US issues sanctions warning to banks over Hong Kong, China vows countermeasures

Lenders with operations in the US including Bank of China have turned cautious on opening new accounts for sanctioned Hong Kong officials.
Lenders with operations in the US including Bank of China have turned cautious on opening new accounts for sanctioned Hong Kong officials.PHOTO: REUTERS

WASHINGTON (BLOOMBERG) - The countdown has begun on whether banks will be ensnared in the Trump administration's sanctions on Chinese and Hong Kong officials, singled out for contributing to a clampdown on political freedoms in the Asian hub.

A US report to Congress on Wednesday (Oct 14) named 10 officials, including Hong Kong Chief Executive Carrie Lam and Xia Baolong, the head of China's Hong Kong and Macau Affairs Office, over their role in implementing a new security law in the former British colony. The State Department list reinforced sanctions imposed in August under an executive order, which had included one additional name.

Officials in the US now have 60 days to identify banks that have business with those on the list, putting lenders at risk of being sanctioned. Banks operating in Hong Kong, including Citigroup as well as major Chinese lenders, have already been taking steps to ensure they are compliant with US laws.

The follow up will identify "any foreign financial institutions that knowingly conduct a significant transaction with the foreign persons listed in this report," the State Department said based on what is laid out in the Hong Kong Autonomy Act.

Chinese Foreign Ministry spokesman Zhao Lijian said at a briefing on Thursday (Oct 15) that "if the US insists on going down the wrong path, China will take necessary countermeasures to safeguard national sovereignty, security and development interests and the legitimate rights and interests of Chinese companies".

The Hong Kong government on Thursday also voiced its opposition against the US move, saying "it is another example of US hegemony".

A government spokesman urged the US to refrain from taking measures that may undermine the interests of the international financial system.

"The US has been increasingly blatant in its interference in Hong Kong's affairs in recent months," the spokesman said, adding: "We strongly reprimand the US authorities for publishing a report that contains totally groundless and irresponsible accusations against the HKSAR."

Citigroup in August took steps to suspend accounts linked to some of the targeted individuals, a person familiar with the matter said at the time.

Standard Chartered, based in London, has also reviewed whether it has relationships with any of the officials and will monitor their transactions, another person said.

Even China's largest state-run banks moved to comply, seeking to safeguard their access to crucial dollar funding and overseas networks. Major lenders with operations in the US including Bank of China, China Construction Bank Corp., and China Merchants Bank have turned cautious on opening new accounts for the 11 officials, including Lam, people familiar with the matter have said.

China's state-owned lenders need to preserve their access to global financial markets. The four largest banks had US$1.2 trillion (S$1.6 trillion) in dollar funding at the end of June.