US and European regulators have left banks caught in a difficult position
Businesses’ complaints about the difficulty in opening and maintaining accounts are the result of overseas authorities imposing draconian rules in a bid to fight money laundering, terrorist financing and tax evasion
The American Chamber of Commerce has complained that Hong Kong banks are making it difficult for customers, especially international clients, to open and maintain accounts. The US consulate and the Monetary Authority of Hong Kong (HKMA) have repeated the criticism. They are right, but they should take their complaints to Washington and Brussels.
It’s hard to feel sympathy for “banksters” after the global financial crisis, but in this instance, banks are proverbially caught between a rock and a hard place. Concerns about money laundering, terrorist financing and tax evasion have compelled American and European authorities to impose draconian rules and extreme fines on banks that have enabled or at least failed to monitor criminal clients.
Both HSBC and Standard Chartered have been slapped with multibillion-dollar fines in the US for enabling money laundering or helping clients to breach US-led sanctions against rogue states. Once bitten, twice shy. Is it any wonder that banks would rather refuse legitimate clients than risk inadvertently working for criminals? An international trust company with global offices was unceremoniously dumped by HSBC, probably not because the bank has evidence of wrongdoing, but because the cost of compliance and monitoring is just too high.
With supreme irony, the US consulate in Hong Kong said it is concerned about American citizens not being offered banking service, adding the US Foreign Account Tax Compliance Act doesn’t prohibit foreign banks from maintaining accounts for US citizens. The act certainly doesn’t ban foreign bank services for US clients, but it makes compliance so costly that many foreign banks now prefer to forego the privilege of serving Americans.
The HKMA has threatened to crack down on banks that are being unfair to clients. That’s all very well. The city needs to strike a balance between reducing red tape and maintaining regulatory compliance. If foreign investors and local small and medium businesses are finding it increasingly hard to get proper bank services, that will have an adverse effect on Hong Kong’s reputation as a business hub.
But if banks are being overly cautious, it’s because European and American regulators have made them so. They have outsourced enforcement to banks and now complain banks are being tough on customers. The Financial Action Task Force, a Paris-based watchdog of money laundering sponsored by the European Union, will have another formal rating for Hong Kong’s banking system in about a year. So perhaps HKMA shouldn’t complain too much about the banks’ cautiousness.