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SFC Fines Guotai Junan Securities in Hong Kong for AML breaches

Jun 20, 2020 | Compliance Updates, iComply Insights

HK brokerage company fined US$25.2 million for failing to comply with anti-money laundering and terrorist financing regulations

What Happened?

June 22, 2020: According to the results of the Securities and Futures Commission’s investigation, Guotai Junan Securities failed to mitigate the risks of money laundering and terrorist financing between March 2014 and March 2015 when processing 15,584 third-party deposits and withdrawals of approximately US$37.5 billion. The Hong Kong-based broker failed to detect 590 potentially washed trades due to a lack of internal trade monitoring procedures and failures in their transaction monitoring system.

Source: https://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=20PR58

Who Is Impacted?

Brokers, securities dealers, VCs, capital markets firms, investment clubs, and investment cooperatives whose AML program is not capable of monitoring their clients prior to executing any type of trade for the entire client lifecycle.

Why This Matters?

Capital markets firms are used to dealing with large transactions and are thus attractive targets for laundering money. In addition, these firms’ sales representatives and agents are incentivized to push for higher value and volumes of transactions, and they may be deliberately “looking the other way” and not helping to protect their firms and the rest of the firm’s clients as a result.

What’s Next?

Aside from having to pay a $25-million fine and immediately make major investments into improving their AML policies, procedures, controls and technology, Guotai Junan Securities is suffering from the reputational damage that will impact their credibility and legitimate investors for months (possibly years) to come.

The company will now need to demonstrate that it is able to successfully identify, prevent, and report suspicious activities such as money laundering or terrorist financing.

For all capital markets firms serving investors in the Hong Kong market, the SFC offers a stern warning:

“The disciplinary action against Guotai Junan for serious systemic deficiencies and failures across its internal controls should serve as a stark reminder to licensed corporations the importance of having adequate and effective safeguards in place to mitigate the real risk of becoming a conduit to facilitate illicit activities, such as money laundering, when exposed to potentially suspicious transactions.”

– Thomas Atkinson, Executive Director of Enforcement at SFC

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