US clamp spreads to mainland banks

Business | Agencies and Tereza Cai 26 Jun 2019

Agencies and Tereza Cai

Mainland banks are being hit amid the Sino-US trade war as a US judge found three large Chinese banks in contempt for refusing to comply with subpoenas in an investigation into North Korean sanctions violations.

One of them could lose access to the US financial system, the Washington Post reported. The banks were not identified by the judge, but details in the ruling align with a 2017 civil forfeiture action against Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank, it reported.

The US Justice Department at the time accused the banks of working with a Hong Kong company, which allegedly laundered more than US$100 million for North Korea's sanctioned Foreign Trade Bank.

The report comes ahead of the Group of 20 summit in Japan this weekend, the first meeting between US President Donald Trump and Chinese President Xi Jinping since trade talks between the two countries broke off in May.

All mainland bank shares fell in Hong Kong. Shares of CMB, which had risen to a record high of HK$42.15 recently, plunged 7.67 percent to HK$38.50 while Bank of Communications shares slipped 3.71 percent to HK$5.95, the largest percentage loser in blue-chip stocks.

Geng Shuang, a spokesman at the Chinese foreign ministry, said "We ask our companies and overseas branches to abide by local regulations and laws and operate within the framework of law, and cooperate with the local judicial and law enforcement bodies. At the same time, we are against US so-called long-arm jurisdiction on Chinese companies. We hope the US will step up bilateral cooperation on finance with other countries."

Shanghai Pudong Development Bank doesn't have US branch operations but maintains accounts in that country to handle dollar transactions, the report said, adding the subpoena battle will go before a federal appeals court in Washington on July 12.

China Merchants Bank said yesterday it is not involved in any investigations related to possible violations of sanctions.

Bank of Communications, China's fifth-largest bank, said the case involved US courts seeking to obtain customer information that is stored outside the United States from Chinese commercial banks.

It said the bank carries out business activities in compliance with laws and regulations and currently it was not under any investigation involving suspected sanctions violations.

Currently, there's no conclusive information that Chinese banks will be sanctioned, PBOC publication Financial News said, citing an unnamed industry veteran. Chinese banks will not lose their US dollar clearance qualifications, and the market should not over-interpret this, the same person was quoted as saying.

Haitong International said that if the three banks are sanctioned by the US, it won't affect their US dollar business in the mainland and Hong Kong. Fubon Hong Kong believed the news will give pressure to other small mainland banks.

Meanwhile, the mainland Securities Times reported that the private fund China Gold Rich, a company located in the China Merchants Bank Tower, which promoted its business by the name of CMB, escaped with as much as 940 million yuan (HK$1.06 billion) involving more than 500 investors.

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