Are Hong Kong banks closing your business accounts?

How to maintain a healthy business account with Hong Kong’s leading banks ?

Hong Kong ranks third as the top financial city in the world, after New York and London. Most of the world’s biggest companies will indeed have an office in Hong Kong as it serves as a bridge between China and the rest of the world for shipping, financing, and sourcing. Due to its communist philosophy, China firmly controls its communications with the international world, which indirectly favors Hong Kong to become one of the biggest modern and westernized hubs for trading and business from all over the world.

“Hong Kong is tax-free, lets you register a business in a single day, and your business is on the go within one week of its establishment. That’s the real charm of this city.”

But unfortunately, many businesses have misused the privilege and comfort of Hong Kong’s banks to do billion-dollar scams without a trace of doubt. They have fled back to their countries, and it has been impossible for the Hong Kong government to deport these scammers and take necessary actions.

“End of the day, it’s not the Hong Kong government which suffers these losses, but it’s the banks that face these huge losses because of these scammers” 

If you are into the business of trading with Diamonds, Jewellery, Electronics, Mobile Phones, Gadgets involving genuine transactions of high-value money, you will relate strongly to this article.

Many Hong Kong-based companies whose directors are Indian, South Asian, and mainland Chinese face massive problems with banks closing their business accounts. And this usually comes as a surprise with a series of letters giving you the closure date for your business account.

Surprisingly, most of these leading bank’s business hotline service agents and your relationship managers will not have clear answers explaining to you the reasons, ‘why the bank wants to close down your business account? And there is no direct access to the remittance department, no matter how much you try.

“As a genuine business person, you would be left wondering where you or any of your business transactions go wrong?”

Most of the time, the account closure comes from some business transactions done by your company, which does not comply with most of the Hong Kong banks’ business banking guidelines.

Well, there isn’t a fixed set of rules or guidelines provided by any of the banks in Hong Kong, but still, there are many questions and doubts raised by the banks on your transactions.

Your company’s bank account would usually come under scrutiny when :

1) Your business turnover is increasing really fast and almost doubling every year.

2) Directors are from India, Pakistan, or any other south-Asian country.

3) Directors are from Mainland China

4) Companies with a virtual presence in Hong Kong, no physical existence

5) Companies with registered business addresses of secretarial companies, co-working spaces, and shared offices.

6) Companies were getting remittance from any country close to the embargoed countries.

Well, every business person in Hong Kong wants to grow his or her business. While you are a small enterprise handling multiple tasks while building your dream empire, these banks will suddenly throw a time-bomb on you by holding up any of the incoming or outgoing funds that you would need desperately for paying to your supplier.

Typical alarming cases are : 

1) Your buyer has made the payment, but the funds don’t show in your account for 4-5 business days, whereas in a general case scenario, the amount always came in within two days.

2) You have made a payment to your supplier, and the supplier claims that the money hasn’t reached within 1-2 business working days for a local Hong Kong payment.

3) Your buyer has sent you the amount. You called the business care hotline, and they confirm the payment has arrived, but the payment is still not credited to your account.

I spoke to Mr. Rajendra Sharma, who worked with Hong Kong’s leading bank for over ten years in the legal and compliance department before moving back to India. He mentioned : “Many companies in Hong Kong are just virtual companies without any physical offices or any real person sitting in Hong Kong. Many secretarial companies in Hong Kong make a huge amount of money by helping these overseas companies incorporate a company in Hong Kong and open a business account. I’ve heard nowadays in Hong Kong; some secretarial services companies even charge almost HK$100,000 to open your bank accounts after your company is incorporated. Some of these big overseas companies do many transactions using their bank accounts and mainly use their accounts in Hong Kong to receive and send payments. The account isn’t called a real business account but is more like money transferring account. Also, many fraud companies and scammers from UK, Africa, and even the USA transfer funds to small budding companies and entrepreneurs in Hong Kong. After a few days, they would call back their funds, saying they transferred to the particular account by mistake. Banks in Hong Kong will immediately freeze the business account if any remitting company calls back their funds. Then the entire account goes into a review, and the entire procedure of reviewing takes not less than a year. Thankfully, the Hong Kong Monetary Association (HKMA) always comes as an aide for genuine businesses to sort out such matters.”

