apg mutual evaluation of macao, china

Anti-money laundering and counter-terrorist financing measures in Macao, China – Mutual Evaluation Report – December 2017 1

Anti-money laundering and counter-terrorist financing (AML/CFT) measures in Macao, China Fourth Round Mutual Evaluation

Key findings, ratings and priority actions December 2017 http://www.fatf-gafi.org/publications/mutualevaluations/documents/mer-Macao-2017.html

http://www.fatf-gafi.org/publications/mutualevaluations/documents/mer-isleofman-2016.html







Anti-money laundering and counter-terrorist financing measures in Macao, China – Mutual Evaluation Report – December 2017

Ratings – Effectiveness (1/3)

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Immediate outcome of an effective system to combat money laundering (ML) and terrorist financing (TF)

Extent to which Macao has achieved this objective

1. ML and TF risks are understood and, where appropriate, actions co-ordinated domestically to combat ML and TF

Moderate

2. International co-operation delivers appropriate information, financial intelligence, and evidence, and facilitates action against criminals and their assets

Substantial

3. Supervisors appropriately supervise, monitor and regulate financial institutions and designated non-financial businesses and professions (DNFBPs) for compliance with AML/CFT requirements commensurate with their risks.

Substantial

4. Financial institutions and DNFBPs adequately apply AML/CFT preventive measures commensurate with their risks, and report suspicious transactions.

Moderate




5. Legal persons and arrangements are prevented from misuse for money laundering or terrorist financing, and information on their beneficial ownership is available to competent authorities without impediments

Substantial

6. Financial intelligence and all other relevant information are appropriately used by competent authorities for money laundering and terrorist financing investigations.

Substantial

7. Money laundering offences and activities are investigated and offenders are prosecuted and subject to effective, proportionate and dissuasive sanctions

Low

8. Proceeds and instrumentalities of crime are confiscated. Low





9. Terrorist financing offences and activities are investigated and persons who finance terrorism are prosecuted and subject to effective, proportionate and dissuasive sanctions.

Moderate

10. Terrorists, terrorist organisations and terrorist financiers are prevented from raising, moving and using funds, and from abusing the non-profit sector.

Substantial

11. Persons and entities involved in the proliferation of weapons of mass destruction are prevented from raising, moving and using funds, consistent with the relevant United Nations Security Council Resolutions.

Substantial



Ratings – Effectiveness

0 6

3

2

HighSubstantialModerateLow

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Ratings – technical compliance (1/5)

AML/CFT POLICIES AND COORDINATION1. Assessing risks & applying a risk-based approach Larg Lar Lar Lar Largely Compliant2. National cooperation and coordination Larg Lar Lar Lar Largely Compliant

MONEY LAUNDERING AND CONFISCATION3. Money laundering offence Larg Lar Lar Lar Largely Compliant4. Confiscation and provisional measures ComCo Co Co CompliantTERRORIST FINANCING AND FINANCING OF PROLIFERATION5. Terrorist financing offence Larg Lar Lar Lar Largely Compliant6. Targeted financial sanctions related to terrorism & terrorist financing ComCo Co Co Compliant7. Targeted financial sanctions related to proliferation ComCo Co Co Compliant8. Non-profit organisations Larg Lar Lar Lar Largely Compliant

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PREVENTIVE MEASURES9. Financial institution secrecy laws ComCo Co Co Compliant

Customer due diligence and record keeping10. Customer due diligence ComCo Co Co Compliant11. Record keeping ComCo Co Co Compliant

Additional measures for specific customers and activities12. Politically exposed persons ComCo Co Co Compliant13. Correspondent banking ComCo Co Co Compliant14. Money or value transfer services ComCo Co Co Compliant15. New technologies ComCo Co Co Compliant16. Wire transfers Larg Lar Lar Lar Largely Compliant

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PREVENTIVE MEASURES (continued)Reliance, Controls and Financial Groups

17. Reliance on third parties ComCo Co Co Compliant18. Internal controls and foreign branches and subsidiaries ComCo Co Co Compliant19. Higher-risk countries ComCo Co Co Compliant

Reporting of suspicious transactions20. Reporting of suspicious transactions ComCo Co Co Compliant21. Tipping-off and confidentiality ComCo Co Co Compliant

Designated non-financial Businesses and Professions (DNFBPs)22. DNFBPs: Customer due diligence Par Pa Par Par Partially Compliant23. DNFBPs: Other measures Par Pa Par Par Partially Compliant

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TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS24. Transparency and beneficial ownership of legal persons Larg Lar Lar Lar Largely Compliant25. Transparency and beneficial ownership of legal arrangements Larg Lar Lar Lar Largely CompliantPOWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER INSTITUTIONAL MEASURES

