The Securities and Futures Commission (SFC) of Hong Kong has reprimanded and fined Guotai Junan Securities (Hong Kong) Limited (GJS) $25.2 million. The bank failed to install appropriate internal controls for anti-money laundering, handling of third-party fund transfers and placing activities, and detection of wash trades.
The SFC found that in 2014-15, GJS failed to ensure the use of appropriate controls to mitigate the risks of money-laundering and terrorist financing when processing third-party transactions worth $37.5 billion. It also failed to carefully monitor the activities of its clients, scrutinize all transactions, and identify and report suspicious transactions. For several transactions, GJS did not maintain records of the third-parties or depositors, the reasons for third-party fund transfers, and client-third-party relationship.
As a placing agent, GJS did not take adequate measures to confirm that the clients’ subscription applications matched what the bank already knew about their background and source of funds. It also did not enquire into suspicious clients. Moreover, GJS failed to detect many potential wash trades due to inadequate trade monitoring protocols and technical failures of its transaction pattern monitoring system.
Thus, GJS failed to comply with Hong Kong’s AML/CFT Ordinance, the Guideline on AML/CFT, the Internal Control Guidelines and the Code of Conduct. The bank has since attempted to address the deficiencies in its trade monitoring system and procedures and updated its AML/CFT policies. It has also agreed to submit to the SFC a report prepared by an independent reviewer within 12 months confirming that it has addressed all the deficiencies identified by the SFC.