On a similar subject, we spoke to Ms. Lily Chen (name changed on request), Senior Vice President of DBS Bank Hong Kong, who mentioned

“We are constantly working under tremendous pressure. We need to make sure each of the business transactions is 100% legitimate, and it’s challenging to keep track of every single company with an account with our bank. Also, there is no standard set of guidelines to be followed, so everything we need to do is make sure the documentation provided for the business transactions looks genuine and is showing proper names and are about actual business transactions. The worst part for us is that the remittance team puts a hold on the deals of our clients and then notifies us to do the checking work; it’s not only time-consuming but also frustrating for the businesses who want to move fast with their supply-chain of giving goods to their buyers and paying to their suppliers. Our customers feel that we are purposely wasting their time holding their payments, but they do not understand; we are working under so much pressure. Just imagine that if I am handling ten customers with our bank, I need to be 100% responsible for keeping the customers happy while ensuring that their business transactions are spotless. Sometimes I feel like a sandwich between the bank and the customers.

Now, let us first understand why these Hong Kong banks need to follow such strict guidelines and reviewing procedures, which ultimately sometimes also ends up with banks freezing your accounts, for months and years, without you being able to deposit or withdraw anything from your business account till the time the banks have finished their entire reviewing procedure. And, trust me, this would be the most frustrating period of your whole life, as no one from the bank will give you clear answers on what exactly is happening.

With this cover story, I want to share my personal experience in the form of a list of dos and dons from the bank’s compliance perspective. I assure you that this article will undoubtedly serve as a guideline of what our local businesses should follow as a list of dos and dons for being in the good books of some of the leading banks of Hong Kong, like DBS HSBC, Standard Chartered, Bank of China and many others. The list will work as the most popular and legit way to do business transactions with any of your buyers without leaving even the slightest loophole of any wrongdoing as per the bank’s compliance and requirements.

I can guarantee you that if you follow the Do’s and Don’ts listed here, your business account and the business transactions will not face any trouble with the banks.

So here’s a list of Dos and Don’ts for a healthy business and a healthy business account in Hong Kong :

Do’s :

1) Company Information of buyers – when closing any first-time business with your new buyer, please ask them to provide their company information like company registration certificate, vat or tax certificate, website, and whatever other information they can provide to you. Please make sure this is all done in an e-mail.

2) Authenticate the documents provided by your buyer –

• By checking their website, if they are really into the same business as they claim to be.
• Google their company name to see if there are any website links found with any doubtful information.
• Make sure the buyer does not belong to the list of Embargoed countries to do business.
• Check if the mobile phone IDD code of the person discussing with you about the business is the same as the company’s country of origin or business.

3) The company representative is genuine – Make sure the person you are discussing the business with is a part of the company that he/she claims to be. You may check if their name shows on the official website with some designation.

4) Order Confirmation – Make sure you send the order confirmation and Proforma Invoice on E-mail as well, even though you have submitted the Invoice on WhatsApp/skype/WeChat.

5) E-mail chain – Always send a cc of your order confirmation e-mail to at least one more employee of your company to make sure the e-mail is well received. Preferably mark a CC to any of your superior who probably has more experience than you. If you are a solo entrepreneur, you may mark a cc on your e-mail to your other personal e-mail addresses. It’s always good to have a backup.

6) Invoice Accuracy – this is the most important thing.

• Make sure it mentions the Incoterms, and you clearly understand the meaning of it. FOB, EXW, FCA are some of the commonly used Incoterms.
• Make sure you mention the ‘Country of Origin’ for your products.
• Make sure you say the ‘Currency is in USD/HKD/Euro.’
• Make sure you mention your bank account information is with the Swift Code, Address of Bank, Complete bank name (Standard Chartered Hong Kong is different from Standard Chartered India, and trust me, both the banks are different altogether)
• Make sure you mention the delivery and warranty terms.

