Update: sanctions due diligence for a deal touching the UAE

Banking access on the Hong Kong–UAE corridor has grown more complex. Groups routing capital through this pairing face tighter correspondent-bank scrutiny, more granular counterparty screening requirements, and — where a deal involves a sanctioned-adjacent sector — questions about the legal instrument governing compliance obligations at each end.

Sanctions due diligence for a deal touching the UAE requires a layered review: the United Nations sanctions regime applies in both Hong Kong and the UAE; Hong Kong implements United Nations measures and does not give domestic effect to unilateral measures of other states; the UAE has its own domestic sanctions architecture; and any deal touching the corridor must be reviewed against all three layers before the first payment instruction moves.

This briefing sets out what is driving the current compliance pressure, who it affects, and the immediate steps a cross-border principal should take.

What is driving the current pressure on the Hong Kong–UAE corridor?

The primary trigger is correspondent-bank de-risking (the withdrawal by international banks from payment relationships they regard as higher-risk). On the Hong Kong–UAE corridor, this has accelerated over the past two years as global clearing banks apply enhanced due-diligence standards to transactions with any UAE-nexus counterparty. The result is that deals which previously settled without friction now require documentation that was not standard in earlier cycles.

A second driver is the UAE's own evolving sanctions posture. The UAE operates a domestic sanctions list administered through its Executive Office for Control and Non-Proliferation. Where a counterparty or a sector appears on that list, a deal structured through a Hong Kong holding entity does not automatically escape the UAE-law compliance obligation. Both ends of the structure carry exposure.

The governing instrument in Hong Kong is the United Nations Sanctions Ordinance, read alongside the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Hong Kong's principal AML statute, which imposes customer due-diligence and source-of-funds obligations on regulated entities and, by extension, on the structures and counterparties they service). A transaction that cannot satisfy both instruments will stall — or will be declined by the bank handling the payment.

In our cross-border practice, we are seeing a consistent pattern: the compliance gap appears not at the point of deal execution but at the payment-channel stage, when a correspondent bank requests documentation that the deal team has not assembled in advance. That sequence is avoidable.

Who is affected, and what to do now

Any principal — whether an Asian group, a CIS-origin holding structure, or a Middle Eastern operating entity — that is (a) using Hong Kong as the deal hub, (b) paying to or from a UAE-connected counterparty, or (c) holding assets through an intermediate entity with UAE exposure should treat this briefing as a trigger for an immediate compliance review.

The most exposed fact patterns in our desk's current caseload are: a Hong Kong-incorporated special purpose vehicle (SPV — a single-purpose entity used to hold or finance a specific asset) acquiring a target with UAE operations; a BVI or Cayman holdco making a distribution to a UAE-based ultimate beneficiary; and a Mainland-Chinese operating group using a Hong Kong entity to settle trade invoices with a UAE supplier in a sector flagged by one or more screening databases.

The immediate action is a three-part file: first, a counterparty screen against the UN consolidated list, the UAE domestic list, and the lists maintained by any correspondent bank in the payment chain; second, a source-of-funds narrative sufficient to satisfy the Anti-Money Laundering and Counter-Terrorist Financing Ordinance standard; and third, a deal-structure review confirming that the holding entity — whether Hong Kong, BVI, or Cayman — does not trigger a substance or disclosure requirement that the current documentation does not address.

The sequence above describes the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps — which is where the route is won or lost. For a structured assessment of your sanctions and AML position on a deal touching the UAE, write to us at info@lockhartyip.com.

Groups that have already received a correspondent-bank request for information — or that have had a payment delayed or declined — should not treat the request as purely administrative. A stalled payment is an early signal of a documentation gap that will recur on the next transaction unless the underlying file is corrected. If an earlier filing or structure produced an adverse or stalled result, a second read can identify the compliance gap and the steps still open.

For advice on your cross-border position and the sanctions due-diligence steps required before your next transaction, contact info@lockhartyip.com.

Further guidance on the sanctions-neutral contracting approach through Hong Kong is available in our dedicated briefing at Sanctions-neutral contracting approach through Hong Kong. Groups with export-control exposure on dual-use goods moving through the corridor should also review our export control and dual-use risk review guide. Our full practice overview is at Sanctions & AML.

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Related

• Sanctions Aml
• Export Control Dual Use Risk Review Guide
• Sanctions Neutral Contracting Approach Through Hong Kong Briefing

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