Regulation and Supervision26. Regulation and supervision of financial institutions ComCo Co Co Compliant27. Powers of supervisors ComCo Co Co Compliant28. Regulation and supervision of DNFBPs Larg Lar Lar Lar Largely Compliant

Operational and Law Enforcement29. Financial intelligence units ComCo Co Co Compliant30. Responsibilities of law enforcement and investigative authorities Larg Lar Lar Lar Largely Compliant31. Powers of law enforcement and investigative authorities ComCo Co Co Compliant32. Cash couriers Non No Non No Non Compliant

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POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER INSTITUTIONAL MEASURES (continued)

General Requirements 33. Statistics Larg Lar Lar Lar Largely Compliant34. Guidance and feedback ComCo Co Co Compliant

Sanctions35. Sanctions ComCo Co Co CompliantINTERNATIONAL COOPERATION36. International instruments Larg Lar Lar Lar Largely Compliant37. Mutual legal assistance ComCo Co Co Compliant38. Mutual legal assistance: freezing and confiscation Larg Lar Lar Lar Largely Compliant39. Extradition Larg Lar Lar Lar Largely Compliant40. Other forms of international cooperation Larg Lar Lar Lar Largely Compliant


Ratings – technical compliance

2215

2 1

Compliant

Largely compliant

Partially compliant

Non compliant


Key findings Macao, China has coordination mechanisms established at a multi-agency level for

AML/CFT and among agencies on specific issues or operational areas. The AML/CFT Working Group (AML/CFT WG) comprises all relevant agencies and has proven mainly effective in coordinating policy, annual plans and recently the National Risk Assessment (NRA), as well as promotion and awareness activities. The 2015 NRA provides a foundation for Macao, China’s understanding of its money laundering/terrorist financing (ML/TF) risks and to address key vulnerabilities as the jurisdiction’s AML/CFT strategic plan demonstrates.

Overall, the authorities see the transfer of proceeds from overseas crime as exposing Macao, China to greater ML risks than domestic crime, which is reasonable. However, the authorities have a mixed understanding of major risks related to foreign proceeds, regional organised crime, cross-border movements, and corruption.

The authorities access and use a large range of intelligence-rich information. The Financial Intelligence Office (GIF) use of multi-source intelligence and sound analysis results in a high number of disseminated Suspicious Transaction Reports (STRs) opened for investigation. Law Enforcement Agencies’ (LEA) use of STR and other relevant information is largely consistent with Macao, China’s regional context, exposure to foreign risk and the intelligence value of non-STR information.

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Key findings The lack of a cross-border disclosure or declaration system is a major

intelligence gap for a jurisdiction exposed to high-risk from vast numbers of visitors and cash-intensive businesses, particularly casinos and related high-value dealers, although mandatory threshold reporting by the gaming sector helps mitigate this gap.

There have only been five ML convictions. A shortage of prosecutorial resources in the Public Prosecutions Office (MP), heavy evidentiary requirements for third party ML, and the lack of an adequate policy directive have hampered the quantity and quality of ML investigations and prosecutions, resulting in a low conviction rate, with a correspondingly low average sentence length ranging from three to five years for just the ML offence. Overall, ML investigations do not match the risk profile.

Except for one major corruption case involving up to US$100 million, confiscations are limited to cash/currency and casino chips, with only one case of shares confiscated and another case of one half of a commercial property. 13


Key findings There are minor deficiencies in Macao, China’s TF offence. Financing of

terrorism not directly linked with a specific terrorist act is not specifically criminalised; instead it is indirectly criminalised through reliance on rules of interpretation. The financing of foreign terrorist fighters is also not directly criminalised but criminalisation is achieved through the broad concepts of “preparatory acts” and “provision of material support”.

Implementation of TF-related sanctions is sound. In practice, no assets have been frozen in connection with targeted financial sanctions (TFS), which does not seem unreasonable within the context of Macao, China’s risks.

Macao, China has a good understanding of the terrorist financing risk in its Non-Profit Organisation (NPO) sector and has conducted two risk assessments of the NPO sector. Macao, China has assessed its risk as low. To monitor the risks of NPOs in association with countries with a high risk of terrorism, GIF conducts quarterly reviews of data on funds flows in and out of Macao, China. To date, other than three STRs that were flagged for initial review, there is no record in the MP of any NPO being suspected of TF or any enforcement actions taken.

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Key findings Macao, China’s framework to implement the relevant UN counter-

proliferation financing sanctions (PFS) is similar to its framework for TF. In practice, no assets have been frozen in connection with PFS, which does not seem unreasonable within the context of Macao, China’s risks.

