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U.S. Wary of Hong Kong's Bank Secrecy : Haven for Asian Cash Suspected of Aiding Money-Laundering

September 15, 1985|JIM MANN | Times Staff Writer

HONG KONG — Late last year, Ronald Fook Shiu Li, chairman of the Far East Stock Exchange and a member of one of the most illustrious families in the business community here, was asked what sort of money was being brought into the colony.

"The beauty of it is that we don't pry into private matters," Li replied. "We know money from Southeast Asia is being laundered here. We don't care. Hong Kong is fast becoming the Switzerland of the Orient."

Now, Hong Kong's role as the see-no-evil financial haven of East Asia has suddenly begun to attract the attention of U.S. authorities.

In late August, the U.S. Treasury Department imposed the largest civil penalty ever under the Bank Secrecy Act, a fine of $2.25 million, on Crocker National Bank for its failure to report $3.98 billion in cash deposits to the Internal Revenue Service.

Deprived of Leads

The overwhelming part of this cash, $3.4 billion, had been flown from six Hong Kong banks to Crocker's main office in San Francisco.

How those masses of American dollars got to the Hong Kong banks is a matter of dispute.

In announcing the fine, Assistant Secretary of the Treasury John M. Walker Jr. strongly suggested that the money may have come from criminal activity. By failing to report the cash transactions, Walker said, Crocker "deprived Treasury of potentially important law-enforcement leads that could have been useful in drug, tax, money-laundering and other investigations."

Walker's remark has angered executives at Crocker and banking and government officials in Hong Kong, who say there is no good reason to assume that the huge dollar deposits were the result of drug trafficking or any other illicit activity. They say there are many other factors, related to the politics and finance of East Asia in general and of Hong Kong in particular, that could account for the cash shipments.

"These were perfectly normal banking transactions," said David Turner, an official of the Hongkong & Shanghai Banking Corp. who is serving as managing director of the government-run Overseas Trust Bank, one of the six banks named by the Treasury Department. "Money was being sent to the United States in the ordinary course of business."

An American banking expert, who asked that he not be identified by name, said: "Treasury is looking at this cash in a Caribbean or Latin American context. This place isn't the Cayman Islands. It's the third-largest financial center in the world. You have to look on this with an Asian perspective and a Hong Kong perspective."

Thousands of Transactions

The unreported $3.98 billion in cash deposits for which Crocker was fined dates back to 1980 and includes 7,877 separate transactions--an average of about $500,000 in cash at a time. The transactions violated the Federal Bank Secrecy Act, which requires that financial institutions in the United States report to the Treasury all currency transactions of more than $10,000 within 15 days after they occur.

Hong Kong banking officials say the cash is flown to the U.S. West Coast to take advantage of airline schedules, permitting the money to be deposited and begin collecting interest in the American bank on the same day it leaves Hong Kong. A daily Pan American flight leaving Hong Kong at 1:30 p.m. arrives in San Francisco (having crossed the International Date Line) at 10:15 a.m. the same day. No flight to New York offers the same banking benefit.

Hong Kong has no controls at all on the movement of currency. Its banking regulations are much looser and its guarantees of secrecy for depositors are much stricter than those that apply to banks in the United States.

Gordon C. S. Leung, Hong Kong's assistant commissioner of banking, said in an interview that law-enforcement officials can occasionally gain access to banking records here by proving to a court that their need for the information is reasonable. Nevertheless, American bankers here say that even if the guarantees of secrecy here are not perfect, they are very tight by American standards.

"There's nothing like our reporting requirements to the Securities and Exchange Commission or the Federal Reserve for banks operating here," one American banker said, "and it's much tougher to subpoena records here. After all, one of the main reasons Hong Kong is such a financial center is because there is this secrecy."

How did the Hong Kong banks happen to have all those dollar bills? Because of the lack of controls, the bank secrecy and the prevailing Hong Kong ethos of not asking too many questions, nobody here can say for sure.

Last year, U.S. investigators pointed to the flow of American cash out of Hong Kong as proof that Hong Kong has become a transit point for drug money. The U.S. President's Commission on Organized Crime said that 65% of American currency repatriated from Hong Kong is in denominations of $100 or less, "telltale signs of drug traffic and money laundering."

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