The Hong Kong Securities and Futures Commission (SFC) has reprimanded and fined China Everbright Securities (HK) Limited (CESL) $3.8 million for failures in complying with anti-money laundering and counter-terrorist financing (AML/CFT) regulatory requirements.

The SFC found that CESL failed to implement adequate and effective systems and controls to guard against and mitigate the risk of money laundering and terrorist financing associated with third party deposits between January 2015 and February 2017.

The SFC’s investigation, which included a sample review of deposits received by CESL during the relevant period, revealed that CESL failed to identify 178 third party deposits amounting to over $250 million made through the sub-accounts maintained by CESL with a local bank.

CESL also failed to detect suspicious fund deposits in some of the client accounts and make appropriate enquiries despite the presence of the following red flags:

• 11 clients received five or more deposits from multiple third parties, whose relationships with the clients were unknown;
• the amount of net deposits received by seven clients were not commensurate with their estimated net assets; and
• five clients, who did not appear to have any relationship with each other, received a total of approximately $5 million from the same third party within four days, and they used the funds to trade in the same stock.

The regulator considers CESL’s conduct being in breach of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the Guideline on Anti-Money Laundering and Counter-Terrorist Financing and the Code of Conduct.

In deciding the disciplinary sanction, the SFC took into account a variety of factors, including the need to send a strong deterrent message to the market that AML/CFT failures are not acceptable, as well as the actions taken by CESL to enhance its AML/CFT internal controls and systems.