• In recent years, international efforts in combating illegal activities including money laundering, terrorist financing and tax evasion have stepped up significantly. This has prompted banks to enhance their anti-money laundering and counter-terrorist financing controls in general, including a more stringent customer due diligence (CDD) process for existing and new customers. Therefore, we understand that, compared with few years ago, the current account opening process is more complex and requires longer time.
   
• In order not to miss any business opportunities, while some SMEs are waiting for the approval of their business banking accounts, they would choose to use their personal bank accounts to pay for business expenses and collect customer payments.

Using personal bank accounts for business could lead to four major risks:

1. Termination of personal banking services: 
   Personal bank accounts are designed to cater to the banking needs of personal customers (e.g., paying personal bills). When any use of personal accounts for business purposes is identified by banks, banks usually recommend the customer to open a business account. If the situation persists, banks are entitled to terminate the customer’s personal banking services. 
    
2. Potential breach of relevant requirements of the Inland Revenue Ordinance (IRO): 
   When businesses settle funds with their personal bank accounts, their bookkeeping and accounting statements could be unclear. They may also fail to provide accurate and complete records of their business receipts and payments or income and expenditure when filing their tax returns. In cases of omission or understatement of business income or profits, the business may breach the IRO. 
    
3. Potential breach of laws relating to tax evasion:
   • In cases of omission or understatement of business income or profits, the business may breach the IRO and even be seen as evading tax. In Hong Kong, “tax evasion” is an indictable offence (under Section 82 of the Inland Revenue Ordinance, Cap. 112) and The Hong Kong Money Authority (HKMA) has already imposed strict requirements for banks to combat tax evasion.
      
   • “Money laundering” refers to the process of concealing the origin of money generated from illegal activities and converting it into a legitimate source by depositing the money in financial institutions to make such money seemingly “legitimate”.  In Hong Kong, as the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AML/CFT) came into effect in 2012, tax evasion is a relevant criminal activity under the scope of money laundering.
      
   • As banks have endeavoured to combat tax evasion and money laundering, when businesses/individuals are potentially in breach of relevant laws, banks will report and implement control measures to the relevant bank accounts.
      
4. Being blacklisted by banks: 
   The control measures of banks may include blacklisting the customers, who may in turn have no access to services provided by banks and financial institutions.

• To avoid the above risks, companies shall establish business accounts for business purposes with banks and stored value facilities governed by the HKMA. 
   
• SMEs may also create and manage a KYC profile of their companies with KYC tools that are of banking regulatory standards. By building and managing their own KYC profile with these tools, SMEs can easily meet the requirements of both bank account opening and ongoing KYC in a faster, more convenient and more cost-efficient ways.
   
• For businesses who use money service operators (MSO) to manage their business expenses, they should pay extra attention. In Hong Kong, MSO is not an institution governed by the HKMA. Its service scope is limited to foreign exchange and remittance only, while deposits are not included. Businesses shall be extra cautious when they see any advertisements by MSOs about opening accounts that offer deposit and value-adding payment services, as MSOs are not allowed to provide these services under the current laws and regulations. 
   
• What any other tools in the market can SMEs use to process local and cross-border business payments in a safe, convenient and cost-efficient way? We will go into details in our next blog article.