UN Sanctions and ATF Regimes in the HKSAR

UN Sanctions and ATF Regimes in the HKSAR HKMA Anti-Money Laundering Seminar 12 May 2009 SK Lee, Deputy Principal Government Counsel Department of Justice, HKSAR sklee@doj. gov. hk

n n n n n 29 December 2008 The Chief Executive All authorized institutions Dear Sir/Madam, United Nations Sanctions (Côte d’Ivoire) (No. 2) Regulation 2008 and List of Names for Suspicious Account Reporting I am writing to inform you of the following developments: (i) United Nations Sanctions (Côte d’Ivoire) (No. 2) Regulation 2008 The United Nations Sanctions (Côte d’Ivoire) (No. 2) Regulation 2008 was made by the Chief Executive under the United Nations Sanctions Ordinance (Cap. 537) and was gazetted on 12 December 2008. It gives effect to certain decisions adopted by the United Nations Security Council (Council) in Resolution 1842 (2008). On 19 December 2008, the Chief Executive specified a list of persons as relevant persons under section 31 of this Regulation. The Regulation and the list of relevant persons have been published in the Gazette (L. N. 276 of 2008 and G. N. 8567) and are available on the Government's website (http: //www. gld. gov. hk/egazette). Your attention is drawn to section 5 of the Regulation, which prohibits making funds available to relevant persons without the authority of a licence granted under section 11 of the Regulation. AIs should establish effective controls (e. g. pretransaction screening) to ensure compliance with the Regulation. You are reminded to check your records and report any transactions or relationships your institution has or has had with the named persons on the list of relevant persons to the Joint Financial Intelligence Unit and the HKMA.

n n The Chief Executive All authorized institutions n Dear Sir/Madam, n United Nations (Anti-Terrorism Measures) Ordinance n I am writing to inform you that an updated list of terrorists and terrorist associates designated by the United Nations Security Council Committee (Committee) has been specified under the United Nations (Anti-Terrorism Measures) Ordinance (Cap. 575). The list was published in the Gazette (G. N. 2153) today and is available on the Government’s website (http: //www. gld. gov. hk/egazette). The changes, compared with the last gazettal on 13 March 2009, are summarised in Annex 1 and the relevant press releases issued by the Committee are attached at Annex 2. A copy of the list in PDF format is enclosed. n You are reminded to check your records and report any transactions or relationships your institution has or has had with the named persons or entities on the list of designated terrorists and terrorist associates to the Joint Financial Intelligence Unit and the HKMA. n ……

Introduction n Scope n UN sanctions – sanctions against places n Anti-terrorist financing n Sources of international law n United Nations Security Council Resolutions n Anti-terrorism treaties n FATF Special Recommendations n Domestic legislative regime n United Nations Sanctions Ordinance, Cap. 537 n United Nations (Anti-terrorism Measures) Ordinance, Cap. 575

United Nations Sanctions n United Nations Security Council Resolutions n International obligations binding on all UN members n Effective for a defined period or indefinitely n Tend to be imposed against a specific place n United Nations Sanctions Ordinance, Cap. 537 and its regulations n Respond to CPG’s instructions (BL 13, BL 48(8), s 3(1)) n Effective upon gazettal

n Some 40 regulations (excluding amendment reg. s) have been made under Cap. 537 n Currently 11 places: Afghanistan, Cote d’Ivoire, DR Congo, Iran, Iraq, DPR Korea, Lebanon, Liberia, Sierra Leone, Somalia, Sudan

Typical sanctions regime under Cap. 537 n n n Trade embargo - import [and export] Technical advice, assistance and training Entry/transit of persons Financial sanctions (HKMA’s circulars) Important to look at actual wording of each Regulation

Trade Embargo n Prohibits supply or delivery of prohibited goods - arms and related materiel; also nuclear material, luxury goods n To place, persons in that place, or to third destination for delivery to that place n Sometimes also prohibits importation/ procurement of certain goods e. g. petroleum, timber, rough diamond n Need to consider the wording of the Regulation

n n n Eg. Section 2 Liberia Regulation 2009 Cap. 537 AM, “(2) Except under the authority of a licence granted under section 9(1)(a), a person must not supply or deliver, agree to supply or deliver, or do any act likely to promote the supply or delivery of, any prohibited goods— (a) to Liberia; (b) to, or to the order of, a person connected with Liberia; or (c) to a destination for the purpose of delivery, directly or indirectly, to Liberia or to, or to the order of, a person connected with Liberia. ” “Do any act likely to promote” - n n Broad meaning Can include financial assistance e. g. loan, guarantee

Prohibition on Carriage n Vessels, aircraft and vehicles in the HKSAR n Flag vessels and aircraft n Vessels and aircraft chartered to a person in the HKSAR, an HKSAR corporate body, an HKSAR permanent resident cum PRC national n Charterer, operator and captain of vessel / aircraft may be liable

