The Securities and Futures Commission of Hong Kong has publicly reprimanded and fined Yardley Securities Ltd for not upholding proper safeguards against the risks of money laundering and terrorist financing between February and October 2016.
The fine is equivalent to US$901,453. The SFC says that Yardley failed to conduct proper enquiries and sufficiently scrutinise a number of third-party deposits/withdrawals in margin accounts belonging to two clients (known as A and B), which were unusual and/or suspicious and involved significant sums of monies, and/or failed to adequately record enquiries which were allegedlymade on these transactions. It also allegedly failed to have adequate policies, procedures and controls and provide adequate training to its staff to ensure compliance with its regulatory obligations to fight money laundering and terrorist finance.
The SFC found that the third-party fund transfers processed in A’s and B’s margin accounts (totalling more than $984 million) between February and May 2016 were "large, frequent and/or unusual" - a form of words that the SFC, for its own reasons, uses to obscure the true nature of the problem. The SFC goes on in the same vein.
"There were frequent and/or significant sums of monies transferred from/to Client A’s and Client B’s margin accounts to/from third parties who appeared to be unrelated to them and/or whose identities were unknown to or not verified by YSL. Some of these transfers were from/to third parties which were in the casino and gaming industry."
A’s and B’s margin accounts were used as a conduit for transfers where substantial sums of money were deposited to their accounts by a third party and then withdrawn and transferred to another third party on the same dates.
There were “U-turn” transactions where funds from a company involved in the casino and gaming industry were deposited into Client B’s margin account and the same or similar amounts were subsequently returned to the same company.
The SFC thought that the transactions or activities in A’s and B’s margin accounts appeared unnecessarily complex and did not constitute the most logical, convenient or secure way to do business and/or were out of the ordinary range of service normally requested of a licensed corporation. The SFC uncovered this on a visit.
There was no record of a company search or an enquiry into the third party who deposited HK$30,000,000 into Client A’s margin account and who used Client A’s margin account as a conduit to transfer the sum to another third party. There was no record of enquiries about some of the third parties’ identities and/or their relationships with Client B.
A total of HK$296,000,000 was deposited by four third parties involved in the casino and gaming industry to Client B’s margin account, purportedly to be used as proof of Client B’s financial ability to assume the indebtedness of a loan to a company. There were, however, inadequate enquiries as to why: (i) Client B would act as a guarantor to repay a loan for that company in which he was not a shareholder and held no position; and (ii) third parties would transfer funds to Client B’s margin account to be used as proof of his financial soundness as guarantor of the loan.
Nobody asked Client B enough as to why his margin account was used as a conduit for receiving a deposit of HK$30 million from an unknown third party and transferring, on the same day, $28.4 million to another third party involved in the casino and gaming industry.
The SFC found that YSL’s conduct was in breach of section 5(1) Schedule 2 Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) and paragraphs 5.1, 5.10, 5.11 and 5.12 of the AML Guideline which require licensed corporations to continuously monitor their business relationship with their clients.