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HK banks including HSBC rejecting companies & trusts registered in Cayman Islands

e8707e9c9e85cc21335a7bb3f68508c1By Benjamin Robertson From South China Morning Post

Account problems cloud Hong Kong hub hopes

Companies and trusts are finding it hard to set up banking services in the city, threatening its hopes of becoming service centre of Far East

An inability to open bank accounts is the latest threat to Hong Kong’s business-friendly reputation.

“It is getting extremely difficult to open bank accounts for any sort of trust or company structure. Banks have gone from a position where unless there is good reason to refuse the account, we will accept it, to unless there is a good reason to accept it, we will refuse it. It is entirely incompatible with Hong Kong’s stated aim to be the service centre for the Far East,” said Howard Bilton, the chairman of global corporate services firm Sovereign Group.

Over the past decade, successive initiatives to combat money laundering have forced banks into the front line in the fight against illicit money flows. This has led to more stringent account opening procedures as banks vet potential customers. There are concerns such procedures have gone too far and are now undermining the city’s competitiveness.

If banks won’t use offshore companies to set up bank accounts, it would be catastrophic SERGIO MEN, INTERCORP

“The banks are inconsistent in their approach. Trusts they don’t understand, and for offshore companies, I suspect there is a bit of a knee-jerk reaction to concerns banks have been fined over money-laundering incidents,” said Carolyn Butler, the chief executive of Hong Kong Trust. “The first thing the client is starting to ask now is can we get a bank account open, and we have to say there is no guarantee.”

Since last year, banks have required addition documentation when opening accounts in a process called “know your client”. For corporate accounts, this includes business plans, transaction records and details of ultimate beneficiaries. Banks also want named account holders to appear in person.

Controversially, banks including HSBC and Standard Chartered are rejecting companies and trusts registered in the British Virgin Islands and Cayman Islands, say senior executives at Hong Kong corporate services companies.

Such firms offer incorporation and company administration services in Hong Kong and overseas. By example, Bilton’s firm helps 500 to 600 clients annually set up businesses in Hong Kong.

Corporate services firm executives estimate there are 35,000 BVI companies incorporated each year by Hong Kong.

Executives say banks reject BVI and Cayman-registered business on the basis the jurisdictions are high-risk.

The head of one major corporate services firm said the industry was “scratching its head” over why banks singled out BVI and Cayman while accepting business from less regulated jurisdictions. He requested anonymity as his firm has several bank clients.

People interviewed said clients were starting to look at Singapore, Dubai and other financial centres to base their accounts.

“If it goes one step further and it becomes a case that banks won’t use [any] offshore companies to set up bank accounts, that’s when it would be catastrophic,” said the executive.

A Standard Chartered spokesman said: “It is the bank’s obligation to update its internal policies and procedures from time to time to ensure it has complied with the latest legal and regulatory requirements.”

HSBC spokesman Gareth Hewett said: “We take KYC (know your client) and account opening processes very seriously with regards to ensuring they are sound in terms of their provenance – and they are commercially viable for the bank.”

Neither bank commented on whether they turned away BVI or Cayman-registered clients.

Elise Donovan, a director of Hong Kong-based BVI House Asia, a government promotion agency, said bankers had assured her they did not discriminate against BVI companies. “Bank representatives, including some of the most prominent, have also acknowledged the BVI’s regulatory and anti-money-laundering regime is among the strongest of any international financial services jurisdiction,” she said.

Banks have good reason to be risk adverse and wary of incurring regulatory censure. Both HSBC and Standard Chartered were heavily fined by the US government for money laundering.

Hong Kong has also come under scrutiny for its role as a channel for dirty money.

In a recent poll by accounting firm PwC, 37 per cent of firms surveyed in Hong Kong and Macau experienced money laundering in the past two years. This compared with 11 per cent globally.

There are complaints new account opening rules are affecting start-ups, which lack the business transaction history banks need. A spokesman for InvestHK, the government agency responsible for promoting Hong Kong as a business destination, said it was aware there were concerns about opening bank accounts and it was acting as an intermediary between firms and the banks.

Society for Estate and Trust Practitioners chair Samantha Bradley said some members had raised the issue.

“Ultimately we have to reach comfort level with the banks as they are the ones that bear the risk,” said Lau Ka-shi, the chairman of the Hong Kong Trustees’ Association.

Lau said she had written to the government about the problem.

Last year, Hong Kong passed a trust law with the goal of positioning the city as a regional trust centre. Lau worries that goal is at risk.

Sergio Men, a managing partner at corporate services firm Intercorp, said the blame partially fell on front-line bank staff. “A lot of bank accounts are not opened after meeting with potential customers because they don’t understand each other,” he said.

Intercorp helps 600 to 1,000 companies open local operations every year. “If the banks don’t change their human resources policy, that will be the real reason for Hong Kong not to be an international financial centre anymore within five years.

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