Hong Kong and its banks facilitate the scamming of thousands of Europeans. The European Funds Recovery Initiative (EFRI) was joined by a group of more than 30 Europeans that became victims of highly sophisticated and devious boiler room scams. The fraud is currently coming from China, especially from its financial center in Hong Kong. The scammers abuse the reputation of the Asian financial metropolis.

In the past years, the financial damage in Europe caused by this fraud scheme is estimated to be beyond EUR 100 million. Countries affected by this financial fraud are Austria, Belgium, Germany, Italy, the Netherlands and Switzerland. 

No proper Know Your Customers Due Diligence

Hong Kong is an active member of international AML/CFT organizations, having been a member of the Financial Action Task Force (FATF) since 1991 and a founding member of the Asia/Pacific Group on Money Laundering (APG) since 1997. However, Hong Kong banks do not carry out proper Know Your Customers Due Diligence and do not monitor ongoing transactions for suspicious transactions as required by the FATF KYC/CFT standards.

Facilitators for fraud scheme

With being a gateway between mainland China and the rest of the world and a known prospering investment place for Chinese technology companies, Hong Kong has set the grounds for immense fraud activities at the expense of unsuspecting Europeans for many years now. Hundreds, if not thousands of Europeans have been transferring millions, if not billions, of their life-time savings to Hong Kong banks, trusting in a safe and developed banking environment.

The ease of forming companies in Hong Kong, of accessing to mainland Chinese who sell their identities and the ease of opening accounts at reputable Hong Kong banks are obviously facilitators for this fraud scheme. Moreover, the negligent handling of the money laundering laws and compliance rules by the involved Hong Kong banks makes scamming possible.

Lured by fancy brokerage websites and allegedly highly experienced brokers that present compelling investment opportunities, European retail investors deposit material amounts with Hong Kong – based trading companies for investments in promising Asian technology companies.

Fake companies

Hong Kong company builders are used to administer the fake promising Chinese technology companies, to set up and to administer the fake trading companies, supposed to handle the acquisition of the shares in the promising Hong Kong investment opportunities.

Shell companies that were registered years ago, get redressed as promising technology companies with upcoming IPOS or shares of these companies being on sale. Sophisticated websites and fake reviews in reputable online media pretend to be a successful technology company operating in Hong Kong.

Examples are:

Trading companies show the following characteristics:

• The majority of these trading companies are newly founded. The setup and registration process was done by only a limited number of Hong Kong company builders.
• More or less all of them have registered offices in the relevant Hong Kong company builder´s offices.
• The registered managing directors and nominee shareholders are mainland Chinese with no residency in Hong Kong.
• The trading companies have no employees.
• The business purpose as registered in the commercial register of Hong Kong does not match with the obvious activities of these trading companies – exclusively acting as illegal payment service providers.
• Quite a number of the trading companies have been dissolved by now. The bank accounts were emptied and the money was sent offshore.
• Hong Kong’s status as an international financial centre, the relative ease of forming a company and its geographic location expose it to the misuse of legal persons.

Overview

More than 30 European victims, all registered with EFRI, transferred more than 8 Mio EUR to 55 Hong Kong registered trading companies, with 49 different Hong Kong bank accounts and 6 bank accounts in other jurisdictions:

Red flags in the process:

• Serial opening up of bank accounts for shell companies organized by Hong Kong company builders.
• Material wire transfer amounts, sometimes more than EUR 200,000, from European retail investors.
• Some transfers made by the victims had incomplete bank account numbers, while the transactions were still completed without any inquiries by the receiving banks.
• Victims have alerted the Hong Kong supervisory authorities, the Hong Kong criminal authorities and the compliance departments of the banks involved. 

“Boiler room accounts usually have a lot of small deposits coming in from various countries. Money is removed from accounts in cash withdrawals. Those transaction patterns could indicate a money laundering technique called ‘smurfing’. This is where customer due diligence processes come in. Banks should check what type of business the customer has before opening an account. They should continue monitoring the customer's business. Criminal complaints against the scammers and the banks have been filed in the home jurisdictions of the European victims, in Hong Kong and Singapore. As the victims are eager to get hold of the scammers and to find out more about the role of the banks, they are prepared to pay a considerable reward up to USD 150.000 for any whistleblowers handing over valuable information,” says Elfriede Sixt.