Subdivisions in the U.S. all have large Chinese state-owned and private banks, including Bank of China, Bank of Communications, China Construction Bank, China Merchants Bank, CITIC Bank, ICBC, China Postal Bank, Industrial Bank.
In 2010 year the Commission on regulation of banking activity in China (from 2018 became the Commission on regulation of banking and insurance activities) issued a Notice “On strengthening the supervision of the banking accounts for the effective implementation of the relevant UN resolutions on sanctions”.
Despite the fact that the name of the notification refers only to the UN sanctions, in the text, the regulator requires banks to timely review the “information about international events relating to banking activities” on the websites of foreign governments at the location of own units as well as “timely updates to the list of sanctions and suspicious customers”.
In addition, detailed guidance on risk assessment, published in 2013, requires banks performing cross-border operations, “to take into account the sanctions the requirements of the state, which is in the jurisdiction corresponding operation”. This rule applies to all dollar-denominated cross-border payments within the jurisdiction of the United States.
Major Chinese banks are already well integrated in the international payment system. Most of them are participants of system CHIPS, through which passes about 96% of international dollar payments. The status of the participant of this system gives the right to carry out dollar transactions directly without the mediation of another Bank correspondent in the country, but the Bank needs to develop rules to meet the requirements of the office for foreign assets control (OFAC compliance program), including screening of clients and payment documents of the Bank.
Failure to comply with U.S. sanctions threatens banks with huge fines: it is enough to recall the examples of BNP Paribas (fined $8.9 billion in 2014 for the violation of sanctions against Sudan, Cuba and Iran), Commerzbank (us$1.45 billion in 2015) and HSBC ($1.9 billion in 2012). Among Chinese banks under sanctions are already Dandong Bank and Bank Kunlun (though they never led activities in the USA and was created specifically for trade with North Korea and Iran).
Can Chinese banks to waive compliance with us sanctions? Theoretically, Yes: if you entered a foreign government the sanctions are contrary to the laws of the PRC, commercial banks can apply to their own controller and request his opinion. But the waiver of sanctions for Russian clients is unlikely: China is not a single document does not oblige their banks to serve Russian customers and tries not to inflate the conflict situation with the United States, even in cases when the blow falls on a major Chinese business.
Sometimes Chinese banks (Bank of China, China Merchants Bank) directly prescribed in the agreements on the provision of services, the possibility of denial of service customers included in the sanction lists “relevant foreign governments” (including when opening yanevych accounts). The Internet Bank, Webank, owned by Tencent, has borrowed a reservation about sanctions from operating in the territory of the PRC banks with foreign capital, on which they have the right to take whatever action you deem appropriate in respect of persons and payments under sanctions “any jurisdiction”. Despite the fact that CNY payments are not in the jurisdiction of the United States, Chinese banks are trying to reduce risks and not jeopardize your business.
US sanctions against Russia is not the first sanctions program faced by Chinese banks in its activities. However, at the grassroots level of Russian customers can face with a wrong understanding of these sanctions ordinary Bank employees, who have no detailed instructions, only a list of countries in which Russia is close with Iran and North Korea.
In other words, the sanctions against Russia can be equated with the restrictive measures imposed on North Korea, Sudan, and Iran and envisages a total ban on trade facilitation. As you know, against Russia now there are individual sanctions to certain organizations and individuals (the SDN list), as well as sectoral sanctions against companies from certain industries (SSI list).
Sanctions program of Iran, North Korea and Sudan provided more sweeping restrictions, including a ban on the service of any trade, including for entities not included in the sanctions list.
The complexity of sanctions against Russia could pose a problem not only for individual employees but for the Bank as a whole. First, a list of organizations and individuals included in the sanctions list is not exhaustive. The office for foreign assets control (OFAC) expands sanctions to the organization directly or indirectly controlled by the persons included in the list (“rule of 50% stake”). Any company more than 50% ownership interest in the owned by a sanctioned person is also considered to be under sanctions and is included in the SDN list or SSI.
OFAC may release intermediary banks from liability if they have not had the opportunity to know about the ownership structure of the parties to the transaction and are not in direct relations with such an organization. However, OFAC expects banks a thorough inspection, and in the case of missing illegal operations out of ignorance will “take into account the totality of all the circumstances” to determine whether it is necessary to bring the Bank to justice or not.
Second, U.S. sanctions are extraterritorial and allow us to prosecute any foreign organization that “promote substantial” transaction with the entity included in the sanctions lists, as well as close relatives of such persons (article 228 of the Law “On combating the enemies of America by sanctions”).
While OFAC has the ability to broadly define what a “significant transaction” and “promotion”. One of the conditions of accountability is the knowledge of a foreign organization that a person or organization is affiliated with under the sanctions. However, the question is: did the foreign organization, such affiliation, and whether she was even to know about it, is at the discretion of the American authorities.
Thus, OFAC imposes on all organizations to comply with the duty imposed its sanctions. What you need to do and how, is at the discretion of the organization itself: from the purchase of special software for tracking and analysis of coincidences in the names to check manually through the list on the OFAC website.
As a result, Chinese banks are facing two problems: they need to ensure full and complete compliance with us sanctions, is necessary for the preservation and development of their business, and at the same time take into account the interests of a small group of higher risk customers. Obviously, the first is more important than the second, so problems in business, having any relation to Russia, simply inevitable.
However, Chinese banks do not refuse from service of all connected with Russia customers: the excesses associated with the “broad interpretation” of sanctions, are taking place at the grassroots level and easily corrected in the case of intervention of the higher management level or Central offices.