China’s anti-sanctions law, a new headache for Hong Kong banks
Hong Kong’s financial hub has long touted itself as a reliable trade gateway to China – Copyright AFP Peter PARKS
Yan Zhao and Jérôme Taylor
China’s plan to extend its anti-sanctions law to Hong Kong is a new compliance headache for international banks already caught in the deterioration of relations between Beijing and the major Western powers, analysts and insiders say.
As a financial center with an internationally respected legal system, Hong Kong has long presented itself as a reliable trade gateway to authoritarian China.
But swirling geopolitical tensions – and China’s crackdown on dissent in the city – have made that business environment less fluid over the past two years.
And things could be even more complicated.
In June, China passed a broad anti-sanctions law in response to US and European sanctions triggered by Beijing’s treatment of Hong Kong and its Uyghur Muslim minority in Xinjiang.
Its powers include visa denial, expulsion or seizure of the assets of those formulating or complying with sanctions against Chinese companies or officials.
Foreign companies can be sued in Chinese courts for enforcing penalties, and the law can also be used against family members.
Earlier this week, Hong Kong Managing Director Carrie Lam confirmed that anti-sanctions law would soon be enforced in the financial hub in one form or another.
International companies – especially banks – are now scrambling to determine what this might mean for them, fearing they will be caught between competing sanctions regimes.
“If the law is to be taken seriously, it could be a huge problem if Hong Kong banks are to apply the US sanctions, then face lawsuits in Hong Kong for applying those sanctions,” Julian Ku, legal expert international at Hofstra University told AFP.
– ‘Bite the bullet’ –
Question marks surround what the law might look like.
Chinese state media said Beijing’s main legislative body plans to unveil new, unspecified measures for Hong Kong and Macau at its meeting next week.
Some Hong Kong officials have suggested that Beijing could impose law on the city like it did with extensive national security powers last year that criminalized much of the dissent.
“I know some of us may be very worried,” Justice Secretary Teresa Cheung told reporters earlier this month. “But I think we shouldn’t be too worried at the moment.”
Lam, one of dozens of Chinese officials sanctioned by the United States, said she would prefer the law to be passed locally to suit the city’s legal and business environment.
Such assurances are of limited comfort for people like John, a senior executive working for an international bank in Hong Kong, who fear being caught between an American rock and a Chinese hard place.
“We have no choice, either we close the whole bank, which a lot of people don’t want to do, or we just have to bite the bullet and continue our activities,” he told AFP. asking to remain anonymous to speak freely.
China may be wary of forcing foreign banks out of Hong Kong.
National Security Law already bars companies based there from adhering to foreign sanctions – something the United States highlighted last month in a rare business advisory warning.
– ‘The US dollar is too big’ –
So far, China has not sued any major international bank using this power, even after Lam complained that it did not have a bank account because of the sanctions.
John hopes the same will be true of the broader anti-sanctions law – that it gets over them but not used until the banks are careful.
“Even when a law was passed by Beijing, it would not affect our day-to-day functioning unless we do something they don’t like… We hope they won’t apply the law,” a- he declared.
Steve Tsang, director of the SOAS China Institute at the University of London, said the immediate impact of the anti-sanctions law “is likely to be limited – at least until the law is enforced.”
Banks and multinational companies, he added, tend to act normally “rather than looking at the medium to long term implications of a change in China’s policy.”
“The Chinese government is counting on it. The Communist Party always assumes that the capitalist will sell it the rope with which it intends to hang them, ”he declared.
John said if the pressure were to take hold, most banks would likely choose Washington over Beijing.
“We will abide by US sanction orders because the US dollar is too important for a bank,” he said.
What if it could violate local laws or be prosecuted?
“Foreign companies would like to leave Hong Kong,” he replied. “They don’t necessarily need to open a branch here, they could do it in Tokyo or Singapore.”