HSBC steps up scrutiny of Russian clients worldwide as sanctions ratchet up
HSBC is shunning prospective Russian clients and declining
credit to some existing ones, two sources with knowledge of the matter told
Reuters, as the bank seeks to shield itself from Western sanctions against
Moscow.
The measures affect HSBC’s individual and business customers
globally and go further than the bank’s previously stated intentions to wind
down its relations with lenders such as VTB, which were placed under Western
restrictions after Russia invaded Ukraine on Feb. 24.
The moves by Europe’s second biggest bank show how sanctions
aimed at Russia’s financial system and its political and business elite are
also ensnaring Russian nationals outside the country as lenders seek to avoid
falling foul of the restrictions and potentially hefty fines.
HSBC had said on March 14 it is “not accepting any new
business in Russia,” without spelling out what that means for existing or
prospective Russian customers in other markets.
The sources said the bank’s risk and compliance staff have
told business managers to apply extra scrutiny to all prospective clients
bearing Russian passports or furnishing Russian addresses, with the result that
many more are turned away than would have been in the past.
The checks also extend to dual passport-holders as well as
those with links to Belarus, seen as an ally of Moscow, as the bank’s staff
scramble to ensure they do not inadvertently offer services to sanctioned
individuals or businesses.
HSBC declined to comment.
Customers with business ties to Russia and receiving income
in roubles, such as those deriving income from Russian employment, pensions, or
investments, are also being impacted as those rouble cashflows are discounted
to zero for credit purposes, one of the sources, who works at HSBC, told
Reuters.
Business customers with Russian links, even those with no
ties to sanctioned entities or individuals, face increased scrutiny on large
deposits or withdrawals and are seeing new loan applications declined, the two
sources said.
The invasion has triggered an exodus of foreign companies
from Russia as Western authorities deploy sanctions at an unprecedented scale
and pace to squeeze Moscow and prevent the global financial system from being a
conduit for Russian money.
Reuters reported earlier this month that European Union
regulators had told some banks to tighten control of all Russian and Belarusian
clients, including EU residents, to ensure they are not used to circumvent
sanctions.
Russia characterises its actions in Ukraine as a “special
operation” to demilitarise and “denazify” the country.
BUSINESS FREEZE
Leading European banks such as Italy’s UniCredit and
France’s Societe Generale said they could face a multi-billion dollar write-off
of their businesses in Russia, but banks also face a wider chill on business as
they grapple with sanctions.
HSBC does not operate a retail bank inside Russia but as of
Feb. 22 it had around 200 staff there serving multinational corporations, its Chief
Financial Officer Ewen Stevenson told Reuters at the time. The bank said on
March 14 its business there “will continue to reduce.”
The latest HSBC measures go beyond the usual background
checks, and show how banks’ policies are still evolving since the invasion as
they try to implement multiple waves of sanctions without discriminating
against legitimate customers.
They also show the tension between banks’ sanctions and
compliance teams, who urge the strictest possible interpretation of new rules
to satisfy regulators, and frontline staff tasked with growing the business and
serving clients.
HSBC is under particular pressure to show regulators that it
can identify illegal transactions. It had to tighten up its money laundering
controls globally after a string of past scandals and, in 2012, agreed to pay
$1.9 billion to U.S. authorities for allowing itself to be used to launder drug
money flowing out of Mexico.
HSBC is reviewing all existing private and retail banking
customers with Russian connections globally to see if they have ties to
sanctioned entities or individuals, the sources said.
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