US legislating to fine banks that do business with Chinese officials
WESTERN banks could be forced to conduct sweeping reviews of their operations in China after American politicians approved sanctions linked to a controversial security law imposed on Hong Kong.
Non-US banks could be handed multimillion-pound fines for doing business with certain Chinese officials under the new law, which has been signed off by the House of Representatives and must now face the US Senate before being sent to Donald Trump.
The American rule could pose a severe headache for British lenders such as HSBC, Standard Chartered and Barclays by forcing them to comb through client databases to ensure they are not breaking the rules. It will also likely concern firms such as Credit Suisse and UBS, which have vigorously courted rich Asian clients as part of a push into wealth management.
HSBC and Stanchart are particularly exposed given their huge presence in Hong Kong. Both face a savage backlash because they backed the security law, which allows police to arrest dissidents in the former British colony.
Jason Hungerford, a trade expert at law firm Mayer Brown, said the sanctions could restrict the sort of transactions banks are able to engage in. He said: “The impact will be on the business they can conduct. They may have to rethink some client relationships – if a government minister [who has been sanctioned] is a beneficial owner of an industrial company, and that company banks with HSBC, that could be considered a significant transaction. HSBC will take a conservative view.”
However one HSBC investor said that shareholders were not concerned that the sanctions would rattle banks as they would likely just be against some individuals rather than putting their whole business models at risk. Shares in HSBC and Standard Chartered rose 3.9pc and 2.6pc respectively yesterday.
Sources said that bank lobby group UK Finance is keeping a close eye on developments both from the UK and via contacts in Hong Kong to see how the potential sanctions might impact members.
London-listed HSBC was founded in Hong Kong in 1865 and makes almost all of its money in Asia.
Michael O’Kane, a white-collar crime lawyer at Peters & Peters, said that banks are “extremely nervous about falling foul of US law” and so will ensure they are not dealing directly with anyone who is sanctioned once the list comes out. In the worst case lenders that anger the American authorities could be stripped of their crucial dollar licences.
He said this puts banks in a difficult position because they risk angering the Chinese when following US orders.
Dominic Raab, the Foreign Secretary, this week launched a fresh broadside against HSBC over its support for a brutal crackdown in Hong Kong.