Banks operating in Hong Kong are stepping up scrutiny of their clients and at least one US bank is moving to suspend accounts to avoid running afoul of US sanctions slapped on territory officials, putting them at risk of violating a controversial National Security Law imposed on the territory by China.
Asking not to be named discussing clients, people familiar with the decision yesterday said that one US bank is taking steps to suspend accounts linked to some sanctioned officials.
Two major Chinese banks are assessing what needs to be done based on their risk tolerance and compliance requirements, people party to those discussions said, suggesting they would not entirely brush off the sanctions.
Photo: EPA-EFE
The US on Friday sanctioned 11 officials, including Hong Kong Chief Executive Carrie Lam (林鄭月娥) and China’s top enforcers in the territory, over their role in imposing the legislation.
The sanctions forbid banks from doing business with the penalized individuals.
However, complying with that order could put lenders directly at odds with the National Security Law, which spells out that no sanctions or hostile actions can be applied against the territory and mainland China.
“The ball is now in the banks’ court,” said Kevin Lai (賴志文), a chief economist for Asia excluding Japan at Daiwa Capital Markets Inc in Hong Kong. “They are in a particularly difficult situation, as they also have to take the National Security Law into consideration.”
The steps add to preparations that have been going on since the Chinese legislation and the US Hong Kong Autonomy Act, which enabled the sanctions, were passed last month.
Additional levels of screening would be performed to cope with potentially further sanctions on politically exposed individuals, the people said.
Bankers and their lawyers from Hong Kong to Washington have been poring over the fine print to reconcile how they can dodge major consequences from being squeezed between the two laws.
Running afoul of the laws put companies at risk of fines or losing their license to conduct business.
Lenders, including Citigroup Inc and HSBC Holdings PLC, are walking a tightrope between the two world powers given their operations in Hong Kong and ambitious plans to expand in China.
Chinese lenders, such as Bank of China Ltd (中國銀行) and Industrial & Commercial Bank of China Ltd (ICBC, 中國工商銀行), could also be ensnared, with their crucial access to US dollar funding at risk.
Bank of China and ICBC did not immediately respond to requests seeking comments.
The latest US order does not include a wind-down period, suggesting banks would be subject to the law immediately.
Foreign financial institutions that do not operate within the US would not be caught up as long as they do not help sanctioned individuals with transactions linked to US dollars, the people said.
Hong Kong authorities over the weekend brushed off the sanctions, saying that the unilateral move would not force banks to comply under Hong Kong law.
The Hong Kong Monetary Authority said that local lenders have no obligation to follow and the lenders should treat clients fairly in assessing whether to continue to provide services to an individual.
The assertions by the Hong Kong authorities did little to calm concerns at banks, since they still would need to comply with laws in other jurisdictions, the people said.
The sanctioned individuals include Xia Baolong (夏寶龍), director of the Hong Kong and Macau Affairs Office of China’s State Council, and Hong Kong Police Force Commissioner Chris Tang (鄧炳強). The targeted officials are to have any property and assets in the US frozen.
“The scale looks small for now, as only 11 individuals are affected, but more people could be added to the list and the banks may face secondary sanctions,” Lai said.
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