Strong rumors are circling that a new wave of US sanctions against Russia will be extended to a number of Russian businessmen from a much wider circle than the current US sanctions. If true, this is likely to mean that should named individuals be subject to US sanctions, they would at the very least be treated as equivalent to a “PEP” (Politically Exposed Person) and this may lead to the closure of their overseas bank accounts.
While previous sanctions against Russian PEP’s have largely been followed and enforced in Europe and other Western nations, they have not been adopted in territories such as the Asian banking centers of Hong Kong and Singapore directly. But it has become difficult for all Russians to open bank accounts in Hong Kong and Singapore during the past two years.
An interesting point here is what Hong Kong and Singaporean banks might do in the short term in relation to accounts of a person who has became subject to US sanctions – obvious possibilities being the closure of accounts with the right of the account holder to transfer the funds elsewhere, the freezing of accounts, or nothing. This is an important question as Russia has been increasingly turning to the East to conduct business and trade. Russia has the world’s fastest growing trade corridor with China, with trade growing at 30 percent per annum and now outstripping many European nations. Russia’s impact upon trade with Hong Kong has also been growing at a significant volume following the implementation of a Double Tax Agreement at the beginning of last year, while Singapore has been making significant government held investments into Russian logistics and airports.
Hong Kong offers Russian and other businesses a financial and trade route into mainland China, while Singapore offers the same for ASEAN nations and also, via ASEAN’s own Free Trade Agreements with China and India, significant tax incentives for using a Russian owned, Singaporean incorporation to trade with both China and India. Russian-Indian trade is up 19 percent on last year. All this makes Hong Kong and Singapore important trade centers for Russian businesses and investors looking to access the fast growing Asian trade corridors.
It is for this primary trade reason I suspect the banks in Singapore and Hong Kong may not implement any new US sanctions guidelines. Both Beijing and Moscow are close these days, and both are eager to challenge Washington’s global trade dominance of the US dollar. Singapore has also identified Russia as a primary market for their businesses and strategic investments. Both China and Singapore are very close to agreeing to free trade deals with the Eurasian Economic Union as part of their overall development strategy and won’t want to discourage Moscow or send negative signals to the other EAEU trade partners just to be seen to kowtow to Washington instead without reward.
It’s also important not to take the difficulty of Russians banking in Hong Kong out of context. It’s not just the Russians who have been having difficulties in complying with Hong Kong’s increasingly strict banking rules, brought in under the guise of the Foreign Corrupt Practices Act. Yet the reality that huge fines levied on banks such as HSBC by US authorities in the past has led to a crackdown by the banks themselves as concerns their customers. This has manifested itself in seeing smaller traders being actively discouraged from opening bank accounts in Hong Kong, being unofficially classified as “not worth the risk”. Hundreds of small American traders have also now been affected by this attitude, which has in turn driven a lot of potential foreign investment out of the territory. It has been a disaster for international SMEs wishing to do business in Hong Kong, and not just the Russians.
On the other side of the coin, is the US position and whether Washington will want to press action against non-US banking institutions who won’t follow their lead. So far neither China nor Singapore have adopted the American stance. I doubt there is much incentive to do so. I’m also not sure how much influence President Trump has as concerns this issue, but if he does then he won’t be keen either. To date, Washington has not sought to punish either China or Singapore for not implementing sanctions that impact Russia. Doing so would elevate the disagreement over Ukraine to an international stage, whereas Washington and Brussels see it as a Russian-European issue.
Washington also seems somewhat tied in knots over its internal political issues, meaning that even the anti-Russian hawks may not have the energy or willpower to deal with such matters and to confront the governments of Hong Kong and Singapore. At present, it’s almost civil political warfare in D.C., with the political establishment seemingly more concerned about wresting power back than dealing with the minutiae of sanctions and Asian non-adoption.
Weighing it all up, I suspect that any new round of sanctions against Russian businessmen will fly under the radar as concerns Asia, and that Hong Kong and Singapore, will, within the boundaries of normal “know your client” due diligence, continue to offer banking services to Russian clients in their respective jurisdictions. Such an attitude after all, represents the Asian values of trade, harmony, and entrepreneurial savvy, and exactly matches Russia’s need to explore new markets to trade with in the wake of American global trade belligerence.
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