HONG KONG • Banks operating in Hong Kong are stepping up scrutiny of their customers and at least one US bank is moving to suspend accounts to avoid running afoul of US sanctions slapped on city officials, putting them at risk of violating the controversial security law imposed by China.
Asking not to be named discussing clients, people familiar with the decision said yesterday 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 wouldn’t entirely brush off the sanctions.
The US last Friday sanctioned 11 officials, including Chief Executive Carrie Lam and China’s top enforcers in the financial hub, over their role in imposing the security law. The sanctions forbid banks from doing business with the penalised individuals.
But complying with that order could put lenders directly at odds with the security law, which spells out that no sanctions or hostile actions can be applied against the city and mainland China.
“The ball is now in the banks’ court,” said Kevin Lai, a chief economist for Asia excluding Japan at Daiwa Capital Markets 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 security law and the US. Hong Kong Autonomy Act, which enabled the sanctions, were passed last month.
Additional levels of screening will be done now to cope with potentially further sanctions on politically exposed people, 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 legislations put companies at risk of fines or losing their licence to do 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 and Industrial & Commercial Bank of China Ltd could also be ensnared, with their crucial access to dollar funding at risk.
The latest US order doesn’t include a wind-down period, suggesting banks will be subject to the law immediately. Foreign financial institutions that don’t operate within the US won’t be caught up as long they don’t help sanctioned individuals with transactions linked to US dollars, the people said.
China yesterday retaliated by sanctioning 11 Americans, including Senators Marco Rubio and Ted Cruz and Human Rights Watch ED Kenneth Roth and Michael Abramowitz, the president of Freedom House. — Bloomberg