It begins: Global banks are scrutinizing Hong Kong clients

FPI / July 23, 2020

Global wealth managers are scouring the social media posts and other public records of their clients in Hong Kong for information on whether they have any ties to the city's pro-democracy movement, which was essentially outlawed under the Chinese communist government's new security law.

Putting China's cash ahead of human rights, the bankers are keen to "avoid getting caught in the crosshairs" of the Chinese Communist Party (CCP) and its new national security law, people with knowledge of the matter told Reuters.

Bankers at Credit Suisse Group AG, HSBC Holdings Plc, Julius Baer Gruppe AG, and UBS Group AG, among others, are broadening scrutiny under their programs that screen clients for political and government ties and subjecting them to additional diligence requirements, the sources said.

"The designation, called politically exposed persons, can make it more difficult or altogether prevent people from accessing banking services, depending on what the bank finds about the person’s source of wealth or financial transactions," the Reuters report said.

A top executive at a regional wealth manager told Reuters that his firm’s risk and compliance team prepared a list of top 10 Hong Kong individuals identified in local media as pro-democracy sympathizers within a couple of days of the enactment of the law on July 1.

The executive said their firm checked its internal database to see if they had existing relationship with any of them and were “quite relieved” to see that they didn’t.

Several elements of the security law deal with the seizure of assets, including provisions to give a new police unit greater powers to freeze and confiscate funds and property as well as greater powers to obtain information. Companies can also face penalties, ranging from fines and suspension to the loss of business licenses.

One investment manager at a Hong Kong-based hedge fund said he expected more people to come under scrutiny from their bankers now. “I think that if even a moderate democrat came through the door wanting to invest, you’d be thinking long and hard after this law,” the fund manager said.

The new security law, signed into effect by supreme leader Xi Jinping, prohibits what the CCP describes broadly as secession, subversion, terrorism and collusion with foreign forces, with up to life in prison for offenders.

One banker at a global wealth manager that holds more than $200 billion in assets said the audit of its clients could go back as far as 2014 in some cases to gauge a client’s political stance since Hong Kong’s 2014 pro-democracy “umbrella” movement.

HSBC and Standard Chartered Plc, which have expressed support of the CCP's national security law, have faced criticism from UK officials that their actions enabled Beijing to undermine the rule of law in the former British colony. The two London-headquartered banks have said they believed the law would restore stability in Hong Kong.

Albert Ho, a veteran Hong Kong pro-democracy supporter who runs a law firm and helps organize an annual candlelight vigil to commemorate victims of the June 4, 1989 Tiananmen Square crackdown, said he feared that people like him may face “difficulties in the times to come.”

“There’s not much you can do, actually, unless you cease all your financial and banking activities in Hong Kong,” Ho said, adding he had not faced additional scrutiny from his bank as of last week. He declined to disclose the name of his bank.

Free Press International