Blabbing Banks: Hong Kong ropes in banks on national security law enforcement

November 4, 2020

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2 min read

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What's going on here?

Both local and international banks in Hong Kong have been told to report any transactions that are known, or suspected to be, violating the widely controversial national security law to the police.

What does this mean?

The Hong Kong Monetary Authority, the financial regulator, has issued advice to banks that any transactions linked to breaches of the national security law should be treated in the same way as violations in relation to money-laundering or financing terrorism. The advice, which is not yet official, states that banks should report transactions involving any property related to or from the proceeds of a criminal violation of the law. 

The national security law imposed in June following pro-democracy protests covered any act that is seen to endanger national security and includes terrorism, subversion, separatism and foreign collusion. The introduction of this law was widely criticised for its broad wording being used to curb free speech, silencing dissenters and political opponents.

What's the big picture effect?

The vague wording of the advice and lack of official guidance from regulators has left the banks with no option but to interpret this as widely as possible. As a result, an unnamed compliance officer at a Hong Kong-based international bank has advised his international bank to report anything that might be related to a breach of the law, stating that “if we are not sure, reporting is safer than not reporting”. This is feared to hand the police excessive power to investigate.

However, Hong Kong banks must be careful not to be overzealous in their reporting as they could be accused of breaching the human rights of their customers, potentially contravening standards such as the UN Guiding Principles on Business and Human Rights. 

The reputational risks associated are also important to consider. HSBC, headquartered in London but Hong Kong being its biggest market, came under international fire for publicly backing the security law. However, other corporate players such as Cathay Pacific Airlines have faced retribution from Beijing for the alleged support of pro-democracy protesters, resulting in the company being forced to suspend staff involved in protests. 

As tensions between China and the United States continue to rise, the U.S. State Department last week threatened to sanction financial institutions that engage with sanctioned individuals who are identified as undermining Hong Kong’s autonomy. These guidelines are sure to add fuel to the fire. 

Between these threats, Hong Kong’s guidance to report suspicious transactions and reputational risks, the banks seem to be caught in the cross-hairs, confirming concerns about Hong Kong’s viability as Asia’s major financial hub.

Report written by Yaeno Fernandez

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