Attorney Shao Shiwei | Unveiling the Chaos of Mainland Residents Purchasing Insurance in Hong Kong: Gray Interest Chains, Illegal Foreign Exchange, and Criminal Boundaries (Part II)

In the articleUnveiling the Chaos of Mainland Residents Purchasing Insurance in Hong Kong: Gray Interest Chains, Illegal Foreign Exchange, and Criminal Boundaries (Part I), Attorney Shao outlined the reality of mainland residents purchasing insurance in Hong Kong, as well as the types of practitioners involved in the industrial chain and common modes of non-compliant operations. It was also pointed out that practitioners often have significant misconceptions regarding the legal risks associated with these behaviors.

For insurance practitioners to achieve genuine risk prevention, the prerequisite is a clear understanding of legal boundaries to avoid "unintentional acts" evolving into criminal charges.

This article will continue to analyze the potential legal risks triggered by these behaviors, starting from the perspective of "motivation." After all, motivation not only determines the starting point of an action but often determines whether the boundaries of the action are crossed.

1. Driven by Direct Economic Interests

• Arbitrage through High Commissions and Referral Fees

To compete for the insurance business of mainland visitors, some insurance brokerage firms even pay over 90% of commissions to "referrers." Driven by such high returns, some "referrers" not only illegally solicit clients in the mainland but also assist clients in exchanging foreign currency through underground channels, ultimately facilitating the signing of insurance policies and forming a gray operational chain of "sales—foreign exchange—commission sharing."

• Earning Foreign Exchange Service Fees

When clients lack sufficient foreign exchange quotas, practitioners are often asked by clients to "do a favor" by recommending private foreign exchange channels. As mentioned in the typical case from the Supreme People's Procuratorate at the beginning of this article, He Mouwei and others utilized the resources accumulated during the promotion of insurance business to introduce foreign exchange channels to mainland clients, helping them complete the conversion of RMB into HKD and USD for the payment of overseas insurance premiums.

It is worth noting that, according to current laws and regulations in China, if the cumulative transaction amount exceeds 5 million RMB, or if the service fees collected exceed 100,000 RMB, the threshold for filing a case for the crime of illegal business operations is met.

2. Other Factors: Seemingly "Helping," but Actually Harboring Hidden Risks

Of course, in reality, many people do not act entirely for profit. Behind their "non-compliant" behaviors, there are often more complex practical pressures and cognitive misconceptions.

• Renewal Pressure under the Top Talent Pass Scheme / Quality Migrant Admission Scheme

Hong Kong's talent introduction policies, such as the "Top Talent Pass Scheme" and "Quality Migrant Admission Scheme," set hard requirements for performance indicators for applicants during their stay in Hong Kong. Taking the "Top Talent Pass Scheme" as an example, applicants must meet conditions such as an annual income of 240,000 HKD within two years to qualify for visa renewal. Some new immigrants, unable to meet performance tasks in the short term, take the risk of "inflating performance" by selling insurance policies in violation of regulations, or even assisting clients in exchanging foreign currency.

• Acquiring Clients, Building Brands, and Developing Backend Business

For some leading insurance brokerage firms, insurance policies are merely entry points for traffic, with the core goal being to build long-term client relationships. Therefore, they are willing to provide free foreign exchange assistance services to clients, not for the commission of a single policy, but to lay the groundwork for subsequently guiding clients to participate in high-yield financial products such as trusts and funds.

Meanwhile, some intermediaries use gimmicks such as "free foreign exchange" and "one-stop services for purchasing insurance in Hong Kong" on social media platforms or in private domain traffic to attract users, accumulating influence and trust in the market to form a long-term pool of clients.

From the perspective of illegally providing foreign exchange assistance during the process of mainland residents purchasing insurance in Hong Kong, we can outline the legal risks faced by relevant practitioners from high to low as follows:

1. Criminal Risks

Due to insufficient understanding of legal provisions, some practitioners misjudge the legality of "introducing foreign exchange" behaviors, believing that as long as they do not handle funds directly, or charge very little, or even introduce services free of charge, it constitutes only an administrative violation and does not touch upon criminal law. However, judicial practice shows that this idea is incorrect. Numerous cases have clearly stated that the act of introducing the buying and selling of foreign exchange constitutes the crime of illegal business operations, even if one does not directly participate in the transfer of funds.

