Hong Kong braces for Monday deadline as Trump’s report puts HSBC, lenders back into sanctions spotlight

Trump administration has a Monday deadline to issue report to Congress in a follow up to Hong Kong Autonomy Act passed in mid-July

HSBC and other lenders in the city could face new restrictions for engaging in “significant transactions” with sanctioned officials

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Police officer raised up a purple flag warning protesters they are in violation of the national security law during a gathering in Causeway Bay on October 1, 2020. Photo: Sam Tsang

Published: 10:00am, 11 Oct 2020Updated: 10:12pm, 15 Oct 2020

Hong Kong’s financial sector could soon find itself back in the middle of an uncomfortable tug of war between China and the United States over Beijing’s imposition of a controversial national security law for the city in late June.

The Trump administration is facing a deadline on Monday to identify, in a report to the US Congress, individuals who facilitated the “erosion” of Beijing’s obligations under the Basic Law. Critics argue the sweeping powers under the national security law impinge on long-held freedoms guaranteed in the city’s mini-constitution.

Trump issued an executive order on July 14 ending Hong Kong’s special economic status, while the US government enacted the Hong Kong Autonomy Act to punish officials accused of curbing the city’s autonomy, as well as the financial institutions that do business with them. The State Department has 90 days to designate them, after which banks will have 12 months to end all business relations.

HSBC, Standard Chartered, and other financial institutions in Hong Kong will be watching the report closely as they could potentially face sanctions themselves. Under the Act, US officials are required later this year to name financial institutions who engaged in “significant transactions” with anyone named in the report.

It is the latest example of the US flexing its muscle through the threat of secondary sanctions on businesses to put maximum pressure financially on governments to achieve diplomatic goals. In the process, American authorities are making more risky transactions that would normally be routine – and still perfectly legal in many jurisdictions, according to compliance experts.

For global lenders with large retail operations in Hong Kong, such as HSBC and Standard Chartered, the risk of running afoul of American authorities is particularly acute as the flow of global trade underpins their bottom lines.