Issue 7 Volume 18 July 2022 DRIVING BUSINESS SUCCESS WEB OF DECEIT With cryptocurrency rising in popularity, how are cybercriminals exploiting it to launder money and what steps can businesses take to identify suspicious transactions? MERGERS AND ACQUISITIONS With the surge in M&A activity in Hong Kong, accountants have a key role to play PROFILE Gigi Chan CPA, Founder and Chief Executive 1HƂEGT QH 9QPFGT %CRKVCN )TQWR HOW TO How CPAs can lead the way on sustainability PLUS:
PRESIDENT’S MESSAGE APLUS July 2022 1 The month of July has been met with sweltering temperatures around the globe. Mercury hit record highs in the United Kingdom, while persistent heatwaves have affected parts of Europe. Closer to home, Hong Kong recorded its hottest July ever, including the city’s hottest July day in 138 years. Experts have linked these extreme temperatures with climate change and warn that more records will be smashed as extreme temperatures become a more frequent occurrence. It has become increasingly apparent that the well-being and sustainable development of the entire world is at stake. Indeed, with this in mind, initiatives by corporations to become more sustainable and socially responsible has become all the more essential in getting us back on track. This month, the Institute was more than glad to announce the launch of the Best Corporate Governance and ESG Awards 2022. With the environmental, social and governance (ESG) elements enhanced since last year’s edition, the awards recognize private and public sector companies that have achieved high standards of corporate governance (CG) and ESG and are taking steps to integrate the oversight and implementation of both CG and ESG within their strategy and operations. It is important we identify role models that set good examples for other companies and organizations to follow, and work towards multiplying their efforts through inspiring others to follow suit. I encourage organizations to find out more about the awards and take part. Applications are now open for listed companies and public sector or not-forprofit organizations until 10 August. Don’t miss out. Speaking of securing a sustainable future, I was pleased to deliver the keynote speech during the Inauguration Ceremony of the Guangdong-Hong KongMacau Young High-end CPA Talent Training Programme held at the Institute on 21 July. Co-organized by the Institute, Guangdong Institute of Certified Public Accountants, Hong Kong Association of Registered Public Interest Entity Auditors Limited and the Union of Associations of Professional Accountants of Macau, the programme provides an important platform to produce high-calibre CPA talent who will become leaders equipped to drive the sustainable development of the Greater Bay Area. I was glad to see Christopher Hui, Secretary for Financial Services and the Treasury and Li Xuhong, Deputy Director General of the Department of Administration and Finance for the Liaison Office of the Central People’s Government in the HKSAR, as well as many of our esteemed colleagues attend to witness the beginning of this wonderful endeavour. In July, we also saw the formal passage of the Professional Accountants (Amendment) Bill 2022, which seeks to enhance the election arrangements of the Institute’s Council. As a result of the amendment, which takes effect on 1 November 2022, the term of office of the 14 incumbent elected members of the Council will all be completed by the end of 2023. This means the Institute will not be holding an election during the annual general meeting at the end of the year. With the further reform of the regulatory regime of the accounting profession coming into effect this coming October, this will allow the Institute to focus our resources for the implementation of the new regime and prepare for the elections in 2023. Personally, it is certainly a privilege to serve for an additional year beyond my original term. I would like to take this opportunity to welcome the latest addition to the Institute’s Council. Subsequent to Professor Nelson Lam FCPA (practising)’s resignation from the Council to take up his role as Director of Audit, the arising vacancy has been filled by the Council through the appointment of Frank Lam FCPA (practising) with effect from 20 July 2022. I look forward to working together with Frank and the rest of the Council to serve our members to the best of our efforts for the rest of our terms. Loretta Fong CPA (practising) President Dear members, “ Initiatives by corporations to become more sustainable and socially responsible has become all the more essential in getting us back on track. This month, the Institute was more than glad to announce the launch of the Best Corporate Governance and ESG Awards 2022.”
