Its tough being in the middle; HSBC’s role in the extradition of Meng Wanzhou

What just happened?

Huawei has asked HSBC to hand over its records to fight the extradition of Meng Wanzhou, the Chief Financial Officer of the telecoms group. The case was heard by the UK Royal Court of Justice.^[1]

What does this mean?

It all began with a PowerPoint presentation that was given by Meng to HSBC representatives. It contained information about Huawei’s relationship with telecom firm Skycom. In 2010, Skycom attempted to sell HP gear to the largest mobile phone operator in Iran. This was against the sanctions laid down by the US government. It was later discovered that Huawei had a controlling stake in Skycom.^[2] Meng downplayed this relationship causing the bank to clear transactions amounting to more than $7 million in payments to Skycom. The payments were made in US dollars, which fall under US jurisdiction causing HSBC to violate US sanctions. HSBC provided this presentation to US authorities, stating that it was an innocent party blaming Meng and Huawei.^[3]

The case has significantly impacted foreign relations between China, Canada, US and UK. Meng was arrested in Canada in 2018 at the request of US law enforcement. The US Department of Justice is fighting to extradite her to the US where she can stand trial for bank fraud, wire fraud, and conspiracy to commit bank and wire fraud. Meng, in turn, has sued HSBC in the UK for providing the information that helped US prosecutors build their case against her.^[4]

What are the legal implications?

Meng is suing HSBC in the UK under the Bankers’ Book Evidence Act 1879 to force the bank to disclose the presentation and other documents in its books, including internal employee communications, compliance records, and risk evaluations.^[5] Huawei alleges that HSBC knew of the relationship between Huawei and Skycom because her presentation to them made it clear and such information was widely available. Huawei’s lawyers also allege that the US prosecutors had given an incomplete version of the presentation to Canadian authorities in order to get Meng arrested.^[6]

HSBC argues that UK courts must not entangle themselves in a matter they don’t have jurisdiction in, and rule against it even if they did as it would put ‘enormous burden’ on banks to give disclosure.^[7] They also stated that the definition of these documents does not come under Banker’s Books according to the act and hence should not be used in foreign criminal proceedings.^[8] While it may seem hypocritical of HSBC to withhold such evidence and providing it only to one party, they do state that they had no choice but to co-operate with the Department of Justice investigation at the time. The bank was already being fined at the time for supporting Mexican drug cartels in laundering money and was under the control of an independent monitor. There were about 200-400 people at any given point of time from the US monitor who have access to everything. Hence the bank had no choice but to provide the details.^[9]

HSBC has been under fire since the beginning of this year, first when they were asked to appear before the Foreign Affairs Committee of the British Parliament for their support of the repressive Hong Kong Security Law^[10] and the second is their trial against Meng Wanzhou. Last year, it launched a lobbying effort to distance itself from the matter by convincing the Chinese government that it wasn’t responsible for Meng’s arrest.^[11] However, it was the evidence provided by HSBC that gave US prosecutors a case to begin with.

This trial is said to be the latest instalment in this political saga. It highlights HSBC’s sensitivity in getting involved between Beijing and Washington. The company generates 75% of its profits from China alone.^[12] The bank, however, ended its relationship with Huawei in 2017 and has been deemed as the victim institution by the Department of Justice.

This case has severe implications on the already worsening foreign relations between China and the UK. It has also had an impact on China-Canada relations. Following Meng’s arrest, China detained two Canadian citizens in harsh conditions with the charge of spying.^[13] Regardless of the outcome of the case, HSBC cannot be considered victor in any manner. While it may not be a party to a criminal case in the US, it certainly needs to thread more carefully. If the judge rules in favour of Meng, it would establish authority for all banks to be more careful with regard to their disclosure policies. It would also open a channel for companies to come to UK courts for banks to disclose documents presented as evidence in other jurisdictions. If the court rules against disclosure, the Chinese Government is most likely to disrupt the bank’s operations in China. It has already begun somewhat as it was accused by a Chinese state-backed newspaper of being “unethical” and was threatened with being added to the country’s “unreliable entity” list.^[14]

Assesing Firms

#Concerns all firms specialising in banking and having Chinese operations.

^[1] Nic Fildes, ‘UK court hears arguments from Huawei and HSBC over Iran documents’, Financal Times, (February 12 2021)

^[2] Steve Stecklow, ‘Exclusive: Newly obtained documents show Huawei role in shipping prohibited U.S. gear to Iran’, Routers, (March 2 2020)

^[3] Annabelle Timsit, ‘The extradition case against Huawei’s CFO comes to London’, The Quartz, (February 12 2021)

^[4] Ibid.(3)

^[5] Ibid.(1)

^[6] Ibid.(3)

^[7] Ellen Milligan, ‘Huawei CFO Meng Seeks HSBC Records Amid U.S. Extradition Fight’, Bloomberg, (February 12 2021)

^[8] Ibid.(1)

^[9] David Crow, ‘HSBC tells China it is not to blame for arrest of Huawei’s CFO’, Financial Times, (June 30 2020)

^[10] Denise Wee, ‘HSBC’s CEO Faces U.K. Questions Over H.K. Account Freezes’ Bloomberg, (January 24 2021)

^[11] Ibid.(9)

^[12] Ibid.(9)

^[13] Amanda Connolly, ‘Huawei Canada VP defends Meng Wanzhou, won’t condemn detention of two Michaels’, GlobalNews, (February 14 2021)

^[14] Ibid.(9)