British Virgin Islands leaks

Tighter scrutiny of potential mainland clients by banks in Hong Kong

Tighter background checks have prevented a number of wealthy mainlanders from moving money to Swiss private banks in Hong Kong

PUBLISHED : Tuesday, 20 May, 2014, 11:12am
UPDATED : Tuesday, 05 April, 2016, 3:01pm

International wealth managers in Hong Kong, especially private banks from Switzerland, are tightening their background checks on potential mainland clients, particularly those with important political ties.

The moves have prevented a number of wealthy mainlanders from opening offshore accounts in Hong Kong, people in the financial industry familiar with the situation told the South China Morning Post.

Hugo Williamson, managing director of Risk Resolution Group, a British risk consultancy, said anti-money-laundering and "know your client" regulations had become stricter in Hong Kong.

"It is fairly common knowledge within the banking sector that more stringent compliance measures are being used for mainland Chinese investors, falling under the 'know your client' initiatives, but specifically looking for 'politically exposed persons'," Williamson said.

Many wealthy Chinese clients open accounts with Swiss banks to take advantage of the country's reputation for bank secrecy.

A relative of a member of the Chinese People's Political Consultative Conference - the mainland's top political advisory body - recently withdrew an application to open an account in Hong Kong with Lombard Odier after being required by the bank's compliance officers to provide additional information about income sources and political ties, according to a source with knowledge of the matter.

An e-mail sent by the Post to the bank's Geneva headquarters requesting comment went unanswered.

Compliance officers at key Swiss banks, including Credit Suisse and UBS, have stepped up background checks on new mainland clients, industry sources said.

In February, the Post reported that UBS helped to set up a secretive offshore firm for the wife and daughter of a former senior Chinese official, who has since been convicted of corruption.

UBS declined to comment on offshore accounts when contacted by the Post.

The enhanced vigilance on the part of the banks comes after the International Consortium of Investigative Journalists earlier this year revealed nearly 22,000 offshore clients with addresses on the mainland or in Hong Kong, and 16,000 from Taiwan.

Those who were shown to have offshore accounts included relatives of at least five current or former members of China's top leadership.

While offshore accounts do not necessarily imply illegal activity, the report came at a crucial moment in China's debate about the wealth amassed by family members of top leaders.

News about the offshore accounts was banned on the mainland, and senior bankers in Hong Kong have been extremely cautious or have chosen to stay silent when asked about them.

Additional reporting by Toh Han Shih