Suspicious Transactions Arising from Placing

SFC reprimanded and fined BMI Securities Limited (BMISL) $3.7 million for failures in complying with AML/CFT regulatory requirements. It also suspended Ms Maggie Tang Wing Chi, BMISL’s RO, for five and a half months.    

In 2016, a number of BMISL’s clients subscribed for the placing shares of 2 Hong Kong-listed companies and subsequently transferred most or all of these shares to third parties using bought and sold notes in a series of off-exchange transactions.

The off-exchange transactions, whose consideration ranged from $4.4 million to $855.9 million apiece, displayed various suspicious features including:

• the subscription amount for the placing shares was incommensurate with the clients’ financial profile; and
• the clients did not conduct any other transactions in their BMISL accounts apart from acquiring and disposing of the placing shares.

SFC reported those suspicious activities to JFIU.

SFC alleged, during the period from 1 May 2016 to 30 Nov 2017, BMISL failed to:

• implement adequate internal controls to mitigate the ML/TF risk associated with suspicious transactions conducted through bought and sold notes;
• identify, and conduct proper enquiries and sufficient scrutiny on, suspicious transactions and consider reporting them to JFIU;
• perform appropriate CDD and keep customer information up-to-date and relevant; and
• put in place adequate and effective procedures for the identification of PEP and the screening of terrorist and sanction designations.

The SDA revealed 3 cases indicating BMISL's failure to identify and conduct proper enquiries and scrutiny on suspicious transactions. Those red flags were in fact too obvious to be ignored. BMISL as the placing agent should not turn a blind eye to the subsequent off-exchange transfers of those placed shares.

With reference to this case, compliance professionals should include those red flags highlighted by SFC in their AML monitoring program.