Business account fitness series: Tip #5 – Avoid transactions with parties posing financial crime and sanctions risks

Hong Kong stands proud as a vibrant gateway to the world, giving SMEs unique connectivity to global markets and opportunities. However, with these opportunities come certain responsibilities, including the need to comply with financial crime regimes. Ignoring financial crime risks, including those related to sanctions, can lead to serious commercial, operational and reputational consequences that could disrupt your business.

Sanctions are measures used by governments and global organisations, such as the United Nations (UN), to influence certain behaviours. Sanctions may be imposed to constrain or deter perceived threats to security, or to require conduct to conform to recognised standards. Sanctions could restrict who banks can do business with. This may comprise individuals, corporations, countries, or territories.

It’s essential to understand who your counterparts really are, including your buyers, suppliers and service providers, and where they operate. Some partners may have links to higher-risk countries or industries that may pose a financial crime or sanctions risk, even if it’s not immediately obvious.

Before locking in any deal, sending payments or shipping products, pause to conduct thorough due diligence. Verify the identities and backgrounds of your business partners using reliable sources. This proactive approach helps your business avoid high-risk transactions.

Scenario 1: When a missed check costs big

Daisy owns a tech trading company in Hong Kong. Eager to expand, she onboarded a new overseas supplier without thoroughly screening their background. Months later, authorities flagged the supplier for ties to a sanctioned region. Daisy’s bank immediately suspended related transactions pending an investigation, causing delays in deliveries and straining client relationships.

In summary: Sanctions risks aren’t always obvious. Some entities may appear legitimate on the surface but have hidden ties to restricted activities or regions. Inadvertently dealing with sanctioned parties can lead to undesirable outcomes and reputational damage.

Scenario 2: The hidden shareholder trap

Damian runs a logistics firm, moving goods regionally. Excited about a lucrative contract, he partnered with a newly formed company that appeared well-funded and reputable. What Damian didn’t realise was that one of the company’s parent shareholders was on a sanctions list due to links with illicit financing. When Damian’s bank conducted a routine audit, the relationship was flagged. As a result, payments were withheld, and Damian’s firm faced detailed compliance inquiries. His client relationships soured as shipments stalled, and he incurred legal costs defending his firm’s due diligence practices.

In summary: Sanctions exposure doesn’t always come from a direct customer or supplier—it can stem from hidden ownership structures and indirect shareholdings. Without thorough due diligence, businesses could risk becoming entangled in potential sanctions breaches, which could lead to detrimental financial consequences, permanent loss of counterparties, or even regulatory penalties.

Why this matters

Financial crime and sanctions compliance shields your business against unexpected disruptions and maintains access to banking and trade services. Financial institutions worldwide are becoming increasingly vigilant, equipped with advanced technologies to detect risky transactions. Integrating sanctions risk management into your routine keeps your transactions compliant, your partners confident, and your business prepared to thrive globally.

Tip #5 account fitness checklist:

In Hong Kong’s dynamic trade environment, even inadvertent infractions can impede your growth. By aligning your business practices with financial crime laws, you build resilience and a solid foundation that will help your business grow confidently in global markets.

As your trusted banking partner, we’re here to support you as you begin your business fitness journey and work toward achieving your ambitions. To learn more about how to establish proper business account practices, visit https://www.business.hsbc.com.hk/en-gb/campaigns/account-fitness.

Download the complete “Business Account Fitness Guide” now for more real-world business scenarios to help you understand how to establish proper business account practices for smooth operations.