CONTENTS Issue 7 Volume 18 July 2022 NEWS 01 President’s message 04 Institute news 07 Business news FEATURES 08 Unravelling a world wide web of lies Cybercriminals have exploited cryptocurrency’s rise in use in recent years. What can businesses and individuals do to spot suspicious transactions? 14 Leadership: Gigi Chan CPA The Founder and Chief Executive Officer of Wonder Capital Group on the vast opportunities for growth within emerging markets 20 Stronger together The drivers of merger and acquisition activity in Hong Kong, and what specialist accountants can do to add value throughout the whole process 26 Second opinions How can accountants leverage technology to provide better advisory? 28 How to Herbert Yung FCPA, the Institute’s Director, Member Engagement and Sustainability Lead, on how accountants can champion a company’s sustainability journey 29 Thought leadership: Len Jui The Deputy Chair of the International Auditing and Assurance Standards Board and KPMG China Partner on meeting the demand for assurance on sustainability reporting 30 Q&A with a PAIB Thomas Mak CPA, Group Supply Chain Management and Sustainability Director, Jardine Restaurant Group 31 Q&A with a PAIP Yuka Shigetomi FCPA (practising), Partner, Greater China Assurance Leader for Japan Business Services, EY Hong Kong 33 Meet the speaker What to expect from an e-series that covers important aspects in corporate and strategic finance that accountants should know 20 The path to a successful merger or acquisition is riddled with challenges and complexities. How can accountants serve as key advisors in the M&A process and can Hong Kong maintain its status as a M&A hub in Asia? 30 Q&A with a PAIB 31 Q&A with a PAIP Stronger together
DRIVING BUSINESS SUCCESS About our name A Plus stands for Accounting Plus. It represents a profession that is rich in career options, stays relevant amid rapid changes, and adds value to business. This magazine strives to present the global mindset and varied expertise of Institute members – Accountants Plus. Editor Gerry Ho Email: gerry.ho@mandl.asia Managing Editor Jemelyn Yadao Copy Editor Jeremy Chan Associate Editor Nicky Burridge Contributor Thomas Lo ,i}ÃÌiÀi` "vwVi 2/FWang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong Advertising enquiries Advertising Director Derek Tsang Email: derektsang@mandl.asia ISSN 1815-3380 President Loretta Fong Vice Presidents Roy Leung Edward Au Chief Executive and Registrar Margaret W. S. Chan Director of Corporate Communications Dr Wendy Lam Publication Manager Michael Wong Editorial Coordinator Maggie Tam "vwVi č``ÀiÃÃ 37/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Tel: (852) 2287-7228 Fax: (852) 2865-6603 Member and Student Services Counter 27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Website: www.hkicpa.org.hk Email: hkicpa@hkicpa.org.hk SOURCE 35 Sustainability reporting assurance An overview of the Institute’s position for effective sustainability reporting assurance 36 Technical news WORK-LIFE BALANCE 40 Riding the wind Members of the Institute’s Sailing Interest Group share their most memorable and tense moments at sea 46 Young member of the month Andrea Lam CPA, Senior Manager, Bain & Company 48 After hours Institute members recommend their favourite ways to unwind 48 40 Riding the wind After hours A Plus is the official magazine of the Hong Kong Institute of Certified Public Accountants. The Institute retains copyright in all material published in the magazine. No part of this magazine may be reproduced without the permission of the Institute. The views expressed in the magazine are not necessarily shared by the Institute or the publisher. The Institute, the publisher and authors accept no responsibilities for loss resulting from any person acting, or refraining from acting, because of views expressed or advertisements appearing in the magazine. ©Hong Kong Institute of Certified Public Accountants July 2022. Print run: 6,940 copies The digital version is distributed to all 46,947 members, 13,807 students of the Institute and 2,358 business stakeholders every month. 14 Capitalizing on change Gigi Chan CPA, Founder and Chief Executive Officer of Wonder Capital Group, on how she came to specialize in asset management, and why embracing change is the key to success and growth
NEWS Institute news Business news 4 July 2022 The Institute’s prestigious Best Corporate Governance and ESGAwards 2022 are now open for entries until 10 August. Listed companies and public sector or notfor-profit organizations that have achieved high standards in corporate governance (CG) and environmental, social and governance (ESG) are invited to submit their applications. The awards reflect the importance of both good CG and ESG reporting and practices for organizations, and their investors and stakeholders. “We aim to identify role models in the private and public sectors that set good examples for other companies and organizations to follow. They should be taking significant steps towards integrating CG and ESG considerations into their strategy, oversight and the implementation of their policies, procedures and controls. We will also recognize those entities that continue to uplift the standard of their disclosures and practices in at least one of these areas,” said Loretta Fong CPA (practising), President of the Institute and Chairman of Judging Panel of the Best Corporate Governance and ESGAwards 2022. The top accolades in the awards are the Most Sustainable Companies or Organizations Awards, which will be presented to companies and organizations that demonstrate the overall best practices in both CG and ESG, and are integrating these two key aspects into their business model. There will continue to be separate awards to recognize entities that have performed well in either CG or ESG, while not yet achieving an equal standard in both areas. For financial years beginning after 1 January 2022, under the revised Corporate Governance Code, the boards of listed companies should establish the company’s purpose, values and strategy, and ensure that these and the company’s culture are aligned. Fong noted that while these provisions were not yet in effect during the reporting year covered by the awards, having the right culture and values in place is an essential part of having award-winning CG and ESG. Last year, the awards were revamped and renamed the Best Corporate Governance and ESGAwards. More details on the awards and entry procedure are available on the Institute’s website. New council member appointed to fill vacancy Subsequent to Professor Nelson Lam FCPA (practising)’s tendered resignation as elected Council member in June, the arising vacancy has been filled by the Council through the appointment