Hong Kong is generally considered a hands-off location when it comes to regulation and laws in the corporate space. That doesn’t mean that companies can sit back and relax as long as they keep their basic business license in order and annual audit reports are filed. Standards set by stakeholders such as investors, customers, and banks also need to be considered. In particular, a high standard should be applied when it comes to screening partners, customers, and third parties.
What do you know about your customers, and what do you need to know? The answer is very different if you sell in the retail sector, or if you supply complex consulting solution to industrial actors. If you are in sector considered sensitive, such as crypto, pharma, or casinos, the landscape changes again.
The basic principle here is that every business should be able show a policy on who they will and will not do business with. This policy needs to be functional, and the business should be able to demonstrate how it’s executed. Most small businesses build this policy into their CRM systems, whereas larger businesses employ entire compliance teams to handle KYC.
Demonstrating control over who funds your operation is a requirement from all major banks. It can also be a requirement from investors, and falling afoul of clauses relating to anti-money laundering (“AML”) can have a big impact on your business. Consider turning to your local accountant and your local corporate secretary for support. The Big Four can all offer basic AML programs, as can risk management companies.
Be careful of political actors
Politics in Hong Kong should be considered the same as politics in the PRC, in the sense that laws of the PRC also should be seen as the bar for companies in Hong Kong. This means that political sensitivities are also transferred to Hong Kong, and the topics considered politically sensitive in China should be viewed the same way in Hong Kong.
When doing business with mainland companies you need to make sure you know who the other party is. One reason for this is to determine if you are doing business with affiliates of the Chinese government, or with parties receiving funding from the government. that’s not to say one can’t or shouldn’t do business with governments, but it’s always best to be aware. One risk to look out for is sanctions for parties and products, and the responsibility of complying with global sanctions falls squarely on the party doing business with the sanctioned party.
There are several ways of screening the shareholders of a PRC entity. Consider requesting disclosures from your suppliers, but also consider having a third party available to handle more important screenings. The starting point is always asking the questions, and ask for documentation to back up the answers you get.