The Securities and Futures Commission (SFC) has reprimanded Guangdong Securities Limited (GSL), now known as Sinolink Securities (Hong Kong) Company Limited, and fined it $3 million for failures in complying with anti-money laundering guidelines when handling third party payments.
The SFC found that between February 2011 and March 2013, GSL’s internal controls for handling payments from client accounts to third parties were deficient and inadequate. GSL failed to demonstrate that it had conducted appropriate enquiries before processing third party payments. Moreover, the enquiries it claimed to have made at the time, and the rationale for approving the payments, were not properly documented in writing.
Specifically, the SFC’s investigations revealed that:
- only about 570 application forms out of approximately 700 payments from client accounts to third parties were found;
- among these 570 payments accompanied with application forms, the relationship between the client and the third party and/or the purpose of one-third of these payments was not, or could not be verified; only about 67 were supported with proper documentation;
- the application forms offered little information of the relationship between the client accounts and the third parties as well as the purpose of the payments but staff as well as management proceeded to approve such payments; and
- the third party payments involved millions and in one case up to over $39 million.
The SFC is of the view that GSL’s conduct was in breach of the Prevention of Money Laundering and Terrorist Financing Guidance Note, the Guideline on Anti-Money Laundering and Counter-Terrorist Financing, and the Code of Conduct, which require licensed corporations to:
- pay special attention to all complex, unusual large transactions, and all unusual patterns of transactions which have no apparent economic or visible lawful purpose. The findings and outcomes of these examinations should be properly documented in writing; and
- take all reasonable measures to ensure that proper safeguards exist to mitigate the risks of money laundering and terrorist financing, including implementation of appropriate policies and procedures and ensuring their effectiveness and compliance with all relevant legal and regulatory requirements.
In deciding the disciplinary sanction, the SFC took into account:
- GSL’s misconduct lasted for over two years;
- GSL has been under the ownership of Sinolink Securities Co., Ltd. since March 2015 and the failures were attributable to the former senior management which has changed since the misconduct occurred;
- neither GSL nor Sinolink has a disciplinary record with the SFC in relation to anti-money laundering failures; and
- the cooperation of Sinolink in accepting the disciplinary action and not disputing the regulatory concerns.