of Frank Lam FCPA (practising) with effect from 20 July 2022. Inauguration ceremony of CPA talent training programme The inauguration ceremony of the Guangdong-Hong Kong-Macau Young High-end CPA Talent Training Programme was successfully held on 21 July at the Institute. Numerous local leaders from the accounting profession attended the ceremony, which was coorganized by the Institute, Guangdong Institute of Certified Public Accountants, Hong Kong Association of Registered Public Interest Entity Auditors Limited and the Union of Associations of Professional Accountants of Macau. The newly launched programme aims to train young CPAs across Guangdong, Hong Kong and Macau into future visionary leaders with strategic thinking and creative minds, equipped with comprehensive skills needed to support the sustainable development of the Greater Bay Area. Application for CPD exemption With the exception of practising certificate or specialist designation holders, members who are not carrying out any accounting or accounting-related work, and do not plan to do so for a significant period of time, and are not directors of any companies, may apply to the Institute for the continuing professional development (CPD) exemption. Visit the Institute’s website for more details and other frequently asked questions on CPD requirements. Council meetings minutes The abridged minutes from the May and June Council meetings are now available in the “Members’ area” of the Institute’s website. Best Corporate Governance and ESG Awards 2022 invites entries
APLUS Resolutions by agreement HLMCPA Limited, Yuen Suk Ching CPA and Ng Fai, Fiona CPA (practising) Complaint: Failure or neglect by HLMCPALimited and Yuen to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 200 Overall Objectives of the Independent Auditor and theConduct of anAudit inAccordancewithHongKong Standards onAuditing, HKSA 220 QualityControl for anAudit of Financial Statements, HKSA 315 Identifying andAssessing the Risks ofMaterial Misstatement throughUnderstanding the Entity and Its Environment, andHKSA 700 Forming anOpinion and Reporting onFinancial Statements. Failure or neglect by Ng to observe, maintain or otherwise apply HKSA 220. HLMCPALimited audited the consolidated financial statements of China Investment Fund International Holdings Limited (currently known as China Investment Fund Company Limited), a Hong Kong listed company and its subsidiaries for the year ended 31 December 2016. It issued an unmodified opinion. Yuenwas the engagement director and Ngwas the engagement quality control reviewer. The Hong Kong Institute of CPAs received a referral from the Financial Reporting Council (FRC) about deficiencies in the audit. They noted that the fair values of two available-for-sale investments included in the financial statements had declined significantly below their original costs. This was objective evidence of impairment of the investments, and would require an impairment loss to be recognized in accordance with Hong Kong Accounting Standard 39 Financial Instruments: Recognition and Measurement. The company did not do so and instead inappropriately recognized the cumulative fair value decline in equity. The auditor failed to recognize the objective evidence of impairment of the investments and the inappropriate accounting treatment of their fair value decline in the financial statements. The Institute concluded that HLMCPALimited and Yuen failed to properly understand the applicable accounting framework, exercise professional judgement, seek appropriate consultation, and evaluate the accounting treatment and evidence on the available-for-sale investments, whichwas assessed as a high risk audit area. The Institute further concluded that Ng failed to performan adequate engagement quality control reviewof the audit team’s procedures and conclusion. Regulatory action: In lieu of further proceedings, the Council concluded the following should resolve the complaint: 1. The respondents acknowledge the facts of the case and their non-compliancewith professional standards; 2. The respondents be reprimanded; and 3. HLMCPALimited, Yuen and Ng pay administrative penalties of HK$35,000 andHK$45,000 and HK$20,000 respectively to the Institute, and they jointly pay the costs of the Institute of HK$15,000 and of the FRC of HK$81,045.97. Chan KongWang CPA (practising) and RSMHong Kong Complaint: Failure or neglect by Chan and RSMHong Kong to observe, maintain or otherwise apply HKSA 330 TheAuditor’s Responses toAssessedRisks, HKSA 500 Audit Evidence, and HKSA 700 Forming anOpinion andReporting on Financial Statements. Failure or neglect by Chan to observe, maintain or otherwise apply sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants (Code of Ethics). RSM Hong Kong audited the consolidated financial statements of Seamless Green China (Holdings) Limited, a Hong Kong listed company, and its subsidiaries for the year ended 31 December 2016. Chan was the engagement partner of the audit. The Institute received a referral fromthe FRC about audit irregularities. They noted that the financial statements had been revised to correctmaterial misstatements in the consolidated loss for the year and exchange reserve, whichwere caused by an accounting error in relation to a duplicated recognition of an impairment loss on a receivablewhichwas fully impaired in 2014. The respondents failed to identify themisstatements. FRC’s investigation revealed that the respondents failed to design and performappropriate audit procedures to obtain sufficient appropriate audit evidence pertaining to the receivable, the impairment loss on the receivable, and the exchange reserve. The respondents also drewan inappropriate conclusion that the financial statements as awholewere free from material misstatement. In addition, Chan failed to evaluate the appropriateness and accuracy of the consolidation adjustments pertaining to the receivable. Regulatory action: In lieu of further proceedings, the Council concluded the following should resolve the complaint: 1. The respondents acknowledge the facts of the case and their non-compliancewith professional standards; 2. The respondents be reprimanded; and 3. Chan and RSMHong Kong pay administrative penalties of HK$35,000 andHK$50,000 respectively to the Institute, and they jointly pay the costs of the Institute of HK$15,000 and of the FRC of HK$133,772.07. Chan Shek Chi CPA (practising), Tong Yat Hung CPA (practising) and Cheng & Cheng Limited Complaint: Failure or neglect by Chan and Cheng&Cheng Limited to observe, maintain or otherwise apply HKSA 200 Overall Objectives of the Independent Auditor and theConduct of anAudit inAccordancewithHongKongStandards onAuditing, HKSA 500 Audit Evidence, andHKSA 540 AuditingAccounting Estimates, Including Fair ValueAccountingEstimates, andRelated Disclosures. Failure or neglect by Tong to observe, maintain or otherwise apply HKSA 220 QualityControl for anAudit of Financial Statements. Failure or neglect by Chan and Tong to observe, maintain or otherwise apply the fundamental principle of professional competence and due care in sections 100.5(c) and 130.1 of the Code of Ethics. Cheng&Cheng Limited audited the consolidated financial statements of Asia Investment Finance Group Limited (currently known as Amber Hill Financial Holdings Limited), a Hong Kong listed company, and its subsidiaries (collectively, group) for the year ended 31 December 2018. Chanwas the engagement director and Tongwas the engagement quality control reviewer of the audit. The Institute received a referral fromthe FRC about July 2022 5
