HSBC to halt corporate remittances to and from Russia

HSBC Group will halt remittance services to and from Russia and Belarus for its corporate clients next month as financial institutions respond to Western sanctions over the Ukraine war.

The British financial services group, which includes Hang Seng Bank in Hong Kong, sent letters in the past month notifying business customers that it would no longer process commercial payments starting Oct. 27 in the face of an "increasingly complex regulatory landscape," Nikkei Asia has learned.

The notice, seen by Nikkei Asia, said the decision was taken to "minimise operational exposure to Russia and Belarus even where such activity is permitted under applicable laws and regulations."

Corporate HSBC customers in Hong Kong have been able to make and receive payments from Russia even after the U.K. and European Union imposed sanctions on the country.

A business executive who has dealings with companies in Russia said the outright ban seemed excessive, as there are some commercial activities that are not subject to Western sanctions.

"This will only push Russian firms elsewhere," he said. "And this will further impact Hong Kong's allure as a global business hub."

HSBC Bank confirmed that it would restrict commercial payments to and from Russia and Belarus through its bank.

"While HSBC has taken multiple steps to comply with applicable regulatory obligations, it has become increasingly challenging to operationalize these complex restrictions globally," an HSBC Bank spokesperson told Nikkei Asia.

Hang Seng Bank and HSBC Group did not reply to requests for comment.

HSBC said it still expected to complete the sale of its Russia business to local lender Expobank this year, but the deal is still pending approval from regulators there. Its operations in Russia are mainly corporate banking services, including lending and investment banking. HSBC said the new remittance restrictions were unrelated to the pending sale.

The Hong Kong Monetary Authority had previously said financial institutions are not obliged to follow unilateral sanctions imposed against Russia, a decision in keeping with the stance of the city government.

"No obligation is created for banks under Hong Kong Law regarding the unilateral sanctions imposed by foreign governments," the central bank told Nikkei Asia in response to a request for comment. "The HKMA reminds banks from time to time to carefully assess and properly manage all relevant risks involved in the course of their business operations, and endeavour to treat customers fairly."

HSBC's notice to clients comes after U.S. Treasury officials met with representatives of the financial services industry in the Chinese territory in June, urging them to help stop exports of advanced American-made technology from Hong Kong to Russia.

Treasury officials told HKMA and banks, including HSBC, that they should strengthen their due diligence for transactions related to items on the export control list as first reported by Nikkei Asia.

The U.S. said last year that Hong Kong's status as a global financial hub would be damaged if it did not adhere to international laws and standards.

"The possible use of Hong Kong as a safe haven by individuals evading sanctions from multiple jurisdictions further calls into question the transparency of the business environment," a U.S. State Department spokesperson said in a statement following remarks by the city's chief executive John Lee. The Hong Kong leader stated that unilateral sanctions imposed by other jurisdictions would not be implemented.

The sanctions include removing 10 Russian and four Belarusian financial institutions from the SWIFT international payment messaging service.

Despite the government's reassurances, Russians in Hong Kong who spoke to Nikkei Asia said that accessing banking services has become "near impossible" after the U.S., U.K. and EU introduced sanctions against Russia for invading Ukraine in February last year.

"Most banks, even mainland Chinese banks, see a Russian passport and will turn them away immediately," said one person, who declined to be named.