Hong Kong Banks Dependent On SWIFT Are Warned Of New US Sanctions

The Treasury Department urged the jurisdictions' monetary regulators to work with banks under their supervision to identify and halt any Iran-related financial activity, including transactions routed through front companies or other evasive structures, citing significant illicit finance risks.

It added that the information had also been shared with US banks providing correspondent services so they could apply enhanced scrutiny to such transactions.

In June 2021, China passed the Anti-Foreign Sanctions Law to bar individuals and companies from complying with US and other foreign sanctions within its jurisdiction. At the time, Chinese media said the framework could be extended to Hong Kong by adding it to the Basic Law's Annex III.

However, Beijing did not implement it as some Hong Kong banks said the law would place them in a difficult position between Chinese and US regulatory demands.

In October 2022, Chief Executive John Lee said Hong Kong would not enforce sanctions imposed by the US, adding that such measures against him and other officials had been dismissed. He said Hong Kong would continue to handle overseas capital in accordance with its own laws.

In practice, major banks in Hong Kong have complied with US sanctions because they need to retain access to the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network for international settlements. They have closed accounts linked to US-sanctioned individuals, including Lee and Secretary for Security Chris Tang, without disclosing any reasons.

On April 13 this year, Chinese Premier Li Qiang signed a State Council decree introducing new rules to counter what Beijing calls unlawful extraterritorial jurisdiction by foreign states. With immediate effect, the regulations:

allow Chinese authorities to assert jurisdiction over relevant activities where a sufficient connection to China is established; create a“malicious entities” list targeting foreign organizations and individuals involved in enforcing such measures; prohibit any organization or individual from complying with or assisting in the enforcement of these measures; allow affected Chinese citizens and companies to file lawsuits, with government agencies providing guidance and support.

Wen Wei Po, a pro-Beijing Hong Kong newspaper, said the new rules would extend protection to Hong Kong-based Chinese enterprises.

“While the regulations are drafted for the mainland, it would be unreasonable to exclude Hong Kong companies. In practice, authorities should apply the rules based on overall legislative intent rather than narrow technical boundaries,” the article said, citing an unnamed legal expert.“There is no need to overly focus on technical boundaries in how the provisions are applied.”

“If businesses choose to seek state protection, the government has the means to provide it. As long as they are Chinese enterprises, they fall within the scope of protection, and the new rules offer clearer and stronger legal backing,” the expert said.

Zhou Mi, senior researcher at the Chinese Academy of International Trade and Economic Cooperation, said the new regulations mark a more coordinated and institutionalized phase in Beijing's push to counter what it sees as foreign long-arm jurisdiction.

“The framework has direct implications for Chinese companies seeking to defend their interests overseas,” he said, citing cases such as forced management changes at Nexperia, a Netherlands-based semiconductor firm, and US pressure on TikTok to divest assets and hand over data as examples of such measures.

“The launch of the new rules comes at a timely moment, as US actions in the Strait of Hormuz have crossed into what China defines as unlawful extraterritorial jurisdiction,” a Shandong-based columnist says.“Interference with third-country vessels, including Chinese ships, and disruption of legitimate trade interests fall within the scope of China's countermeasures under the regulations.”

He said that, as energy security is crucial to the Chinese economy, it is legitimate for China to use both legal tools and naval capabilities to safeguard its national development interests.

Some observers say that Hong Kong banks could face penalties from Chinese or US authorities if they don't take sides in geopolitical conflicts.