audit irregularities. The FRC’s investigation revealed that the respondents failed to carry out sufficient audit procedureswhen they evaluatedmanagement’s impairment assessment on the group’s interest in an associate, which had been identified as one of the key auditmatters in the auditor’s report. Regulatory action: In lieu of further proceedings, the Council concluded the following should resolve the complaint: 1. The respondents acknowledge the facts of the case and their non-compliancewith professional standards; 2. The respondents be reprimanded; and 3. Chan, Tong, and Cheng&Cheng Limited pay administrative penalties of HK$35,000, HK$25,000, andHK$50,000 respectively to the Institute, and they jointly pay the costs of the Institute of HK$15,000 and of the FRC of HK$93,243.82. Disciplinary findings Wong Man Shan, Joyce CPA Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principle of integrity under sections 100.5(a), 110.1 and 110.2 of the Code of Ethics, and being guilty of professional misconduct. Wong is a non-practising director of Tandem (HK) CPALimited (practice). The practicewas selected for its first practice review in 2019. The reviewer found thatWong issued an accountant’s report on a solicitor’s firmunder the Accountant’s Report Rules (Cap. 159A) for the year ended 31March 2018, although only limited compliancework had been done. Significant deficiencieswere identified in 12 of the 15 required tests set out in the engagement programme. Themultiple deficiencies in the test work and reckless issuance of the accountant’s report demonstrated blatant disregard of the requirements of the statutory compliance reporting engagement, and amounted to professional misconduct. Decisions and reasons: The Disciplinary Committee reprimandedWong and ordered that no practising certificate be issued to her for 12months from4 July 2022. In addition, the committee orderedWong to pay a penalty of HK$100,000 and costs of the disciplinary proceedings of HK$56,786. Whenmaking its decision, the committee took into consideration the relevant facts of the complaint, Wong’s personal circumstances, her conduct throughout the proceedings and her admission of the complaint. YipWai Wing CPA (practising) Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principles of integrity in sections 100.5(a), 110.1 and 110.2 (later amended as section 110.1A1(a) and subsections R111.1-2 of Chapter A) and professional competence and due care in sections 100.5(c) and 130 (later amended as section 110.1A1(c) and subsection 113 of Chapter A) of the Code of Ethics, Hong Kong Standard on Quality Control (HKSQC) 1 QualityControl for Firms that PerformAudits andReviews of Financial Statements, andOther Assurance andRelatedServices Engagements, HKSA 500 Audit Evidence andHKSA 505 External Confirmations, and being guilty of professional misconduct. Yipwas the sole proprietor of Nic Yip&Co. In 2020, the Institute’s practice reviewon the firm found that Yip reported false information in the self-assessment questionnaire, created working papers in reaction to the practice review, and issued audit reports in a large number of audit engagements inwhich he performed no orminimal audit work. In addition, the practice review found significant inadequacies in the firm’s quality controls over human resources, engagement performance and compliance with ethical requirements. Furthermore, the reviewers found significant deficiencies in two audit engagements of the firmthat were selected for review. Decisions and reasons: The Disciplinary Committee ordered the name of Yip be removed from the register of certified public accountants for 12 months and his practising certificate be cancelled with effect from 4 July 2022. In addition, the committee reprimanded Yip and ordered him to pay a penalty of HK$200,000 and costs of the disciplinary proceedings of HK$53,737. When making its decision, the committee took into consideration the particulars in support of the complaints, Yip’s admission of the complaint and his conduct throughout the proceedings. Settlement CheungWai Lun CPA (practising) The Institute has settled regulatory proceedings concerning alleged non-compliance of its professional standard by Cheung Wai Lun CPA (practising). Cheung’s practicewas selected for practice review in August 2020. Cheung, however, was unable to provide the requested information and documentation. The practice reviewer found that Cheung failed to establish and implement proper controls and procedures tomaintain the safe custody, accessibility and retrievability of engagement documentation for a stipulated period of time. As a result of the above, Cheung failed or neglected to observe, maintain or otherwise apply HKSQC 1 QualityControl for Firms that PerformAudits andReviews of Financial Statements, and Other Assurance andRelatedServices Engagements. Settlement agreement: The Council of the Institute has agreed with Cheung that: 1. Cheung acknowledges the facts of the case and area of noncompliancewith a professional standard; 2. Cheung be reprimanded; and 3. Cheung pays a financial penalty of HK$80,000 and costs of HK$30,000. The Institute considers a settlement on the agreed basis to be in the public interest. In the circumstances, the Institute is satisfied that there is no purpose to be served in pursuing disciplinary proceedings. Details of the resolutions by agreement, disciplinary findings and the settlement are available on the Institute’swebsite. NEWS Institute news 6 July 2022
