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Hong Kong Monetary Authority

‘A sledgehammer pounding a small nail’: Hong Kong officials urged to act on banks closing accounts in anti-fraud drive

American Chamber of Commerce voices concern over banks’ tough approach in quest to comply with money laundering and terror financing regulations

PUBLISHED : Tuesday, 06 September, 2016, 1:01pm
UPDATED : Tuesday, 06 September, 2016, 11:03pm

With controversy swirling over moves by banks to close accounts amid pressure to crack down on money laundering, tax evasion and terrorist financing,the American Chamber of Commerce in Hong Kong has urged Hong Kong authorities to set up a working group to figure out long-term solutions to allow easier access to banking services.

Chamber president Richard Vuylsteke made the call as many investors ran into difficulties opening as well as retaining company bank accounts in Hong Kong due to stricter international anti-fraud regulations.

A global trust company, for example, regulated in various jurisdictions around the world and a long-time HSBC client that introduced 250 accounts to the bank every year, was suddenly notified last year that all its main operational accounts held with the bank had been closed with no explanation given.

The company head, who wanted to remain anonymous, suspected the closure had something to do with the bank’s desire for a clean break from any offshore businesses to avoid being accused of helping tax evasion.

But this sweeping approach has been criticised for being unfair and prejudicial to legitimate businesses and threatening Hong Kong’s status as a global business centre.

“It is our belief that banks are given a licence and have a moral obligation to use it,” the company head said. “They should open accounts unless there is a compelling reason not to.”

HSBC spokesman Gareth Hewitt said he could not comment on individual cases, but the bank took each case it reviewed seriously and rigorously reviewed complaints.

He said for all account opening applications, it was important to understand the business’ purpose in establishing an account in Hong Kong.

Vuylsteke warned this was a long-term issue that warranted a sustained effort by the government and the Hong Kong Monetary Authority (HKMA) to regularly keep track of its adverse impact on the city’s business environment and render timely assistance.

He said it was necessary for the authorities to set up a working group with all stakeholders to offer solutions, claiming the chances of the anti-fraud regulations being changed were “almost zero”.

“This is one of the most serious things I’ve seen that cuts across all businesses,” he said in an exclusive interview with the Post. “This is something we have to address.”

Market sources said that for existing accounts, especially those located offshore, banks would keep a close eye on any large or irregular transactions and any change in the nature of a business. And if account holders failed to give explanations, they risked having their accounts closed by their banks.

This is one of the most serious things I’ve seen that cuts across all businesses
Richard Vuylsteke, American Chamber of Commerce

Describing the anti-fraud regulations as “a sledgehammer pounding a small nail” that would put off foreign investors and stifle small and medium enterprises in the city, Vuylsteke said the compliance costs for checking every account, large or small, were so high that banks would choose to give up small accounts.

“You are guilty until you prove yourself innocent,” he said. “You’ve got to show you are not a money launderer, not a tax dodger. You’ve got to show your company is legitimate. That’s going to sour relationships.”

A spokeswoman for the US Consulate in Hong Kong expressed concern over the issue.

“Nothing under the Foreign Account Tax Compliance Act prohibits foreign financial institutions from maintaining accounts for US citizens,” she said. “We take seriously any concerns about the availability of banking or other financial services to US citizens living abroad, and are seeking additional information to understand these situations and to what extent FATCA may be a factor.”

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But Vuylsteke said the damage was becoming so great that the city’s 29 international chambers of commerce raised the issue with Chief Secretary Carrie Lam Cheng Yuet-ngor at a conference in June. Lam directed the authority to take a closer look at the issue and report back to her.

He rejected the authority’s claim that only one or two global banks were involved in driving away customers. He claimed this was a general and overwhelming problem among banks in Hong Kong.

“It’s overkill,” he said. “The HKMA needs to talk with the banks and address the concerns of some of the companies which are having troubles, big and small, and see what can be done.” Despite the authority being set to roll out guidelines to help banks streamline the vetting process without compromising due diligence compliance, how to implement the guidelines was a more important matter, he added.

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“They [banks] are very conservative in their interpretation. You have guidelines but how you implement them is very important,” he explained. “The short-term efforts are to give rules flexibility.”

The head of a trust company that had about 60 client accounts closed by their banks said the fact the HKMA only received nine complaints in the past six months showed the authority “is not promoting the channel for complaints properly”.

“I have no doubt the level of hostility to the banks and towards Hong Kong as a location for business is much more than in previous years,” he said.

The trust company head added that whether or not banks were fined for past indiscretions should not affect “the operation or acceptance of bank accounts in Hong Kong ... nor should the HKMA accept that as an excuse for the current situation Hong Kong is facing”.