Having “piles of cash” around the house is not usually an admission a political leader is willing to make.
But Hong Kong’s chief executive Carrie Lam revealed late last year that her salary was now being paid in cash after being abandoned by international banks once she was sanctioned by the US.
The US action against Chinese and Hong Kong officials, including Ms Lam, followed Beijing’s imposition of a national security law on the territory in June. That presented a problem not only for Ms Lam and the officials but also a compliance nightmare for international banks in Hong Kong.
These banks were effectively forced to choose between access to the US dollar-based financial system and their desire to stay in Beijing’s good books by keeping open the accounts. They chose the US.
Initially, after informal assurances from regulators that they were unlikely to fall foul of Beijing by cutting off the accounts, banks confidently told investors last year they had managed the conflict.
But the freezing of a bank account of a former pro-democracy lawmaker over the new year has shown the compliance problems are only getting more fraught for the banks, particularly for HSBC, which is a dominant provider of retail banking in the territory.
Hong Kong’s police requested that HSBC, the bank’s subsidiary Hang Seng and Bank of China freeze accounts owned by Hong Kong pro-democracy lawmaker Ted Hui and his family, who had fled the city for the UK. Mr Hui was out on bail over charges relating to his role in the 2019 anti-government protests.
The uproar over Mr Hui’s accounts pinged up from Victoria Harbour to Westminster where there were calls for the bank to be denounced and its executives hauled before parliament.
“[HSBC] has behaved in a disreputable and appalling way in freezing the accounts of an individual fleeing for justice. Surely this is an outrage that the government can now say should stop,” said Sir Iain Duncan Smith, a Tory MP and China critic. Mr Hui has urged the international community to sanction financial institutions that he believes are complicit in Beijing’s crackdown on Hong Kong.
Mike Pompeo, US secretary of state, had previously accused HSBC in August of aiding China’s “political repression” in Hong Kong.
However, regulation experts in Hong Kong say there were few alternative options for HSBC.
“It’s completely normal to freeze the account of someone accused of crimes,” Douglas Arner, a law professor and financial regulation expert at the University of Hong Kong, says. “In this case . . . It is a crime sufficient to get a freeze.”
Nick Turner, a compliance expert at Steptoe lawyers, says banks risk being held liable under local money laundering laws if they ignore police requests.
Meanwhile, Hong Kong’s police and prosecutors have stepped up their crackdown on the city’s pro-democracy opposition. Two high-profile activists, Joshua Wong and Agnes Chow, were sent to prison last month. Separately, Jimmy Lai, the media entrepreneur and outspoken critic of Beijing, was detained by police and charged with fraud in early December over a dispute involving his office lease.
Weeks after the accounts were frozen, Mr Hui — a constant presence at 2019’s protests — also found that his and his families’ HSBC credit card accounts had also been closed. Mr Hui told the Financial Times that the bank did not “want to do business with me, with politicians and the family of politicians”.
HSBC said: “We are unable to comment on matters concerning specific accounts. We have to abide by the laws of the jurisdiction in which we operate and this case is no different.”
Lawyers say banks are increasingly incentivised to avoid offering services to any Hong Konger who could get them into hot water.
One compliance officer at an international bank in Hong Kong said employees are so worried they try to avoid having their name attached to decisions on individual accounts considered political, even attempting to get closure decisions signed off offshore. “We are all on edge,” the officer said.
With Hong Kong’s police targeting the commercial and financial interests of activists, and their critics in the UK and US just getting louder, HSBC’s political problems are far from over.