Commercial Fraud and Asset Tracing

How would the new law on Significant Controllers Register concern you?

The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institution) (Amendment) Ordinance 2018 (the “AML (Amendment) Ordinance”) and the Companies (Amendment) Ordinance 2018 (the “Companies (Amendment) Ordinance”) has come into effect on 1 March 2018.

The SCR regime

The Companies (Amendment) Ordinance imposes a new obligation on HK companies to identify its beneficial ownership and members with significant control and to maintain a Significant Controller Register (“SCR”) which is to be kept together with the company kits and other registers such as the Registers of Members and Directors. If a company fails to comply with any of the requirements under the new SCR regime, the company and each of its responsible persons commit an offence and each will be liable to a fine of HK$25,000 and a further daily fine HK$700 whenever applicable. Please refer to our firm’s article on “The Companies (Amendment) Ordinance 2018” for more details.

There are a few salient points to note in relation to SCR:-

• SCR requirement is not only applicable to limited companies but also to companies limited by shares, companies limited by guarantee or unlimited companies. Only companies listed on the Hong Kong Stock Exchange (but not listed overseas) are exempted.
• SCR is not for public inspection. However, the SCR has to be ready for inspection by law enforcement agencies, including but not limited to the Hong Kong Police Force, the Customs and Excise Department and the Inland Revenue Department (the “IRD”).
• It is not specified in the Companies (Amendment) Ordinance as to whether information contained in the SCR will be surrendered by the law enforcement agencies to tax authorities in other countries. It shall, however, be noted that as part of our tax reform initiatives, Hong Kong has entered into numerous Automatic Exchange of Information agreement (the “AEoI”) with other jurisdiction to exchange information with overseas tax authorities. More AEoIs with others are expected to come. Assuming the UK’s HM Revenue & Customs, which is already an AEoI partner of Hong Kong, requests the IRD to surrender information regarding the ultimate beneficiar(ies) or significant controller(s) of a HK company, IRD may theoretically forward the information gathered from the company’s SCR to the HMRC. To know more about AEoI, please refer to our related article “Is your personal data at stake because of the increased transparency in tax administration through Automatic Exchange of Information (“AEOI”)?”
• The new SCR regime also requests company to have at least one designated representative whose role is to provide assistance to the Companies Registry and the law enforcement agents on SCR related matters. The Companies Registry has made clear that there would be no personal liability associated with acting as a designated representative of an Applicable Company.

AML (Amendment) Ordinance

Apart from imposing the new requirement on Trust or Company Service Providers (the “TCSP”) to obtain a license from the Companies Registry for carrying on their business, the AML (Amendment) Ordinance also extends the obligations to conduct customer due diligence (“CDD”) and to do records-keeping to the legal professional, accounting professional, real estate agents and TCSP licensees.

Since 1 March 2018, enhanced CDD measures shall be implemented by the TCSPs to (1) identify and verify the identity of their customers and their beneficial owners; (2) obtain information on the purpose and the intended nature of the business relationship before establishing business relationship with their customers; and (3) identify and verify the identity of the person purporting to act on behalf of their customers.

Accordingly, companies shall be prepared for more KYC and due diligence from its company secretarial service providers in the future.

What can OLN do for you?

OLN can help by reviewing your companies’ structure and identifying the significant controllers of your companies to ensure compliance with the new SCR regime. Please feel free to contact our Anna Chan at anna.chan@oln-law.com or our Victor Ng at victor.ng@oln-law.com.