Hong Kong is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Hong Kong was undertaken in 2019. According to that Evaluation, Hong Kong was deemed Compliant for 11 and Largely Compliant for 25 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 6 of the Effectiveness & Technical Compliance ratings.
US Department of State Money Laundering assessment (INCSR)
Hong Kong is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
Hong Kong, a Special Administrative Region (SAR) of the People’s Republic of China, is an international financial and trading center. The world’s sixth-largest banking center in terms of external transactions and the fourth-largest foreign exchange trading center, Hong Kong does not differentiate between offshore and onshore entities for licensing and supervisory purposes and has its own U.S. dollar interbank clearing system for settling transactions.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 76
World Governance Indicator – Control of Corruption 92
Hong Kong has a free market economy, highly dependent on international trade and finance - the value of goods and services trade, including the sizable share of re-exports, is about four times GDP. Hong Kong has no tariffs on imported goods, and it levies excise duties on only four commodities, whether imported or produced locally: hard alcohol, tobacco, hydrocarbon oil, and methyl alcohol. There are no quotas or dumping laws. Hong Kong continues to link its currency closely to the US dollar, maintaining an arrangement established in 1983.
Hong Kong's open economy left it exposed to the global economic slowdown that began in 2008. Although increasing integration with China through trade, tourism, and financial links helped it to make an initial recovery more quickly than many observers anticipated, its continued reliance on foreign trade and investment leaves it vulnerable to renewed global financial market volatility or a slowdown in the global economy.
The Hong Kong Government is promoting the Special Administrative Region (SAR) as the site for Chinese renminbi (RMB) internationalization. Hong Kong residents are allowed to establish RMB-denominated savings accounts; RMB-denominated corporate and Chinese government bonds have been issued in Hong Kong; and RMB trade settlement is allowed. The territory far exceeded the RMB conversion quota set by Beijing for trade settlements in 2010 due to the growth of earnings from exports to the mainland. RMB deposits grew to roughly 9.4% of total system deposits in Hong Kong by the end of 2015. The government is pursuing efforts to introduce additional use of RMB in Hong Kong financial markets and is seeking to expand the RMB quota.
The mainland has long been Hong Kong's largest trading partner, accounting for about half of Hong Kong's total trade by value. Hong Kong's natural resources are limited, and food and raw materials must be imported. As a result of China's easing of travel restrictions, the number of mainland tourists to the territory has surged from 4.5 million in 2001 to 47.3 million in 2014, outnumbering visitors from all other countries combined. Mainland visitors to Hong Kong declined 3% in 2015 to approximately 45.7 million, reflecting an overall drop of 2.5% in total visitors to Hong Kong. Hong Kong has also established itself as the premier stock market for Chinese firms seeking to list abroad. In 2015, mainland Chinese companies constituted about 51% of the firms listed on the Hong Kong Stock Exchange and accounted for about 62.1% of the Exchange's market capitalization. During the past decade, as Hong Kong's manufacturing industry moved to the mainland, its service industry has grown rapidly. In 2014, Hong Kong and China signed a new agreement on achieving basic liberalization of trade in services in Guangdong Province under the Closer Economic Partnership Agreement, adopted in 2003 to forge closer ties between Hong Kong and the mainland. The new measures, effective from March 2015, cover a negative list and a most-favoured treatment provision, and will improve access to the mainland's service sector for Hong Kong-based companies.
Credit expansion and a tight housing supply have caused Hong Kong property prices to rise rapidly; consumer prices increased 4.4% in 2014, but slowed to 2.9% in 2015. Lower- and middle-income segments of the population are increasingly unable to afford adequate housing.
Hong Kong’s economic integration with the mainland continues to be most evident in the banking and finance sector. Initiatives like the Hong Kong-Shanghai Stock Connect, the Mutual Recognition of Funds, and The Hong Kong Shanghai Gold Connect are all important steps towards opening up the Mainland’s capital markets and has reinforced Hong Kong’s leading role as China’s offshore RMB market. Additional connect schemes from bonds to commodities and other investment products are also under exploration by Hong Kong authorities.
Agriculture - products:
fresh vegetables and fruit; poultry, pork; fish
textiles, clothing, tourism, banking, shipping, electronics, plastics, toys, watches, clocks
Exports - commodities:
electrical machinery and appliances, textiles, apparel, footwear, watches and clocks, toys, plastics, precious stones, printed material
Exports - partners:
China 53.7%, US 9.5% (2015)
Imports - commodities:
raw materials and semi-manufactures, consumer goods, capital goods, foodstuffs, fuel (most is reexported)
Imports - partners:
China 49%, Japan 6.4%, Singapore 6.1%, US 5.2%, South Korea 4.3% (2015)
Investment Climate - US State Department
Hong Kong became a Special Administrative Region (SAR) of the People's Republic of China (PRC) on July 1, 1997. Hong Kong’s status since reverting to Chinese sovereignty is defined in the Sino-British Joint Declaration (1987) and the Basic Law. Under the concept of “one country, two systems” articulated in these documents, Hong Kong will retain its political, economic, and judicial systems for 50 years after reversion. Hong Kong pursues a free market philosophy with minimal government intervention. The Hong Kong Government (HKG) welcomes foreign investment, neither offering special incentives nor imposing disincentives for foreign investors.
Hong Kong's well-established rule of law is applied consistently and without discrimination. There is no distinction in law or practice between investments by foreign-controlled companies and those controlled by local interests. Foreign firms and individuals are allowed freely to incorporate their operations in Hong Kong, register branches of foreign operations, and set up representative offices without encountering discrimination or undue regulation. There is no restriction on the ownership of such operations. Company directors are not required to be citizens of, or resident in, Hong Kong. Reporting requirements are straightforward and are not onerous.
Nineteen years after its reversion to PRC sovereignty, Hong Kong remains an excellent destination for U.S. investment and trade. Despite a population of less than eight million, Hong Kong is America’s ninth-largest export market, the sixth-largest for total agricultural products, and fourth largest for high-value consumer food and beverage products. Hong Kong's economy, with its world-class institutions and regulatory systems, is based on competitive financial and professional services, trading, logistics, and tourism. It is the world's most services-oriented economy, with the service sector accounting for more than 90 percent of its nearly USD 308 billion GDP in 2015. Hong Kong hosts a large number of regional headquarters and regional offices. Close to 1,400 U.S. companies are based in Hong Kong, and more than half are regional in scope. Finance and related services companies, such as banks, law firms, and accountancies, dominate the pack. Seventy of the world's 100 largest banks have operations here.
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