacific Investments, could see

the entire payment chain – much more than the bank could. They set up Long Beach, held its shares in trust for Mr Sassou Nguesso, arranged for its bank account to be opened, knew that Long Beach’s source of income was Congolese oil, saw the credit card bills with their evidence of personal expenditure, and arranged for them to be paid from the Long Beach account. They could see the entire chain of payments. Yet they went ahead to do business with Mr Sassou Nguesso anyway.

Possibility 4: The bank identified its customer

as the son of the President of Congo and the source of funds in his account as Congolese oil,

filed a suspicious activity report to the Hong

Kong authorities, who either did not respond, or gave the go-ahead for the relationship or transaction. Global Witness does not know if this was the case, because the SARS regime is kept secret by law.

This story did not come out through regulatory action, but through an unlikely combination of a vulture fund and a campaigning NGO. But have the regulators taken any action as

a consequence?