Macao, China has controls in place to restrict the import and export of dual-use materials which are overseen by the Macao Customs Service (SA). Data on trade provided by the SA indicates that trade with high risk countries such as Iran and North Korea is minimal and limited to food stuff and petroleum for domestic use.

There is sound implementation of preventative measures in the financial sector and also by the six concessionaires/sub-concessionaires (casinos). With the exception of notaries and accountants, implementation in other FATF-designated Designated Non-Financial Businesses and Professions (DNFBPs) is at an earlier stage.

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Key findings All financial institutions (FIs), DNFBPs and other sectors are subject to

AML/CFT supervision with resources devoted to higher risk and material sectors. Sound risk-based supervision is undertaken in the two most significant sectors – the Gaming Inspection and Coordination Bureau (DICJ) supervised gaming sector and Monetary Authority of Macao (AMCM) supervised financial sector. Compliance has improved because of supervisory actions undertaken. While there is AML/CFT supervision of other DNFBPs and other sectors (pawnshops, and high value good dealers e.g. vehicles), supervision is not fully risk-based, regular or comprehensive.

Macao, China has increased the transparency of local legal persons by ensuring that basic and beneficial ownership information is publicly available through the Commercial and Movable Property Registry (CR) database. Notaries are required to verify documents prior to registration with the CR and they are subject to supervision. Macao, China has precluded bearer shares since July 2015. However, beneficial ownership information of legal persons is not always available readily or on a timely basis where there are foreign legal persons involved in the ownership/control structure.

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Key findings While trusts and similar legal arrangements cannot be created

under the present legal regime and no trust management company has ever been registered either with AMCM or with the CR since the enactment of Decree-Law no. 58/99/M, foreign trusts do operate on a very limited scale in Macao, China. There is a requirement for trustees in limited circumstances to disclose their status to FIs. There are requirements for FIs and DNFBPs to identify whether a customer is a trustee acting on behalf of a trust.

Macao, China gives priority to international cooperation and provides a range of international cooperation, including Mutual Legal Assistance (MLA), extradition, intelligence/information, and beneficial ownership information. The overall quality of assistance is generally sound and timely, as confirmed by feedback received from other jurisdictions. Overall, Macao, China authorities are proactive in seeking international cooperation for a range of purposes, including ML, criminal investigations and recovery of assets.

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Priority Actions for Macao to strengthen its AML/CFT System

The prioritised recommended actions for Macao, China, based on these findings, are: i. Establish a specific, consolidated operational AML/CFT strategy for all LEAs,

especially within PJ, which covers parallel investigations, use of financial intelligence in ML, TF and predicate offence, and seizure of illegal proceeds. This should include adopting written internal policies, procedures and mechanisms for more effective cooperation, coordination, investigation and seizure. The strategy should clearly emphasise the importance of investigating identified high risks.

ii. Pass and implement the proposed amendments to the AML and CFT laws to (i) address the deficiencies in the TF offence (refer R.5); (ii) facilitate ML investigations and prosecution, and (iii) establish a legal framework on asset recovery to ensure the effective tracing, seizure and confiscation of criminal proceeds and the subsequent management and recovery of value from the assets confiscated, as proposed in Macao, China’s AML/CFT Strategic Plan 2016-20.

iii. Enact and implement the proposed cross-border cash declaration system and regulations

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iv. Take steps to improve the capability of its LEAs to proactively identify and investigate ML (and confiscate proceeds of crime) and TF, particularly complex and foreign predicate ML; organised crime, gaming related usury, fraud and drugs; and the misuse of legal persons. LEA need to balance their current focus on ATM/debit card risk with attention also paid to fraud, gaming and other high risks.

v. Focus GIF strategic intelligence more on high-risk foreign proceeds and regional crime trends. GIF should approach neighbouring FIUs to produce joint strategic reports on common risks of interest, with input from LEA.

vi. DNFBP supervisory authorities such as DSAJ, IPIM, DSE, and DICJ should continue to ensure that covered institutions have an increased level of understanding of their ML/TF risks and AML/CFT obligations; particularly among the higher risk entities or those not as aware of the AML/CFT requirements e.g. real estate agents and high value goods dealers. Competent authorities should continue working with DNFBPs to increase compliance with STR reporting, particularly for third party junket introduced business, agents and notaries involved in real estate transactions.

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vii. The CR and DSAJ should continue and enhance their monitoring of compliance by companies and notaries to the Company Registration Law and DSAJ AML/CFT Guideline and impose sanctions for non-compliance.

viii. The Asset Freezing Coordination Commission should continue to coordinate and implement obligations under PF United Nations Security Council Resolutions (UNSCRs) under the recently introduced Freezing Law.

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apg mutual evaluation of macao, china

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