Banks in Hong Kong have been advised to report any transactions suspected of violating a controversial national security law to police, according to a document released online by the city’s regulator.
The advice, published by the Hong Kong Monetary Authority, suggested banks report breaches of the law as they would any violation of money-laundering or terrorist financing regulations. The guidance applies to both local and international lenders in the city.
Beijing imposed the law, which targets crimes such as terrorism, subversion, secessionism and collusion with foreign elements, on Hong Kong in June following pro-democracy protests last year.
Critics say the security law is too far-reaching and vaguely defined. They add that it violates freedoms guaranteed to the city on its handover from the UK to China in 1997.
International banks that operate in the city, including HSBC and Standard Chartered, have been criticised for openly backing the new rules.
Hong Kong regulators have yet to publicly issue official guidelines on how financial institutions should implement the national security law.
But the document posted by the HKMA said reporting obligations under the law would be triggered when a bank “knows or suspects that any property is offence-related property”. The term “property” refers to the proceeds of a criminal breach of the law.
Banks were advised to follow procedures used for money laundering, when they convey breaches to a police task force through what are known as “suspicious transaction reports”.
The document released on the HKMA website late last month, titled “Frequently Asked Questions in relation to Anti-Money Laundering and Counter-Financing of Terrorism”, was authored by the Hong Kong Association of Banks. The association is a statutory body and membership is compulsory for all banks in the city.
Banks were instructed to be “fully conversant with these FAQs and to have regard to them in meeting their . . . legal and regulatory obligations” under anti-money laundering and counter-financing of terrorism laws.
But banks could take the widest possible definition when reporting breaches of the law to ensure compliance with the new guidance and protect themselves from prosecution, according to lawyers and compliance experts.
Nicholas Turner, a compliance lawyer at Steptoe, the law firm, said the document provided more clarity but banks would still be “left to their own devices” in interpreting the law until they got official guidance from regulators.
“That is a very difficult determination for a bank to make,” Mr Turner said.
One Hong Kong-based international bank compliance officer said: “The safest approach for banks would likely be . . . report anything slightly related to a breach.”
The bank compliance officer, who was not authorised to speak publicly, said that if an outspoken pro-Beijing figure were to accuse a person in Hong Kong of violating the security law, banks would be obliged to “look into it”.
“If we are not sure, reporting is safer than not reporting,” the person said.
Albert Ho, a pro-democracy politician, said he had already received more inquiries from his bank about his account since the security law was enacted. He said he feared that the reporting system in the document handed police “enormous power to investigate” government critics.
Reporting clients for security law breaches through this framework could also contravene standards such as the UN Guiding Principles on Business and Human Rights, said Surya Deva, a law professor at the City University of Hong Kong.
“Banks should . . . conduct robust internal assessment before reporting any suspicious activity, rather than go for ‘over-inclusive’ reporting and then be accused of breaching the human rights of their customers,” Mr Deva said.
The HKAB did not respond to requests for comment.
The HKMA confirmed its “input” into the document but declined to comment on concerns surrounding it. “It is important to note that the filing of suspicious transaction reports is based on knowledge or suspicion, without the need to know the nature of the underlying criminal activities,” it added.
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