7) The same company pays as per the Invoice – Ensure that you inform the buyer that your company will only accept payment from the company’s name mentioned on your Invoice to the buyer. If the buyer uses a money transfer company or any third-party payment source, make sure they inform you on an E-mail before making the payment. They will need to authorize the company to make payment to you for the business transaction.

8) TT Copy / Payment Proof – Make sure the payment proof shows the same company name as per the Invoice generated by your company, and also, please make sure the spelling and name of the company that appears on the Invoice matches according to the name and spelling mentioned on your Invoice. A mismatch in the names can cause serious trouble if the bank wants to review that particular business transaction.

9) Logistics Proofs –

• Delivery of goods: If your business transaction involves your company delivering the products to any logistics company as assigned by the buyer, please make sure you have a ‘Delivery Note’ format on which you will ask the logistics company accepting the goods on behalf of your buyer to sign and chop confirming the goods have been delivered.
• Pick up of goods – If your buyer is arranging for a pick up by a third party logistics company, trucking company, or any driver, please make sure you have a ‘Pick-up Note’ on which the person picking up the goods will sign and put his/her HKID no. And will also put a company chop of their respective company.
• If the logistics company assigned by your buyer assigns another third party company, says a trucking company, for pick up or another company who will handle the shipping; please make sure you request the buyer’s assigned logistics company to send you an e-mail confirming their authorization for another company to handle the goods pick-up, delivery or transportation for the mentioned invoice number to your buyer.

10) Take as many photos possible – If you or any of your colleague is personally involved during the delivery of pick up of buyers goods, make sure you take a lot of photos of people involved, truck/van number plates, ordered products, and anything else that you feel might be required as a documented proof.

11) Folder for each business transaction – Make a folder on your computer or a google drive for each business transaction, and maintain these folders on a real-time basis by uploading every document about the deal. If any of your business transactions come under scrutiny by the bank, you should have these folders handy with the maximum possible documents, as explained from above points 1 to 10.

Don’ts :

1) Never accept payments in a different currency compared to what is mentioned on the Invoice.

2) Never accept part payments in different modes, such as 10% payment bank transfer, 50% payment cash, and balance 40% payment through another bank account.

3) Always think twice when dealing with any buyer or company with a scam alert on google search or any other known sources.

4) Never accept payment for any invoice from another company or source without the buyer’s authorization to the funds transferring company for payment handling.

5) Never make invoices for selling goods in the names of companies who are not directly involved in the same trade of business as yours. Double confirm everything with the buyer and any senior person in your company if they still insist on doing it.

6) Never make incomplete invoices, and make sure it mentions everything as mentioned in the list of Do’s

7) Never do business with buyers from embargoed countries

8) Never do business with buyers who want to pay through PayPal and other fast money transferring modes, as they can always call back their money after receiving their goods.

Keep all the points in mind, especially when dealing with new buyers. And please note, all these points are based purely on my personal experience of over seven years of dealing with HSBC, Citibank, and DBS bank for my trading business. Every business might have different dynamics, but the above set of tips works would work great if you are in the business of branded goods trading.

If I can be of any help in clarifying any of the points mentioned above in the list of Dos and Don’ts, please feel free to call me anytime at +852-95433660, and I will be more than happy to share my personal experiences based on which I have made the above list.

As a finishing note of this article, I would like to request all the business owners and managers to please share the list of Dos and Don’ts with your sales team as a set of guidelines to follow when dealing with clients, as this will only help your business grow with the banks in Hong Kong. 

If you are troubled by the bank, even after following all the banking regulations and procedures, please file an official complaint with the Hong Kong Monetary Association on https://www.hkma.gov.hk/eng. I guarantee you, they will pull every string out of the bank to favor what is righteous.