Picking A Side

Alexandra Wong
7 min readFeb 10, 2021

The Implications of US Economic Sanctions to the Financial Industry in Hong Kong

Photo by Sébastien Goldberg on Unsplash

On July 2, 2020, the United States Congress and Senate unanimously passed the Hong Kong Autonomy Act. Less than 2 weeks later, President Trump signed the bill into law. This is a rare feat of bipartisanship and signals the commitment of US politicians towards the autonomy and freedom of the people of Hong Kong.

The Hong Kong Autonomy Act of 2020 would impose economic sanctions, not just on individuals and entities undermining the autonomy and freedom granted within the Basic Law, but also on the financial institutions transacting with these individuals and entities. This law provides a foil to the Hong Kong National Security Law, which imposes extraterritorial penalties on broad “act of treason, secession, sedition, subversion” by residents and foreigners in Hong Kong. Notably, the law was hurriedly passed without the involvement of Hong Kong elected legislators ahead of the 23rd anniversary of the Hong Kong handover.

Hong Kong businesses have been confronting mounting and conflicting pressures from politicians, law enforcement, the media and the general public in recent months. Since the escalation of the pro-democracy protests, businesses have suffered direct hits to their bottom lines, pressured to recall products, or shut down vandalized premises. Cathay Pacific notably, bowed to the pressure from the Civil Aviation Administration from China (CAAC), resulting in the resignation of CEO Rupert Hogg. For months, businesses have been cautious in their responses to the protests and increasing violence playing out in Hong Kong. However, a month before its passage, major banks HSBC and Standard Chartered, together with trading houses Swire and Jardin Matheson, have released official statements supporting the National Security Law. This decision came after former Hong Kong Chief Executive, Leung Chun-Ying criticized HSBC for not publicly taking a stand but had since drawn broad condemnation from Western politicians and pro-democracy supporters.

Since the mid-1800’s, financial institutions, especially banks, in Hong Kong have been pivotal in facilitating international trade and transactions with mainland China. Post-handover, financial institutions have reaped significant profits in facilitating market access for international and Chinese corporations via cross-boundary investment strategies and infrastructure such as Renminbi Internationalization, the Shanghai-Hong Kong Stock Connect and Belt-Road Initiative. However, as stimulus and growth in mainland China increased, Hong Kong’s share of the mainland economy has significantly reduced and its own GDP has seen only marginal growth in comparison (Figure 1: Shrinking share). As the stakes are now raised, financial institutions would be rightly concerned about the imminent impact of US economic sanctions to their businesses and stakeholders.

Figure 1 (Source: N. Sin, Reuters)

It is not the first time that banks have been swept up in the tides of geopolitics. Deutsche Bank’s active role in the Third Reich is well documented. As with many tragic histories, things started with a string of small compromises and “passivity” like the dismissal of two Jewish board members, that subsequently snowballed to the expropriation of Jewish-owned property, and eventually, to the financing of the construction of Auschwitz. More than half a century after horrible atrocities were committed, Deutsche Bank finally acknowledged its contribution to the suffering and deaths of hundreds of thousands, if not millions, of people.

At this critical juncture, how should the financial industry in Hong Kong frame their responses as this geopolitical tug-of-war continues to play out?

At the end of the day, it is not “corporations” or “governments” that hurt or benefit “society”. It is individuals making decisions that hurt or benefit other individuals.

First, it is important to understand that all decisions (and actions) are personal. And that we experience all consequences — good and bad — as individuals. This has been shown by Nobel prize-winning economists Kenneth Arrow and John Harsanyi. Arrow’s Theorem of Impossibility states that there is no legitimate measure of welfare by a group of individuals that respects the values of each individual. An alleged “collective” welfare function would have to be imposed on one or more of the individuals by force. In other words, there is no such functioning, decision-making organ as “society”, “institution” or “corporation”. At the end of the day, it is not “corporations” or “governments” that hurt or benefit “society”. It is individuals making decisions that hurt or benefit other individuals.