Technical advice, assistance and training n Mostly relating to arms, related materiel and military activities. Also nuclear material/technology (DPRK, Iran) n E. g. Section 5(2) Liberia Regulation 2009, “Except under the authority of a licence granted under section 10(1), a person must not provide to a person connected with Liberia any technical training or assistance related to the supply, delivery, manufacture, maintenance or use of any prohibited goods”

n Some explicitly refers to financial assistance etc. , e. g. Section 6 Iran Regulation, Cap. 537 AF, n “(1) Except under the authority of a licence granted under section 10(1)(a), a person shall not provide any technical assistance or training, financial assistance, investment, brokering or other services related to the supply, sale, transfer, manufacture or use of any regulated prohibited item or conventional arms … to…” n (2) Except under the authority of a licence granted under section 10(1)(b), a person shall not transfer any financial resources or services related to the supply, sale, transfer, manufacture or use of any regulated prohibited item or conventional arms … to …”

Entry/Transit of Persons n Persons designated by sanctions committee n Published on UN website n Limited exceptions e. g. nationals, religious or humanitarian grounds

Financial sanctions n Prohibits the making available of funds, other financial assets and economic resources n E. g. Section 6(2) Liberia Regulation 2009, “(2) Except under the authority of a licence granted under section 11(1), a person must not make available, directly or indirectly, any funds or other financial assets or economic resources to, or for the benefit of, a relevant person or a relevant entity. ”

n “Making available” – e. g. release of money in bank account to accountholder, or making payment to a third party on instruction of the accountholder n “Funds, other financial assets and economic resources” n Relevant person / relevant entity: UN designated persons/entities who have been gazetted in Hong Kong. (But see Iran) n Credit of interest to account

Licence to do acts otherwise prohibited n Apply to [Chief Executive] for a licence. (Enquiries with Commercial and Economic Development Bureau) n The grounds for granting a licence reflect UNSCR requirements n Licence for making funds available: e. g. necessary for basic expenses, payment of reasonable professional fees, extraordinary expenses, satisfying prior judgment or lien. Require UN notification or approval (negative or positive)

Investigative powers n Obtain search warrant for evidence of suspected offence (some Regulations provide for executive power to require disclosure of information / production of documents e. g. Cap. 537 E) n Additional powers relating to vessels, aircraft, vehicles n Sharing of information with UN organs for sanctions enforcement

United Nations (Anti-terrorism Measures) Ordinance, Cap. 575 n UNSCR 1373 (2001), International Convention for the Suppression of the Financing of Terrorism, FATF SR II and III [also other terrorism-related international conventions] n Prohibits certain activities (e. g. supply of weapons to terrorists, recruitment, terrorist bombings etc. ) n Contains comprehensive financial measures – broader than “typical” UN sanctions regulations n Key definitions: “terrorist acts”, “terrorist associate”, “terrorist property”

Financial Measures under the UNATMO n Prohibits the provision or collection of funds to commit terrorist acts (s 7) n *Prohibits making funds or financial (or related) services available, directly or indirectly, to or for the benefit of a person knowing or being reckless as to whether he is a terrorist or terrorist associate (s 8). n *Administrative freezing power (s 6) n Secretary for Security can give notice to prohibit dealing with suspected terrorist property, with ability to seize (s 6(1), (10)) n Effective for 2 years * Not yet in operation

n *Forfeiture of terrorist property (s 13) n Secretary for Justice can apply to the Court n Proceeds of a terrorist act n Used or intended to be used to finance or otherwise assist in commission of terrorist act (can cover third person’s property) n Specification of persons / property as terrorist, terrorist associate and terrorist property by CE (s 4, s 5) n S 4 – UN designated persons n *S 5 – other persons (need Court endorsement) n NB: Specification creates presumption, but is NOT a prerequisite for the offence provisions to apply * Not yet in operation

Remedies n *Licence to deal with property subject to “freezing” notice (s 6(1)) n *Licence to make funds etc. available under s 8 n *Application to Court under s 17 to: n n revoke specification under s 5 grant or vary a licence under s 6(1) or s 8 revoke or vary a direction under s 6(10) to seize property *Compensation (s 18, s 18 A) n Court has power to order compensation. Common law remedies not affected

Investigative powers n Comprehensive powers: Order to answer questions, furnish information, produce material (s 12 A) n Order to make material available (s 12 B) n Search and seizure (s 12 C, 12 G-12 J) n n Will come into operation upon enactment of Court Rules

STRs n S. 12 of UNATMO n n Disclose knowledge or suspicion of terrorist property (s 12(1), (4)) No tipping off (s 12(5)) Important to remember that operation of s 12 does NOT hinge on Gazettal UN Sanctions Ordinance / Regulations n n No express STR provision However, indictable offences – AML and STR provisions in OSCO, Cap. 455 (s 25, s 25 A)