Many businesses and entrepreneurs have become fully aware that since the last couple of years, it has become rather difficult either to maintain & keep their Hong Kong corporate bank account open and alive or even simply to apply for a Hong Kong corporate bank account.  Despite providing the banks with the requested information or documents for their due diligence purposes, forced closures of bank accounts common nowadays due to the tightening of bank regulations against of money laundry.

Why are Closures of Bank Accounts on the rise?

This as banks worldwide (it is therefore not just a Hong Kong problem) have become very risk averse, mostly as a result of penalties that they have been charged with by various national justice departments for ‘allowing’ money laundering activities to take place through their branches but also because bank accounts have been used more and more for tax evasion, terrorist financing and (other) fraudulent purposes.

More recently, certain banks in Hong Kong have requested their corporate banking clients to provide them with additional due diligence information and documents by means of the completion of certain forms, which request is then subsequently followed up by a telephone interview.

This extensive due diligence procedure shows that banks continue to monitor clients’ corporate bank accounts and that there is a constant ‘risk’ that banks, without reasons, suddenly may close down one’s corporate bank account.

Information Requested by the Banks

Some of the major information and documents requested by the banks for its due diligence purpose are as follows:

(A) Through forms

1. Detailed information on the entity such as its background, business operation including any anticipated activities and account information. Further, information on its shareholder(s) as well as on connected parties including beneficial owner(s), intermediate owner(s) and key controller(s);
2. An ownership structure chart; and
3. Identification documents from its beneficial owner(s), director(s), key controller(s) and signatory(s).

(B) Through telephone interviews

1. Address proof of the entity;
2. Amount of annual turnover/income of the entity;
3. Location of customers/clients and suppliers of the entity;
4. The proportion of income earned by the entity from each jurisdiction;
5. Details about the parties from which the entity receives money in its bank account including location of those payers, the nature of their business and amounts received;
6. Details about the parties to which the entity pays monies through its bank account including the location of the recipients, the nature of their business and the amounts paid;
7. The amount of annual income earned by the beneficial owner(s) worldwide; and
8. The capacity/title/position of the beneficial owner(s) held in other entities worldwide, if any, and if so, the following details of those other entities are required: full name, place of incorporation, and nature of business.

From experience, it also follows that in case the above information cannot be provided during the telephone interview itself, it has to be submitted to the banks with a very short time span after the interview took place, for example within 2 days. Banks somehow assume that this information should be readily available!

Remarks on Closure of Bank Account 

(A) Personal data privacy and fairness

It appears that some of the information requested by the banks, such as the amount of annual income earned by the beneficial owner(s) and details about entities in which the beneficial owner(s) has or have any capacity/title/position, is in conflict with the Hong Kong Personal Data (Privacy) Ordinance (‘the Ordinance’).

This as pursuant to Principle 1 of the Ordinance, collection of data must be for a lawful purpose directly related to a function or an activity of the data user who is to use that data. And that the collection of the data should be necessary for or directly related to that purpose and the data collected should be adequate but not excessive for that purpose.

Would, therefore, requested information about a beneficial owners’ worldwide annual income and his/her worldwide directorships not be rather irrelevant, unnecessary and excessive for just the operation of a corporate bank account in Hong Kong?

Further, according to the Ordinance, personal data shall only be collected by means which are fair. It can be argued that the short notice periods, given by the banks through telephone interviews, to provide for (additional) due diligence information, is not fair.

Moreover, the Ordinance also stipulates that it should be made clear by the banks which of the requested information is obligatory and which of the requested information is voluntary, and the exact consequences for failing to supply such particular information.

In addition, banks should also inform clients the specific purpose of requesting the due diligence data and provide information to which class of people the information will be transferred to, if any.

(B) Recommendations

Banks that fail to ‘honor’ the Ordinance can be challenged either directly by corporate clients or indirectly through the so-called Privacy Commissioner.

Additionally, in order to reduce any chances that a bank would want to close down one’s corporate bank accounts, it is advised to:

1. Maintain as much substance as possible in Hong Kong, such as by having in place a) a local director with active roles and responsibilities and b) a physical office, i.e. the presence of staff, fixed assets, telephone and fax lines. The latter also provides for a proper proof of address;
2. Simplify the shareholding structure, if possible;
3. Have updated audited financial statements in place;
4. Avoid business activities in any sanctioned countries and/or in particular offshore jurisdictions; and
5. Prevent third parties of using your corporate bank account to make payments.

Last but not least, one could also ‘try’ to open a second corporate bank account with another bank to avoid that one ends up with having no bank account at all.

Alternatives to a Closure of Bank Account 

HKWJ Tax Law & Partners can assist you to consider which is the best banking solution for your business needs including  virtual banks and neobanks. We can also assist you with your corporate bank accounts opening and other related issues.