In June the Hong Kong Authorities revealed a invoice which, if handed, may probably affect hundreds of luxurious items producers, importers, exporters, distributors and retailers in Hong Kong.

Whether or not dealing in treasured metals, treasured stones or something containing these, together with garments, all merchants (and sure, there may be even a provision protecting hawkers,) want to pay attention to the brand new necessities beneath the Invoice and the way it may apply to them.

Deliberate to come back into drive on January 1, 2023, the Anti-Cash Laundering and Counter-Terrorist Financing (Modification) Invoice 2022[i] (the “AML Invoice”) is geared toward enhancing Hong Kong’s regulatory regime for combating cash laundering and terrorist financing (“AML/CTF”.)

It additionally addresses various AML/CTF points recognized within the Hong Kong Cash Laundering and Terrorist Financing Danger Evaluation Report[ii] revealed by the Authorities pursuant to periodic evaluation necessities of the Monetary Motion Process Pressure (“FATF”).

Whereas lots of consideration has been drawn to the AML Invoice’s regulation of digital asset service suppliers, specifically the introduction of a licensing regime for crypto-asset exchanges, the part introducing a registration regime for all sellers in treasured metals and stones (“DPMS”) in Hong Kong appears to have slipped beneath the radar.

Key Takeaways

• The AML Invoice at the moment going via the legislative course of will implement a registration system for all sellers in treasured metals and stones buying and selling in Hong Kong (“DPMS”).

• The definition of DPMS is drawn extensively and covers all producers, distributors, importers, exporters, wholesalers and retailers of jewelry, luxurious watches or equipment, together with hawkers.

• All DPMS in Hong Kong must apply for both a Class A registration or a Class B registration by 1 October 2023.

• Class A registrants are NOT allowed to conduct money transactions (whether or not a single transaction or a sequence of associated transactions) at or above HK$120,000.

• A Class B registration will likely be required if a seller intends to hold out money transactions above HK$120,000. Any director or final proprietor (i.e. any pure particular person proudly owning greater than 25% shares or voting rights) of the registrant might want to undergo a “match and correct particular person” take a look at to acquire such registration.

• Class B registrants can even be mandated to hold out anti-money laundering/counter-terrorism financing checks for any money transaction/transactions above HK$120,000.

The AML Invoice

The AML Invoice, which can amend the Anti-Cash Laundering and Counter-Terrorist Financing Ordinance (Cap. 615, “AMLO”), is on the time of writing, nonetheless on the Payments Committee stage.

Two extra Payments Committee conferences are scheduled in October and November 2022. As such, it’s questionable whether or not the legislation can come into impact as deliberate on 1 January 2023.

The definition of “dealing in treasured metals and stones” is drawn extensively beneath the AML Invoice.

It covers not solely treasured metallic exchanges but in addition anybody who trades in treasured metals, together with metals generally utilized in luxurious items like gold, silver, or platinum, treasured stones together with diamonds, widespread gem stones, pearls, each pure and synthetic.

It additionally covers treasured items like jewelry, watches, attire, equipment, or ornaments made up of treasured metals and treasured stones and with at the very least 50% of the transaction value attributable to the dear metals and stones.

In impact, it covers all jewelry and luxurious watch producers, importers, exporters, distributors, and retailers. There’s even a provision within the Invoice expressly protecting hawkers.

The three key parts of the AML Invoice in relation to DPMS are: –

• the implementation of a two-tier registration regime for DPMS.
• the implementation of the “match and correct particular person” take a look at for Class B registrants; and
• obligatory AML/CTF necessities for sure money transactions.

Two-tier Registration Regime

The AML Invoice introduces a two-tier registration association for DPMS: Class A, which is extra lenient and easy; and Class B, which is topic to tighter scrutiny. The registration regime will likely be operated by the Hong Kong Customs and Excise Division.

Underneath the Invoice, any DPMS is required to acquire both a Class A or a Class B registration by 1 October 2023[i].

It is going to change into an offence for anybody to conduct commerce in treasured metals or stones in Hong Kong with out registration and offenders may very well be liable to a fantastic of HK$100,000 and six-months imprisonment.

A Class B registration will likely be required for any DPMS who intends to conduct any money transaction (whether or not a single transaction or a sequence of linked transactions) for treasured stones/metals of HK$120,000 or extra. It will likely be an offence for anybody else, together with Class A registrants, to conduct such transactions.