NEWS Business The number of environmental, social and governance (ESG) metrics found in Mainland China’s first ever voluntary corporate sustainability disclosure guidelines, which launched this month. The guidelines, which were published by the China Enterprise Reform and Development Society, a statebacked council, are expected to be first adopted by larger companies in Mainland China. ESG reporting is not mandatory for listed companies on the Mainland. 22 £14.4 million The amount KPMG in the United Kingdom was fined for deliberately providing false and misleading documents to the Financial Reporting Council during inspections of its audit on collapsed construction company Carillion plc and Regenersis, an outsourcing company. It is the biggest fine the firm has ever received in the U.K. Didi Global, Mainland China’s ride-hailing giant, was fined US$1.2 billion this month by the Cyberspace Administration of China, for violating data security laws. The fine comes a year after the the country’s central Internet regulator launched a cybersecurity investigation into the company shortly after its initial public offering in New York last June. July 2022 7 The month in which Ashley Alder, Chief Executive Officer of the Securities and Futures Commission (SFC), will leave his role next year, said the regulator this month. Alder, who has held the role since October 2011, is the SFC’s longest serving CEO, and will be joining the Financial Conduct Authority, a regulator in the United Kingdom. A successor has not yet been identified. “I owe a debt of gratitude to all who have contributed to the evolution of the SFC into an organization which is acknowledged globally as one of a handful of world-class market regulators,” Alder said in a statement. Stephan von Erffa The former head of accounting of Wirecard AG who admitted this month to forging documents requested by KPMG during a special audit. Von Erffa is one of three defendants in a case brought by prosecutors in Munich following the collapse of the German payments company, which filed for insolvency in June 2020. “The ability to facilitate more travelling between Hong Kong and the Mainland and Hong Kong and internationally. I think that is at the moment the most critical constraint that we are facing and we have to overcome.” – Paul Chan FCPA, Hong Kong’s Financial Secretary, told the South China Morning Post on 25 July. He warned that Hong Kong may have to downgrade its annual growth forecast in August for the second time in three months, citing constraints such as the city’s daily COVID-19 infections, strict quarantine rules, supply chain issues on the Mainland, and high inflation in the United States and Europe, as reasons for the weak economy. 127 January The number of listings the Hong Kong Exchanges and Clearing’s main board saw in the first half of the year. The listings raised US$2.3 billion, which is the lowest total since the first half of 2003, which yielded US$802.3 million, the South China Morning Post reported. The lacklustre performance is due to economic uncertainty, geopolitical and pandemic-related factors, according to EY’s Mainland China and Hong Kong IPO Markets report, released in June. The name of a new initiative by the Hong Kong Exchanges and Clearing Limited that will allow for Hong Kong and international investors to access the interest rate swap markets in Hong Kong and Mainland China. The scheme, which was announced on the same day as the ETF Connect on 4 July, marks another milestone in connecting the financial markets between Hong Kong and the Mainland, and is expected to launch before the end of the year. Swap Connect 4 The number of additional members appointed to the International Sustainability Standards Board (ISSB). The IFRS Foundation Trustees announced the appointment of Jeffrey Hales, Michael Jantzi, Tae-Young Paik and Elizabeth Seeger as members of the ISSB. Their appointments make the ISSB quorate.
Cryptocurrency ANTI-MONEY LAUNDERING Hong Kong customs officials last year dismantled a syndicate that was using cryptocurrencies to “clean” HK$1.2 billion of illegal funds. While it was the first time that money launderers had been caught using cryptocurrencies in Hong Kong, it is unlikely to be an isolated incident. Globally, cybercriminals are estimated to have laundered US$8.6 billion through cryptocurrencies in 2021 – a 30 percent increase on the previous year, according to research by Chainanalysis. Thomas Tsang CPA, Associate Director, Risk Consulting, KPMG China, is not surprised by the statistic. “Decentralized finance, including cryptocurrency, and virtual assets, such as nonfungible tokens (NFTs), have become very popular as a new avenue for money laundering that criminals are taking advantage of,” he says. Tsang explains that cryptocurrency and other virtual assets have qualities that make them very attractive to money launderers. Firstly, unlike opening bank accounts, crypto wallets can be easily set up. “You can download an app onto your smartphone and this does not require know-your-customer (KYC) procedures,” he says. Even for cryptocurrency exchanges that have implemented KYC procedures, the level of these measures being applied may not be as stringent as those applied by regulated financial institutions. Secondly, cryptocurrency provides a higher degree of anonymity. “Even if transactions from one wallet to another are recorded on a blockchain, as is the case for Bitcoin, you may not know who holds or owns the wallets,” adds Tsang. Albert Lo FCPA, Partner, Deloitte Asia-Pacific, agrees, pointing out that the decentralized nature of cryptocurrency attracts criminals as it enables them to move money without leaving as much of a trail as they would if they used traditional banking. He adds that the transaction costs are also relatively low when compared to traditional means of laundering the proceeds of crime. Chris Fordham CPA, Independent Forensic Consultant and Founding Member of the Hong Kong Institute of CPAs’ Forensics Interest Group, points out UNRAVELLING A WORLD WIDE WEB OF LIES The prevalence of cryptocurrency globally is making it easier for cybercriminals to launder money. This, coupled with the uptick in e-commerce and flexible work arrangements, has created the perfect opportunity for crooks to exploit. Nicky Burridge speaks to anti-money laundering experts to find out how companies and individuals can identify suspicious transactions and stop crime from paying Illustrations by Ibrahim Rayintakath 8 July 2022
July 2022 9
