The U.S. State Department warned against dealing with individuals deemed responsible for eroding the freedoms of Hong Kongers, setting off the clock for a 60-day countdown before naming blacklisted global financial institutions.

The State Department released a list of 10 individuals and said that financial institutions that conduct «significant transactions» with them will be named in 60 days, according to a report to Congress.

«The release of this report underscores our ongoing objection to Beijing’s actions that are intentionally designed to erode the freedoms of the people of Hong Kong and impose the [Chinese Communist Party’s] oppressive policies,» State Department spokeswoman Morgan Ortagus said in a statement.

Financial institutions seen as violators risk secondary sanctions which include restrictions on U.S. loans, foreign exchange, property transactions, exports and transfers alongside measures targeting their executives.

Public Supporters

Within the financial industry, the most vocal supporters of the national security have been Standard Chartered and, most notably, HSBC. The latter bank's APAC CEO Peter Wong publicly signed a petition in June supporting what U.S. Secretary of State Mike Pompeo called «Beijing’s disastrous decision to destroy Hong Kong’s autonomy and to break commitments made in an U.N.-registered treaty».

«That show of fealty seems to have earned HSBC little respect in Beijing, which continues to use the bank’s business in China as political leverage against London,» Pompeo said in response to Wong’s decision. «Free nations deal in true friendship and desire mutual prosperity, not political and corporate kowtow,» Pompeo added.

Interestingly, HSBC, which is concurrently embroiled in a Huawei scandal and accused of knowingly entrapping the Chinese tech giant, was left off a list of 13 banks, including 9 foreign lenders, tasked with arranging China’s sovereign debt dollar sale – the first such occurrence since 2017.

Compliance Risk

Since the release of the first sanction list in August, financial institutions – foreign and Chinese alike – have been scrambling to assess risk and to rejig operations to avoid compliance risk.

Even the sanctioned individuals have demonstrated concerns that banks will comply – despite the act being a simultaneous violation of the national security law – evidenced by reported moves to shift assets to institutions deemed more immune. Hong Kong’s current police chief Chris Tang reportedly moved a home mortgage from HSBC to Bank of China (Hong Kong) on August 4, several days before the first sanction list was received, according to local land registry records. 

«Asia Pacific relies heavily on trade and because a large part of it is conducted in USD, it must remain connected to the U.S. financial system in order to survive,» said Accuity’s director of APAC business solutions group Saurabh Nagar in a recent finews.asia report. «The threat of derisking looms over banks not implementing adequate risk management and controls.»

10 Out of 11

Although the 10 individuals comprised of Hong Kong and mainland officials that were already sanctioned, one notable omission in the latest State Department list was Stephen Lo, former commissioner of the Hong Kong Police Force.

According to a statement from the U.S. Department of the Treasury in August, Lo was allegedly the designated leader of «a government entity whose members have engaged in activities to prohibit, limit, or penalize the exercise of freedom of expression or assembly in Hong Kong».