“Money” isn’t particularly outlined beneath the AML Invoice or the AMLO, however by the letter of the legislation, this restriction ought to solely apply to transactions utilizing paper forex and never, say, cheques, EPS, bank cards or wire transfers[ii].

In a briefing part hosted by the Customs and Excise Division dated 27 October 2022[iii], Customs officers said it’s the division’s place that “money transactions” refer solely to transactions involving fiat forex.

A Class B registration isn’t required for transactions by different means, even when it exceeds HK$120,000.

Class A

The necessities for acquiring a Class A registration are fairly easy, requiring solely a sound enterprise registration, a small three-figure annual charge to be paid and a declaration from the applicant it is going to perform its commerce for a lawful objective. As of the time of writing, there aren’t any particular situations or procedures that Class A registrants should abide by aside from having and publicly displaying such a registration.

Class B

The necessities for acquiring a Class B registration are rather more onerous. The Customs and Excise Division will conduct a “match and correct particular person take a look at” to find out if the applicant is eligible to be a Class B registrant. The division will take into account: –

• whether or not the Applicant has been convicted of any cash laundering/terrorism financing offences, severe legal offences or any offence involving fraud, corruption, or dishonesty anyplace on the earth;
• whether or not the Applicant is the topic of any chapter/winding up/liquidation proceedings;
• whether or not the Applicant has did not adjust to any necessities beneath the AMLO or any rules the Customs and Excise Division has imposed beneath the Invoice.

If the applicant is an organization, the Customs and Excise Division can even take into account whether or not all the corporate’s administrators and supreme useful house owners (outlined as any pure particular person holding 25% or extra shares or voting rights over the corporate) are “match and correct individuals”.

Any new administrators or final useful house owners can even be topic to the identical “match and correct individuals” take a look at and the registration could also be cancelled if the division considers them now not “match and correct individuals”.

As well as, the applicant can even want to produce the addresses of every premises that the applicant intends for use because the enterprise premises, along with consent for customs officers to enter such premises for inspection.

The AML Invoice additionally empowers the Commissioner of Customs and Excise to enact subsidiary rules and to cancel registrations granted if any registrant is in contravention of these rules.

It additionally empowers the Commissioner to impose any new situations on each Class A and B registrants, though to this point, no subsidiary rules have been proposed and the Customs and Excise Division has not revealed any tips on the meant utility course of, so it’s not clear what, if any, new situations could be imposed.

The AML Invoice is supposed to come back into operation on 1 January 2023. Current DPMS can have a nine-month transition interval, till 1 October 2023, to acquire registration. All present DPMS will likely be deemed to be Class B registrants (please see under) and may proceed buying and selling throughout the transition interval.

Necessary AML/CTF Necessities

A cornerstone of the brand new AML regime is that for any money transactions at or above HK$120,000 with any entity which isn’t itself a Class B registrant (i.e., different Class B DPMS)[iv], Class B registrants shall be topic to anti-money laundering/counter-terrorism financing necessities (“AML/CTF Necessities”) imposed on Designated Non-Monetary Companies and Professions (“DNFBP”) beneath Schedule 2 of the AMLO.

This contains: –

1. having a transparent AML/CTF coverage in place;
2. conducting buyer due diligence checks to establish and confirm the identities of shoppers;

• constantly monitoring prospects;

1. conducting particular checks beneath sure circumstances (e.g. for high-risk prospects or politically uncovered individuals); and
2. sustaining information of shoppers and transactions for at the very least 5 years.

These measures are usually not solely new.

The AML Invoice basically codifies the AML/CTF Necessities beneficial by the Narcotics Division of the Hong Kong Police in Anti-Cash Laundering and Counter-Terrorist Financing Guideline for Sellers in Valuable Metals and Stones (2018)[v].

Once more, it stays to be seen whether or not the AML/CTF Necessities apply to “non-cash” transactions over HK$120,000.

Conclusion

If the AML Invoice passes into legislation in its present type, which appears possible, all DPMS, together with jewelry and luxurious watch retailers, will likely be required to acquire both a Class A or Class B registration.

As of the time of writing, the Customs and Excise Division seems to take the place that money transactions solely imply transactions involving fiat forex and no different.

It must be famous, nevertheless, that this text is predicated solely on the present AMLO and the AML Invoice as at the moment drafted.

The AML Invoice could also be topic to modifications earlier than passing, and the Commissioner of Customs and Excise could enact additional rules for each Class A and B registrants sooner or later.

It will be a good suggestion to keep watch over the passage of this laws (in addition to any subsequent developments) after which determine methods to tackle the scenario.