US sanctions pose quandary for banks operating in Hong Kong

By GT staff reporters Source: Global Times Published: 2020/8/10 21:47:33

Moves have no legal standing in HKSAR: analysts


About 100 fishing boats in Hong Kong sail on July 1 in Victoria Harbor to celebrate the 23rd anniversary of its return to the motherland and the first day of the enforcement of the National Security Law in the city. Photo: cnsphoto



Fresh US sanctions against Chinese officials, having been defined by the Hong Kong Monetary Authority (HKMA) as lacking legal standing in the special administrative region (SAR), could still put some locally operated foreign banks with strong links to the US in a quandary, financial industry watchers said Monday.

As part of an escalating anti-China pattern, the US Department of the Treasury on Friday announced sanctions on 11 Chinese mainland and Hong Kong officials, in-cluding HKSAR Chief Executive Carrie Lam, for allegedly undermining the city's autonomy. 

"All property and interests in property of the individuals named above, and of any entities that are owned, directly or indirectly, 50 percent or more by them, individually, or with other blocked persons, that are in the US or in the possession or control of US persons, are blocked and must be reported to" the Office of Foreign Assets Control, according to the US announcement. 

The sanctions have no legal standing, according to local laws, and consequently there is no need for locally operated banks to take heed of the US' demands, Francis T. Lui, professor emeritus of the Hong Kong University of Science and Technology, told the Global Times Monday.

The US sanctions constitute a unilateral move by a foreign government, and they are not part of the UN's international targeted financial sanctions regime. Thus they have no legal effect in Hong Kong, the HKMA said late Saturday, according to the Xinhua News Agency. 

The HKMA has explained related requirements to all accredited institutions and li-censees of payment and stored value facilities and notified accredited institutions of the need to treat clients fairly when evaluating whether to continue offering services to the sanctioned individuals or entities. 

The US has long been accustomed to the exercise of long-arm jurisdiction, but the US government might not necessarily go so far as to force banks in Hong Kong to be sub-ject to its jurisdiction, which could easily prompt countermeasures, Lui said.

With a substantial vested interest in the city's financial services sector, the US tends to base its actions on whether they truly comply with its own interests, he went on to say, noting however that banks with operations in the US, such as HSBC, might have to take sides.

Locally operating banks are intensifying scrutiny of their customers and one unidenti-fied US bank is moving to suspend accounts linked to some sanctioned officials to avoid running afoul of US sanctions, according to Bloomberg. 

"Two major Chinese banks are assessing what needs to be done based on their risk tolerance and compliance requirements," the report said, without identifying the banks. 

Requests for comment sent to foreign banking giants with operations in the city, in-cluding Standard Chartered and HSBC, were unanswered as of press time.

The sanctions would certainly have an impact on the local financial market, said Hong Hao, managing director and head of research at BOCOM International, a subsidiary of Bank of Communications.

For banks operating in both Hong Kong and the US, particularly HSBC, if they vio-late US rules, there is a chance that the US will sanction these banks' operations on US turf, Hong told the Global Times Monday.

The latest move therefore creates ripples in the city's financial market, although the affected banks can theoretically resort to legal actions to defy non-compliant US rul-ings, he said.

The benchmark Hang Seng Index ended down 0.63 percent at 24,377.43 points Mon-day, falling for the third consecutive trading day.

In the eyes of Lui, the conflict has yet to become intense. Still, it's best to be pre-pared, and it would be essentially risk-free to opt for Chinese-invested banks, he said. Even if these banks are operating in the US as well, they cannot refuse to open ac-counts for the affected individuals according to Hong Kong's laws and regulations.
Newspaper headline: Banks grapple with US acts


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