Cryptocurrency ANTI-MONEY LAUNDERING that although cryptocurrencies have been around for more than a decade, the regulation surrounding them is still emerging. “In the past there is a perception that crypto assets have been poorly regulated, but that is changing. There is emerging regulation across the globe, and with that regulation will come enforcement, but there are still going to be some weaknesses in the meantime.” But Fordham adds that criminals still need a way to convert cryptocurrency back to fiat currency, as there are limits to what cryptocurrency can be used for. “To convert it back, they need an exchange and an account, so they are still ultimately looking for a weakness on an exchange where there is a failing on KYC so that they can withdraw their funds in cash,” he explains. Despite the benefits of cryptocurrencies to launder money, Tsang says the sector may have lost some of its appeal recently due to the crash in prices of cryptocurrencies and virtual assets (e.g. NFTs) and the receding market liquidity. The crash was triggered by stablecoin TerraUSD’s value dropping below its peg of US$1 following a large sale of the currency, leading to more tokens being minted to support the price, which in turn led to the price of Terra LUNA crashing. Bitcoin was also impacted by the crash, and has seen its value more than halve since January. He explains that as a result of this price volatility, cryptocurrency is deemed to be higher risk and less liquid, and it has lost some of its popularity as a means of money laundering, with criminals instead focusing on more traditional methods. The situation in Hong Kong The extent to which cryptocurrency is being used for money laundering in Hong Kong is difficult to gauge. Tsang explains that virtual asset service providers (VASP) operating in Hong Kong are typically not licensed by the Securities and Futures Commission (SFC), unless they perform regulated activities that fall under the SFC’s regulatory regime, such as dealing in virtual assets that are classed as securities or futures contracts, or by distributing or managing virtual asset funds. He adds that there is currently only one SFClicensed virtual asset trading platform in Hong Kong, among a handful of other asset managers who distribute or manage virtual asset portfolios for professional investors. The regulatory landscape is set to change, as the Hong Kong government gazetted Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 in June, which will amend the current Anti-Money Laundering and Counter-Terrorist Financing Ordinance and introduce a licensing regime to close the existing regulatory gap by imposing 10 July 2022
APLUS anti-money laundering (AML) or counter-financing of terrorism requirements for VASPs of nonsecurities virtual assets in Hong Kong by 2023. Although over the past year Hong Kong has detected a few money laundering cases with cryptocurrency usage, it is difficult to accurately estimate the volume of funds currently being laundered using cryptocurrency or VASPs in Hong Kong. However, Tsang believes there is no reason to think Hong Kong is different to other markets in terms of cryptocurrency being used as an avenue for money laundering, as the use of cryptocurrency is increasingly common. Fordham agrees: “I suspect the situation in Hong Kong, as a major financial centre in the world, is no better or worse than anywhere else.” Gloria So CPA, Partner, Risk Advisory Services, SWHong Kong, says: “With the rising trend of using cryptocurrency as an option of settlement across businesses, it is becoming an area of concern for potential money laundering activities for local regulators.” She points out that in May, four people were arrested for laundering HK$600 million over a two-year period, HK$50 million of which was processed through an overseas cryptocurrency trading platform. “This shows that while the traditional medium of bank transfers and cross-border remittance remains the major means for money laundering activities, the use of cryptocurrency is a significant method being exploited by criminals,” So says. Lo agrees that while there is a growing trend to use cryptocurrency for money laundering in Hong Kong, it has not yet become a major channel. “Traditional banking, the use of e-wallets and other money service operators are still more commonly found ways for money laundering,” he says. Cynthia Chan CPA, Compliance Manager at a bank, thinks the most common methods continue to be structuring large money transfers through multiple small transactions made through banks, with amounts often just below the approval threshold. Other popular methods include buying and selling real estate, using shell companies with nominee arrangements, and crossborder wire transfers. Online opportunities The pandemic has changed the behaviour of individuals and companies, providing more opportunities for criminals to commit crimes and launder the proceeds, according to Lo. “In particular, the pandemic has further promoted e-commerce and consumers have shifted to conducting their shopping online. Criminals have taken the opportunity to set up scamwebsites,” he says. “Also, individuals who are facing financial difficulties because of the economic downturn become easy targets for recruitments by criminals to launder money through ‘stooge accounts.’” Chan points out that since the onset of the pandemic, there has been an increase in the use of online payments, third-party or crossborder fund transfers and remote account opening at banks. Agnes Cheuk CPA, Compliance Manager at Airwallex Hong Kong, agrees. She points out that with the shift to online activities becoming the “new normal” as a result of COVID-19, there has been a surge in online fraud. “The pandemic has accelerated data and tech adoption, and created opportunities for more innovative solutions. Over the last few years, there has been an increasing trend in remote account openings. While there are benefits to the convenience and ease of opening an account remotely, this also creates more loopholes which criminals can exploit for money laundering,” she says. Fordham points out that the weakest link in a system is often humans, and working patterns adopted during the pandemic, such as working remotely or in split teams, has created more risk, which criminals have taken advantage of. “The compliance teams and antimoney laundering teams have also been working from home, and that has put pressure on them and their systems.” He points out that if someone receives an instruction they are not sure about in the office, they can walk over to someone else to check it, but this is harder to do when working remotely. Anti-money laundering defences While there is not much corporates can do to prevent money laundering through cryptocurrencies, there are a number of steps they can take to identify money laundering through other means. Chan advises businesses to formulate internal policies and guidelines related to AML and incorporate AML risk mitigating controls into their operations. These include taking steps such as performing adequate customer due diligence, conducting periodic reviews on customers, and carrying out ongoing transaction monitoring. She adds that it is also important to set up a channel for staff to report suspicious transactions, backed by a team to investigate these reports, as well as providing continuous AML training to employees. Chan suggests accountants should be particularly cautious when providing advice to clients on the formation of trust or private funds, “ With the rising trend of using cryptocurrency as an option of settlement across businesses, it is becoming an area of concern for potential money laundering activities for local regulators.” July 2022 11
