National security law: Hong Kong banks told by HKMA to report suspicious transactions
- New advice tells banks to report suspected national security violations as they would report incidents of money laundering, terrorism financing
- Controversial law targets acts of secession, subversion, terrorism and collusion with foreign forces
Banks operating in Hong Kong have been told to report financial transactions believed to violate the city’s controversial national security law (NSL) as they would suspected incidents of money laundering or terrorism financing, according to the city’s top financial regulator.
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In general, banks are required to implement effective anti-money-laundering and counterterrorism financing systems, including “detecting and reporting suspicious transactions to law enforcement agencies for investigation,” a HKMA said in a statement. “There is no change to the relevant international standards and the HKMA’s requirements with respect to suspicious transaction reporting,” it added.
The Hong Kong Association of Banks, which drafted the frequently asked questions advice alongside the HKMA, did not respond to a request for comment on Tuesday. The Financial Times reported the change earlier on Tuesday.
Beijing adopted the national security law for the city on June 30, the day before the 23rd anniversary of the handover of Hong Kong and an annual march by opposition activists.
The national security law is the latest flashpoint between Washington and Beijing as relations between the world’s two biggest economies become increasingly strained over a variety of issues, including technology and trade.
Hong Kong national security law official English version:
International counterterrorism efforts by the US and other countries have included enhanced reporting requirements for banks and other financial institutions regarding suspicious transactions that may be tied to terrorism financing, drug trafficking or money laundering activities.
Global banks operating in Hong Kong must “carefully walk a tightrope” to avoid running afoul of US sanctions and not damaging their businesses in mainland China, as the country further opens up its financial sector, according to Fitch Ratings.
Not complying with US sanctions requests could threaten the ability of foreign banks to access the US financial system. At the same time, the national security law prohibits sanctions against mainland China or Hong Kong.
“So far, foreign banks do not appear to be deterred from maintaining operations in China or Hong Kong, and they continue to see growth opportunities in China, including from the Belt and Road initiative,” Fitch analysts Monsur Hussain and Grace Wu said in a research note on September 22. “But this could expose them to reputational or conduct risks resulting in penalties from their home country authorities if they are perceived to be helping clients evade sanctions and tariffs.”
The city’s three currency-issuing lenders, Bank of China (Hong Kong), HSBC and Standard Chartered, did not respond or immediately have a comment for the story. American bank Citigroup, which also has a large retail operation in Hong Kong, declined to comment.
A senior banking executive said earlier this year that the city’s lenders would look to the HKMA for guidance if there is a discrepancy, and local rules would take precedence when dealing with customers in Hong Kong.
As the threat of US sanctions loomed this year, some lenders in Hong Kong severed ties with blacklisted city officials or strengthened their review of any transactions going forward with those individuals and their families, according to people familiar with the matter.
But that has not stopped international criticism of HSBC, Standard Chartered and other lenders that publicly supported the law this year in the hopes that it would bring stability to an economy racked by months of protests and the coronavirus pandemic.
HSBC declined to comment, but chief executive Noel Quinn previously said: “We follow the laws and regulations of all of the countries in which we operate and will continue to do that.”