Regulation: HKMA warns Authorised Institutions that tax evasion must be reported to JFIU

Karen Kemp, the director of Banking Policy says in the letter "The issues of tax evasion and bank secrecy have recently assumed a higher degree of prominence within the international community, with the G20 calling for action to be taken against tax havens and finance ministers singling out for criticism jurisdictions which they consider deliberately facilitate the evasion of tax."

She reminds AI's that "The Hong Kong Government announced in the Financial Secretary's budget speech in February that it will be introducing legislative proposals this year to align its arrangements for the exchange of tax information with current international standards."

A somewhat belated warning of increased tax evasion in times of economic downturn is the basis of a bald demand for improved systems and controls - and training and awareness: "AIs should therefore be vigilant, and should have or put in place appropriate systems of control, to ensure that their staff (i) are fully aware that facilitation of tax evasion, whether by persons resident in Hong Kong or overseas, is not condoned; (ii) maintain the highest standards of integrity in dealing with their customers and clients; and (iii) do not engage in questionable conduct designed to assist unlawful evasion of tax. "

Pointing out that reputation is all-important to banks, and to Hong Kong's banking sector as a whole, Kemp promises uncompromising action against those who fall below high standards: "The HKMA will consider seriously the implications of any involvement in illegal tax evasion in the context of assessing an AI’s ability to carry on its business with integrity, prudence and the appropriate degree of professional competence as required by the Seventh Schedule to the Banking Ordinance."

Hong Kong has traditionally not been anxious to prosecute or bring regulatory proceedings against banks, preferring an approach of co-operation.

The letter is out of keeping with that policy and may mark a turning point for the Regulator which has, in the past year or so, seen almost wholesale change in its senior management.