Exclusive: Global Banks Analyze Their Hong Kong Clients For Pro-Democracy Ties

HONG KONG (Reuters) – Global wealth managers are examining whether their clients in Hong Kong have ties to the city’s pro-democracy movement, in a bid to avoid being caught in the sights of China’s new national security law, according to six knowledgeable people. of the question.

Banqueros at Credit Suisse Group AG (CSGN.S), HSBC Holdings Plc (HSBA.L), Julius Baer Gruppe AG (BAER.S) and UBS Group AG (UBSG.S), among others, are expanding scrutiny under their programs that evaluate clients for political and government ties and subject them to additional diligence requirements, these people said.

The designation, called politically exposed persons, can make it difficult or completely for people to access banking services, depending on what the bank finds about the person’s source of wealth or financial transactions.

Controls at some wealth managers have consisted of analyzing comments made by clients and their associates in public and in the media, and social media posts in the recent past, these people said. The new law prohibits what Beijing broadly describes as secession, subversion, terrorism, and collusion with foreign forces, with up to life in prison for criminals.

The sources, who requested anonymity due to the sensitivity of the situation, said the clients’ expanded scrutiny also applied to Hong Kong and Chinese officials who had implemented the law in anticipation of any U.S. sanctions against them. .

A banker to a global wealth manager who owns more than $ 200 billion in assets said that the audit of his clients could go back to 2014 in some cases to assess a client’s political position from the 2014 pro-democracy “umbrella” movement. From Hong Kong. Protesters at the time used umbrellas to protect themselves from tear gas and pepper spray that the police deployed.

Reuters was unable to find out the identities of people who had faced improved scrutiny or if banks had decided to take any action against people identified as politically exposed.

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

“Actually, there isn’t much you can do, unless you cease all your financial and banking activities in Hong Kong,” Ho said, adding that he had not faced additional scrutiny from his bank until last week. He declined to reveal the name of his bank.

HSBC declined to comment specifically on the security law or any measure by the United States to sanction local officials. In an email statement, she said: “We already have a strict set of rigorous policies and processes that we apply globally.”

Credit Suisse, Julius Baer and UBS declined to comment.

In an emailed statement, the Hong Kong Monetary Authority said the financial center implements anti-money laundering requirements “based on international standards, including with respect to politically exposed persons.”

“The relevant international standards and our guidance for the banking industry have not changed,” said the city’s de facto central bank.

The Chinese Foreign Ministry, the Hong Kong Liaison Office and the State Council’s Hong Kong and Macao Affairs Office did not respond to requests for comment.

BANKS IN FOCUS

Global banks have long screened their clients’ backgrounds, including detecting political ties, to satisfy regulatory requirements. Politicians, government officials, and senior executives of state-owned companies, as well as members of her family, are generally considered politically exposed persons.

The rules aim to enforce laws like international sanctions and prevent people from using the banking system to launder battered wealth.

The banks ‘move to subject supporters of the Hong Kong democratic movement to a similar review comes at a time when some companies’ stance on Chinese law has come under scrutiny by Western lawmakers and activists.

HSBC and Standard Chartered Plc (STAN.L), who have voiced support for the national security law, for example, have faced criticism from UK officials that their actions allowed Beijing to undermine the rule of law in the former British colony.

The two London-based banks said they believed the law would restore stability in Hong Kong.

Both Hong Kong and Chinese officials have said the law was vital to plug holes in national security defenses, rejecting criticism from governments, including the United States and the United Kingdom, that China was violating its promise to safeguard freedom. Hong Kong for 50 years after Delivery in 1997.

REGULATORY RISKS

Some wealth managers in Hong Kong say they are concerned about the reputational and regulatory risks to their banks if charges are filed under the general security law against some of their politically linked clients, three sources said.

A senior executive at a regional wealth manager said his company’s risk and compliance team prepared a list of Hong Kong’s top 10 individuals identified in local media as sympathetic to democracy within a couple of days after the enactment. of the law on July 1. delivery anniversary.

The executive said that his firm reviewed its internal database to see if they had an existing relationship with any of them and that they were “quite relieved” to see that they did not.

Various elements of the 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. Businesses can also face penalties, ranging from fines and suspensions to the loss of business licenses.

An investment manager for a Hong Kong-based hedge fund said he expected more people to come under scrutiny by his bankers now. “I think even if a moderate Democrat walked through the door wanting to invest, he would be thinking long after this law,” said the fund’s administrator.