For example, in the articleLawyer's Reminder: Prevent Hong Kong Check Transfer Foreign Exchange Scams; Fraudsters Flee, Introducer Sentenced to 5 Years(see image below), Attorney Shao mentioned that in 2020, Gao Mou, who had long been engaged in study abroad and immigration services, was sentenced by the court to five years of imprisonment for the crime of illegal business operations due to introducing foreign exchange transactions.

Another example is the case:Do Not Introduce Others to Buy and Sell Foreign Exchange, Beware of Being Convicted of Illegal Business Operations! — Acquaintance Introduces Foreign Exchange, 'Middleman' Convicted as Principal Offender, Sentenced to 8 Years, Is It Unjust? (Part II), where a banking practitioner was convicted of the crime of illegal business operations for introducing foreign exchange transactions (see image below).

2. Administrative Risks

According to the Regulations on Foreign Exchange Administration implemented in 2008, for acts such as disguised buying and selling of foreign exchange or illegally introducing the buying and selling of foreign exchange,

if the amount is relatively large, the state foreign exchange management authority shall issue a warning, confiscate illegal gains, and impose a fine of up to 30% of the illegal amount; for serious circumstances, the fine may be as high as the equivalent of the illegal amount.

It is worth noting that the threshold for so-called "relatively large amounts" is extremely low:

The amount for disguised buying and selling of foreign exchange is equivalent to 1,000 USD or more;

The amount for illegally introducing the buying and selling of foreign exchange is equivalent to 50,000 USD or more.

In the typical cases released by the Supreme People's Procuratorate, Fan Mou, Zhao Moumou, and Luo Moumou profited 27,900 yuan, 22,700 yuan, and 14,500 yuan respectively through illegally introducing foreign exchange transactions, and were ultimately imposed huge fines of 2.679 million yuan, 2.867 million yuan, and 1.4 million yuan respectively.

3. Regulatory Penalty Risks

In addition to facing criminal and administrative penalties, practitioners may also face enforcement accountability from industry regulatory authorities.

Since September 2024, the Shenzhen Regulatory Bureau and the Guangdong Regulatory Bureau of the National Financial Regulatory Administration have issued internal documents to launch a special governance campaign across their jurisdictions and the entire industry against "illegal sales of overseas insurance products and non-compliant cross-border insurance purchases."

The scope of self-inspection includes, but is not limited to: institutions or individuals receiving benefits from overseas insurance institutions; promoting or recommending overseas insurance products through the internet and other channels; and arranging for clients to purchase insurance overseas.

The subjects included in the investigation are not limited to overseas insurance brokers, but also include agents in the bank-insurance channel, insurance company agents, practitioners in professional insurance agency institutions, and personnel in insurance brokerage institutions.

Earlier, in 2019, the Shanghai Banking and Insurance Regulatory Bureau also penalized an insurance agency company for illegally recommending overseas insurance products within the mainland, resulting in a warning and a fine.

According to the Insurance Law, Provisions on the Supervision and Administration of Insurance Agents, and other laws and regulations, if practitioners are found to have engaged in non-compliant behaviors, they may face: revocation of practicing qualifications; high administrative fines; industry bans (those with serious circumstances may be permanently prohibited from engaging in insurance intermediary-related work), etc.

Hong Kong insurance has long been favored by high-net-worth individuals in the mainland due to its characteristics such as high leverage, high returns, asset segregation, and tax avoidance. However, precisely because these products are highly attractive and profitable, some gray or even illegal operations have emerged.

In reality, there is a special group in the insurance industry: those who clearly work in insurance in the mainland but secretly promote Hong Kong insurance policies, calling themselves "Hong Kong Insurance Consultants"; and those who are employees of Hong Kong insurance companies but remain stationed in the mainland for long periods, conducting business in a disguised manner.

At present, Hong Kong and Macao insurance institutions are not permitted to conduct cross-border sales in the mainland. In the process of facilitating transactions, once assistance in foreign exchange or bypassing regulations is involved, the risk coefficient increases significantly.

As an insurance practitioner, if you are uncertain whether a certain business activity is legal and compliant, it is recommended to consult with a professional lawyer in a timely manner before conducting business to clarify boundaries, control risks, and ensure your own safety.