Update: an internal sanctions and AML policy for an Asia group

Banking access is the pressure point. For Asia-headquartered groups with operating entities, counterparties or payment flows touching Greater China, the Gulf and offshore holding centres, the question is no longer whether a sanctions and AML (anti-money laundering) policy is in place – it is whether that policy holds up under a correspondent bank's due-diligence review or a regulator's enquiry. Both are happening more frequently, and the cost of a gap has risen.

An internal sanctions and AML policy for an Asia group must address the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (the governing statute in Hong Kong), the United Nations Sanctions Ordinance, and the relevant AML guidelines issued by the Hong Kong Monetary Authority and the Securities and Futures Commission. Hong Kong implements United Nations sanctions and does not give domestic effect to the unilateral measures of other states – a distinction that must be reflected accurately in any group policy deployed across a mixed-jurisdiction structure.

This briefing sets out what is prompting the current wave of policy reviews, who is affected, and the immediate steps to take.

What has changed and why the timing matters

Correspondent banks and payments processors have tightened de-risking (the practice of terminating or restricting services to clients perceived as elevated-risk) across the Asia corridor. Policies written under an earlier, simpler risk model are now generating compliance queries that cause payment delays or, in some cases, account exits.

At the same time, the mandatory licensing regime for VATPs (virtual-asset trading platforms) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance – which commenced 1 June 2023 – extended AML and travel-rule obligations to a class of entity that previously operated without a specific licencing framework. Groups with any Web3 or digital-asset exposure must ensure their policy captures those entities and their counterparty flows.

The HKMA and SFC have updated their AML guidelines to address these developments. A policy that pre-dates those updates is structurally incomplete. That is the window: the mismatch between current regulatory expectations and documents that have not been reviewed in the past 12 to 24 months.

Who is affected across the Hong Kong corridor

The risk is not confined to financial institutions. Any Asia group that holds a bank account, processes payments through a Hong Kong correspondent, or contracts with a counterparty in a jurisdiction that triggers enhanced due diligence is subject to the same underlying pressure. In our cross-border practice, we regularly see the issue arise in three configurations.

First, a manufacturing or trading group headquartered in the Mainland or the Gulf, with a Hong Kong holding entity and a BVI or Cayman subsidiary. The group policy was drafted for the parent's home jurisdiction and does not address the Hong Kong layer or its specific UN-sanctions posture. Second, a family office or investment vehicle with a Hong Kong presence and assets managed through a Singapore or UAE sub-structure. The policy exists at the fund level but has not been cascaded to the operating entities. Third, a group that has expanded into virtual assets – custody, treasury management or a payment token – and whose existing AML policy does not mention the VATP licensing regime or the FATF travel rule (the requirement to transmit originator and beneficiary information alongside virtual-asset transfers).

In each case, the gap is the same: a policy designed for one environment operating in a multi-jurisdiction group where the Hong Kong node carries its own regulatory weight.

The immediate action

The priority is a policy gap analysis before a bank or regulator prompts one. That means reviewing the existing document against three standards: the current AML guidelines issued by the HKMA and the SFC, the UN-sanctions posture specific to Hong Kong, and the FATF travel-rule requirements as they apply to any virtual-asset flows within the group.

The review should also confirm that the policy correctly states which jurisdiction's sanctions law applies at each entity level. A group that incorrectly extends the unilateral measures of another state across its Hong Kong entities creates compliance problems of its own – either over-blocking legitimate transactions or generating a documented position that is inconsistent with Hong Kong law.

For the cross-border interface, the policy must address source-of-funds documentation for Mainland China counterparties and the customer due-diligence steps required when a payment moves through the Hong Kong correspondent network. Both are areas where we see compliance files that are thin in the wrong places. For deeper guidance on the source-of-funds question specifically, see our analysis on AML source-of-funds files for Mainland China counterparties.

If your group has an existing policy but it has not been reviewed against the current instruments, the first step is a structured read against those standards – not a full redraft. That is usually a shorter exercise than groups expect. Before entering into a new relationship with a UAE-based entity, a separate compliance review step applies; see our briefing on compliance review before contracting with a UAE entity.

For a structured assessment of your group's sanctions and AML policy position across the relevant jurisdictions, write to us at info@lockhartyip.com.

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.