US Treasury Warns Hong Kong Banks Over Funding Iran Oil Trades

An Iranian national flag flies near gas condensate processing facilities in the new Phase 3 facility at the Persian Gulf Star Co. (PGSPC) refinery in Bandar Abbas, Iran, on Wednesday, Jan. 9. 2019. The third phase of the refinery begins operations next week and will add 12-15 million liters a day of gasoline output capacity to the plant, Deputy Oil Minister Alireza Sadeghabadi told reporters. Photographer: Ali Mohammadi/Bloomberg Photo by Ali Mohammadi /Bloomberg

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(Bloomberg) — A US Treasury delegation met with Hong Kong banks to warn them against facilitating Iran oil shipments to China in April, just a month before sanctioning nine non-bank entities in the city allegedly involved in such trades, according to people familiar with the matter.

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Jesse Baker, the deputy assistant secretary of the Treasury for Asia, led a team to meet with a number of banks in Hong Kong on April 7, the people said, requesting not to be named because the matter is private. 

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Banks were asked to take action to reduce the flow of funds supporting Iranian oil shipments and other illicit transactions, the people said. They were asked to look beyond the front companies to uncover the ultimate beneficial owners and flag suspicious transactions conducted in non-dollar currencies, the people added. 

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Representatives from HSBC Holdings Plc, Standard Chartered Plc and Bank of China Ltd. Hong Kong were among those who attended the meeting, the people said. 

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The US Treasury declined to comment, as did Standard Chartered and HSBC. Bank of China’s Hong Kong arm wasn’t immediately able to comment. 

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While this isn’t the first time the US Treasury has dispatched delegates to talk with Hong Kong banks, the focus on Iran marks a new development in addition to past discussions on Russia.

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China is the largest buyer of Iran’s oil exports. Nearly 6.1 million tons of Iranian crude was delivered to China’s independent refineries in April, according to commodities-tracking platform Kpler. Last year, China imported 75 million tons. According to official customs data, China does not import Iranian oil.

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Hong Kong-registered companies have been known to help Iran sell its oil to China. The Hong Kong trip was followed later that week by a visit to Malaysia, the people said. The Treasury officials also went to Singapore, where they told the financial and maritime sectors to expect increased pressure on Iran’s oil industry and Chinese buyers of the country’s crude. 

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Baker also met up with Hong Kong banks in December, asking them to identify transactions related to high-tech US military goods being shipped to Russia via the city, the Nikkei Asia reported at the time. The banks were warned about secondary sanctions if they unknowingly facilitated such trades, the report said, citing people familiar. 

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‘Malicious Slander’

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In November, US lawmakers said Hong Kong was a center for financial crime as Beijing tightened its grip on the city. The local government objected and called it “malicious slander.” 

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In recent years, the relationship between Hong Kong and the US has deteriorated over a crackdown on dissent that American officials say has eroded the rule of law and democratic rights.