or the purchase and sale of real estate. Chan adds individual consumers should also perform online background searches on counterparties before making any online payments, and not disclose their personal information, such as bank account passwords, which could be used by money launderers. Cheuk suggests accountants should constantly question things and have a sceptical mindset. “Being sceptical is about being thoughtful and to have a questioning mind. This will allow you to be alert to situations and potential situations of error or fraud,” she says. She adds that accountants should also bear in mind that previous cases and patterns may not reflect the latest money laundering activities. “There is no one-sizefits-all solution for every scenario. An individual should exercise judgement based on the totality of facts, experience, and professional scepticism.” For financial institutions, Cheuk says technology is a key building block to implement money laundering controls. “Automation facilitates the customer life cycle management process in financial institutions, such as onboarding, sanctions screening, and transaction monitoring,” she says. “Technology also plays an important part in the data analysis relating to emerging money laundering typologies with existing customer activities, as well as designing respective controls to manage money laundering risk,” she says. Mary Wong, Partner, AML and Sanctions Services, Greater Bay Area, KPMG China, also stresses that professional accountants should always be aware of new and emerging risks. She adds that they should be particularly vigilant as the economic situation is currently tough, which has already led to an increase in fraudulent activities. “As professional accountants, we need to be aware of all the evolving risks, since we are exposed to different industries.” She points out that the pandemic has accelerated the adoption of regulatory technology (RegTech) across all aspects of operations, in line with expectations for the financial service industry as highlighted by the local regulator. However, accountants should also explore how to use technology to assist their audit work, for example performing data analytics and industry benchmarking on sales or revenue figures to identify suspicious transaction patterns which may be indicative of fraud or even money laundering. Fordham stresses the importance of training staff to be alert to the latest developments, as well as investing in technology. “It is important that institutions ensure their staff remain current in their knowledge, as criminals innovate, so staff need to be aware of the latest typologies, as these emerge and change. “Institutions should continue to invest in technology, such as artificial intelligence and data analytics, and continue to give relevant and appropriate training to their staff,” he says. Fordham adds that accounting firms should also ensure that there is no disconnect between the training they provide and what employees experience in day-today life as auditors. “Training should not be done in a vacuum, but should relate to real risks,” he says. Professionals should also make use of the resources available, such as those provided by the Association of Certified AntiMoney Laundering Specialists, to stay up to date with the latest trends, Fordham says. “Criminals innovate to get around controls, so you have to keep abreast of risk.” For small and medium practices (SMPs), So suggests taking the SAFE approach proposed by the Joint Financial Intelligence Unit (JFIU) to identify suspicious transactions. This approach involves screening accounts for suspicious indicators, asking the customer appropriate questions, finding the customers’ records and reviewing information already known about them when assessing suspicious activity, and evaluating all the above information to determine if a transaction is suspicious. “The JFIU pointed out that many reporting institutions did not adopt a systematic approach in identifying suspicious financial activities. Commonly, institutions make a suspicious transaction report merely because a suspicious activity indicator has been recognized, but often they fail to capture the necessary information to make a solid case. Therefore, the SAFE approach can act as a systematic approach for SMPs to follow for effective reporting,” she says. But So adds that SMPs face a number of challenges in implementing AML controls. Smaller firms may lack a riskbased, regularly updated and business-aligned AML and counter-terrorism financing policy dynamic enough to keep pace with changes to the industry. A failure to have comprehensive customer onboarding procedures can also lead to a lack of proper due diligence at the customer acquisition stage, while ongoing monitoring can also be an issue. “As SMPs may lack the necessary resources to install their own internal AML compliance function to perform the above, especially keeping up with changes in the industry, SMPs can ask for regular reviews of their compliance by an external consultant as an alternative to mitigate AML risks in an efficient manner,” she says. Identifying warning signs Alongside having robust AML Cryptocurrency ANTI-MONEY LAUNDERING “ As professional accountants, we need to be aware of all the evolving risks, since we are exposed to different industries.” 12 July 2022
APLUS Globally, cybercriminals are estimated to have laundered US$8.6 billion through cryptocurrencies in 2021 – a 30 percent increase on the previous year, according to research by Chainanalysis. policies and procedures in place, it is also important that accountants are alert to potential warning signs that money laundering may be taking place. Red flags, Lo suggests, include transactions that seem to be inconsistent with a customer’s known legitimate business or personal activities, or their means, as well as unusual deviations from normal account and transaction patterns. “They should also be alert for situations in which it is difficult to confirm the identity of a person, unauthorized or improperly recorded transactions, inadequate audit trails, and settlements by a third party, which are different from the customer represented,” he says. So suggests keeping an eye on large or frequent cash transactions resulting from deposits or withdrawals, accounts used as a temporary repository for funds, and periods of