Sumeet and Lawrence White

HONG KONG/LONDON – HSBC has been denying potential Russian clients, according to two people familiar with the situation. This is in an attempt to protect itself against Western sanctions on Moscow.

These measures will affect HSBC’s business and individual customers worldwide and are more than the bank previously announced intentions to end its relationships with VTB lenders, who were under Western sanctions after Russia invaded Ukraine.

Europe’s 2nd largest bank has taken steps to show how Russia sanctions are being applied against its financial system, political and business elite. The lenders want to avoid getting in trouble for the possible fines and restrictions.

HSBC stated on March 14 that it was “not accepting new business in Russia,” but did not explain what this means to existing and prospective Russian customers.

Sources claim that bank risk and compliance personnel have instructed business managers not to accept Russian-speaking clients.

As the bank staff struggle to make sure they don’t offer any services to sanctioned people or companies, dual passport holders will also be subject to these checks.

HSBC refused to comment.

According to Reuters, customers who have business ties with Russia or receive income in roubles (e.g., those deriving their income from Russian employment, pensions and investments) are also affected by this discounting.

Two sources claimed that Russian connections are increasing scrutiny of business customers, including those who have no connection to sanctioned individuals or entities, and they are having their loan applications rejected.

Russia’s invasion has caused a mass exodus from Russia of foreign businesses. Western governments have used unprecedented sanctions to crack down on Moscow, and stop the financial system around the world from becoming a channel for Russian money.

Reuters earlier reported that the European Union had instructed some banks to increase control over all Russian and Belarusian customers, which includes EU residents to make sure they don’t use them to bypass sanctions.

Russia characterises its actions in Ukraine as a “special operation” to demilitarise and “denazify” the country.

Free for Businesses

Italian banks UniCredit (Italy) and Societe Generale France (OTC:), which are leaders in European banking, said that Russia could write off their entire businesses. But banks will also be subject to a greater chill as sanctions continue to impact business.

HSBC doesn’t have a Russian retail bank, but it did employ around 200 people there as of February 22, according to Ewen Stevenson, the Chief Financial Officer. According to the bank, its operations in Russia “will continue reducing” as of March 14.

The latest HSBC sanctions go far beyond background checks and demonstrate how banks are trying to apply multiple waves without discrimination against legitimate customers.

The images show tensions between compliance teams and banks’ sanction and enforcement departments, which demand stricter interpretations of new rules to satisfy regulators. Frontline staff are responsible for growing and servicing clients.

HSBC must demonstrate to regulators it can detect illegal transactions. Following a number of scandals in the past, it had to strengthen its money laundering controls worldwide and agreed to $1.9 billion with U.S. authorities in 2012 for allowing Mexico to become a conduit for drug money.

According to sources, HSBC will review all current private and retail customers of Russian banks worldwide in order to find out if any have ties with sanctioned individuals or entities.