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Anti-government protesters hold a lunch protest outside the HSBC in Central on December 20, 2019. Photo: Edmond So

Explainer: HSBC, Spark Alliance and the law behind the latest fury in Hong Kong protests

  • Account associated with Spark Alliance was closed in November upon instruction from customer, HSBC says, rejecting links to crackdown by Hong Kong police
  • Closure preceded a notification in December by enforcement agency on handling of fund balance
HSBC

HSBC Holdings, which traces its origin in Hong Kong to March 1865, is the latest institution to be embroiled in the city’s worst political crisis.

What appears to be a routine regulatory decision to close a client’s corporate banking account has triggered an ugly backlash as its outlets became the latest target of vandalism after seven months of anti-government protests.

The client Prime Management Service Limited, though, is no ordinary customer. The account is said to be linked to Spark Alliance HK, which raises money from crowdfunding to help grease the wheel of protests since 2016. It also posted bail for protesters arrested during the opposition to the ill-fated extradition bill for much of last year, according to its Facebook page.

On the eve of Christmas, HSBC’s branch in Mong Kok was smashed while facilities on Hennessy Road outlet were damaged as the city ushered in the new year. Even a pair of iconic pre-war lion sculptures were not spared. All told, almost a dozen branches belonging to HSBC and its majority-owned Hang Seng Bank were put out of action for several days.

The banking group has distanced itself from any linkages that its decision to close the account was tied to a crackdown by the Hong Kong police and the force’s move to freeze about HK$70 million (US$9 million) of its funds.

One of the bronze lions outside the HSBC headquarters in Central was vandalised during an anti-government rally on January 1. Photo: Nora Tam

What happened

HSBC, one of the three note-issuing banks in Hong Kong, closed the account belonging to Prime Management Service Limited after giving its client 30 days to respond. The decision had nothing to do with any police action, the banks said.

“We understand there is concern about the account closure,” HSBC said in an email on December 25 in response to the vandalism in Mong Kok. “As the account has not been used for its stated purpose, we closed the account in November 2019 following fund transfer instruction from the customer.”

The closure preceded a notification in December from the enforcement agency regarding handling of the account balance, the bank said.

What did Spark Alliance say about this

Spark Alliance informed the public on November 18 that the HSBC bank account was being suspended from November 21 for “a number of reasons.” It claimed at the time that the fund was handled properly.

The platform would use other methods to raise fresh funds and urged the public to visit its online shop to support the arrested protesters.

In a December 19 posting, it condemned the police for the arrests of some of its alleged members.

What is the anti-money laundering law in Hong Kong

The anti-money-laundering and counterterrorist Financing Ordinance came into effect on April 1, 2012 and later amended to include additional requirements in April 2018.

The law follows international standards set out by the Financial Action Task Force, an inter-governmental body comprising 37 member countries and two regional organisations to chiefly combat money laundering and terrorist financing.

HSBC group keeps nearly a dozen Hong Kong outlets closed after vandals laid waste to premises

The ordinance requires banks, stockbrokers, real property agents, insurance companies, trust companies, accountants and lawyers to conduct customer due diligence and record-keeping to identify any suspicious transactions regarding money laundering or terrorist financing.

Local regulatory and professional bodies including the Hong Kong Monetary Authority, the Securities and Futures Commission, the Insurance Authority and the Hong Kong Institute of Certified Public Accountants, have issued guidelines for their sectors to keep up with the laws. A breach may entail a reprimand and a fine of up to HK$10 million.

What banks, brokers, accountants or other relevant bodies need to do under this law

Customers due diligence is an important part of what these financial and transaction agents need to do under the ordinance, according to Kenneth Leung Kai-cheong, a lawmaker for accountancy sector.

“When a customer opens a bank account, the bank needs to check his/her background and the sources of funding,” he said. “Likewise, when an accountant or a lawyer sets up a trust account, they need to conduct the same check to ensure the funds are not related to any illegal activities.”

Once the accounts are established, banks, brokers or accountants need to do follow-up checks to ensure that the accounts and their purposes have not changed in nature, as well as to screen for any potential suspicious transactions.

Man arrested as HSBC cheque deposit machine is smashed in Hong Kong branch

What banks or other institutions do when they see suspicious transactions

Banks are required to submit a suspicious transaction report to the Joint Financial Intelligence Unit, which is jointly run by the police and the Customs & Excise Department, if they have any reason to suspect money laundering or fraud.

“We do not take the decision to close any account lightly,” HSBC said in an email reply on December 29. “As an international bank, the decision to close the account is in accordance with global regulatory standards.”

How do banks conduct due diligence process on customers?

HSBC Hong Kong’s chief executive Diana Cesar in a media briefing in 2017 explained how the bank conducted the regular due diligence under the anti-money laundering regulation.

For the retail customers, the bank conducts regular checks every few years, and requires retail customers to disclose how their accounts are used, she said then. These are in addition to requiring them to furnish their addresses, contact details, employment and income history.

Corporate clients must provide information with supporting documents on the nature of their business, ownership data, the jurisdiction of their operations, source of funding and the purpose of the account.

What stockbrokers need to do under the Ordinance

“Stockbrokers also need to check the background of their customers to make sure their sources of funding do not come from any illegal activities,” said Gordon Tsui, chairman of Hong Kong Securities Association. “If we find any suspicious transaction, we need to make a report to the police.”

All of the city’s 600-odd brokerages are also not allowed to accept cash as payment for stock purchases or for investment products, he added. These transactions must be settled via bank transfers or cheques.

Can a company account be used to pay for personal insurance policies?

“In general, if it is a company bank account, then the account should be used for corporate transactions,” said Leung, the lawmaker for the accountancy sector.

“The company can buy policies for business use such as credit insurance or property insurance. If anyone uses a corporate account to buy personal insurance products, that would be considered as suspicious and not advisable,” he said.

HSBC, in an education booklet, also advises small and medium-sized enterprises to not use their corporate accounts for personal transactions.

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