significantly increased activity following periods during which an account has been relatively dormant. Other indicators can be “structuring” or “smurfing,” when many lower value transactions are conducted when just one, or a few, large transactions could have been used, as well as “U-turn” transactions, which is when money passes from one person or company to another, and then back to the originator. Situations in which a customer is unwilling to provide an explanation for a transaction, or their explanation is found to be untrue should also spark concern. Finally, So suggests accountants should be alert for transactions involving politically exposed persons, countries or nationals of countries commonly associated with terrorist activities, and currencies commonly associated with international crime or drug trafficking. If accountants do uncover a potentially suspicious transaction, Cheuk says it is crucial to escalate it to the appropriate channel in a timely manner. Financial institutions and accounting firms should have a money laundering reporting officer, in accordance with the regulatory requirements, to review any suspicious activity reported and file it with the JFIU. Fordham agrees: “Accountants need to follow the policies and procedures within their organization, talk to their supervisor, make an internal assessment report, and liaise with the money laundering reporting officer.” He stresses that it is also important to keep the issue confidential, as individuals must not tip off potential suspects. “There is a personal risk and liability. At the end of the day, there is a very good reason why we try to stop criminals laundering the proceeds of their clients: so that crime does not pay.” July 2022 13
PROFILE Gigi Chan CPA 14 July 2022
APLUS CAPITALIZING ON CHANGE For Gigi Chan CPA, Founder and Chief Executive Officer of investment company Wonder Capital Group, most of her career moves have been the result of seismic changes, from an unexpected crisis to a corporate culture overhaul. She talks to Jemelyn Yadao about how she uncovered her entrepreneurial spirit, and came to specialize in family offices and high-growth emerging markets using her skills and adaptability as an accountant Mergers can feel like an earthquake. This was certainly the case for Gigi Chan CPA, after the American investment company Janus Capital Group merged with United Kingdom-based Henderson Global Investors in 2017. “Things were shaky. After the merger, I was the only member of top management in Asia who could stay,” says Chan, who managed the shockwaves at the time as head of Greater China of Janus Henderson Investors Group. “For around a year after we heard about the merger, I experienced dealing with the new staff, the new group chief executive officer, and the new group top management based in the United States and in the U.K. Then one day, I sat down and thought to myself: ‘what should I do next?’” She decided it was time to move on. Reacting or adapting to change has become a theme in Chan’s career. Now the Founder and CEO of Wonder Capital Group, a Hong Kongbased boutique investment management firm, she expanded her business in 2020 to specialize in family offices serving highnet-worth individuals as a reaction to the COVID-19 pandemic. Wonder Capital has a flagship private equity fund focused on Cambodia’s capital Phnom Penh, and under that fund it operates a condominium development project called MESONG, which is set to be 252-metres tall, and the tallest building in the country. Because of the pandemic and travel constraints, both sales and construction work have become a lot more challenging, says Chan. “On the positive side, with the established local team, reduced travelling allowed me to have more bandwidth to strategize how to adapt to such an adverse investment environment. To manage the risk of reducing returns, I needed to think about how to keep the company growing and identify new opportunities. That’s why during the pandemic, I thought about what other kinds of business Wonder Capital should do,” Chan explains. “I thought, as a boutique firm, how could I leverage on the resources my team and I have built in the past 20 years? And then I realized how I have a very diverse and resourceful group of lawyers and accountants in my team, and talked to people who are familiar with family offices. That’s when we started the family office business.” She points out that many multi-family offices use a Photography by Thomas Cristofoletti July 2022 15
PROFILE Ricky Tsang FCPA similar strategy of partnering with private banks and other financial institutions to provide clients with a more balanced portfolio. Multi-family offices also provide investment advisory. Wonder Capital, on the other hand, positions itself as a solution provider in terms of both investments and financial advisory. “I believe we’re able to offer more because we run our private equity fund and operate it day-to-day, and we also offer professional advice on the noninvestment field,” she adds. “With my audit and accounting experience, I have a good circle of accountants and lawyers, and this has helped a lot of family offices. For example, if they have an unstructured set-up for their investment portfolio or have business issues, we could give them valid advice from an accountant’s or lawyer’s standpoint. I think that’s a value-added service and clients appreciate it.” A leading hub Hong Kong in recent years has been focused on the family offices sector, recognizing it as an important growth segment in the wealth and asset management industry. Subsequently, the government has been developing an environment and policies to attract more family offices and high-networth individual investors. In June 2021, InvestHK announced the opening of the independent office of its FamilyOfficeHK team, which aims to support family offices to set up in the city. Also, in his budget speech delivered in February, Hong Kong’s Financial Secretary proposed that tax concessions be provided for eligible family investment management entities managed by single family offices. The government has completed the consultation process on the proposed income tax exemption scheme for family office businesses in Hong Kong, and aims to introduce the amendment bill into the Legislative Council later this year. Chan is pleased to see this emphasis on fostering the growth of family offices in Hong Kong. However, she points out that whether the world is heading into deglobalization or not, the city still faces challenges as a result of the pandemic. “Even if globalization continues, investors have become more sceptical on investments with less proximity. Hong Kong would 16 July 2022
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