Once we have established that a response is a decision solely in the control of the individual, we would look to apply perspectives or lenses to each alternative within the decision. In “Ethics for the Real World”, Professor Ronald Howard and Dr. Clinton Korver separates decisions / actions into three dimensions: prudential, legal and ethical (Figure 2: Three Dimensions of Ethical Action).

Figure 2 (Source: Howard, R. and Korver, C. “Ethics for the Real World”)

An action is in the legal dimension if it is obligated by law. Legal obligations are inherently coercive. The law allows the use (or threat) of physical force to compel subjected individuals to action or inaction. Laws determined by different legislative forces could be contradictory, as clearly illustrated in both the Hong Kong Autonomy Act and the National Security Act that imposes penalties on conflicting actions.

An action is prudential if it is taken in our self-interests. Interestingly, self-interest can be altruistic if doing good deeds for others adds to our pleasure. Prudential arguments such as economic stability and maintaining profits have been put forward by pro-Beijing parties to enlist support from Hong Kong financial institutions and businesses against the pro-democracy protests. When we take action that is not prudential, we often feel regret.

We say that an action has ethical content if it raises a question of “right” vs. “wrong”. Unethical actions generally lead to the feeling of remorse. Many have argued that ethical actions and morality are the same thing — however, morals generally pertain to society norms of what is right whereas ethics are personal. For example, many societies or religious groups deem homosexuality immoral, but it does not mean that every individual, even from within these societies, would necessarily agree that it is wrong.

How would we differentiate between a “right” vs. a “wrong” action? Most wrong-doing in the ethical dimension fall under the categories of lying / deception (intentionally giving a false impression with or without telling a lie), stealing (appropriating the property of others without permission), harming (use of violence against another person, which also includes threats or risks of harming) or coercion (imposing external control on others, by use or threat of force and power).

As illustrated in Figure 2 above, there may not be any overlaps between legal, prudential or ethical actions. For example, a legal action may not be ethical: Deutsche Bank’s actions under the Third Reich were permissible under German Law, but are unethical (coercion, stealing and causing harm). Infamously known as the “Nuremberg defense”, Nazi officials defended horrific acts of inflicting harm as legal and were therefore, not a crime.

“In most situations, we do not routinely decide between two wrongs (e.g. lying versus stealing), but an ethical rock and a prudential hard place.” — Professor Ron Howard, Stanford University

As we review our choices against these deceptively simple lenses, we start to clarify the conflicting arguments and viewpoints that befuddle our own decision-making. As Professor Howard pointed out, what we perceive as ethical dilemmas are often our own conflicts between prudential gain and ethical action. “In most situations, we do not routinely decide between two wrongs (e.g. lying versus stealing), but an ethical rock and a prudential hard place.” It is certainly the case for decision makers within financial institutions, who are now compelled to decide between business interests and complying to legislation that threaten to harm individuals who desire freedom of expression and freedom to trade.

Our decisions and actions have real consequences on ourselves and others, even if they do not ultimately influence the course of history. Ethical decision analysis gives us a frame for making tough choices in uneasy situations, providing clarity of action: we as decision makers understand what we should do and why, even if we are uncertain of the outcomes. That, in turn, gives us the full power of control over our actions: to not be battered by the whims of change.


My profound gratitude to Dr. I would like to thank Professor Ron Howard for his permission and support to adapt his work on decision analysis and ethical decision making. He most recently co-authored “A Hippocratic Oath for Technologists”, published in “Next-Generation Ethics: Engineering A Better Society”. Dale Nesbitt for his guidance and teaching on decision analysis, ethics and economic theory.

Further Reading

Abbas, A. (Ed.). “Next-Generation Ethics: Engineering a Better Society”. 2019. Cambridge: Cambridge University Press.

Hammond, Peter J. “Arrow and the Foundations of the Theory of Economic Policy. Chapter 4: On Reconciling Arrow’s Theory of Social Choice with Harsanyi’s Fundamental Utilitarianism”. 1987. Palgrave Macmillan UK.

Howard, Ronald A. and Korver, Clinton D. “Ethics for the Real World: Creating a Personal Code to Guide Decisions in Work and Life”. June 24, 2008. Harvard Business Review Press.

James, Harold. “The Deutsche Bank and the Nazi Economic Wars Against the Jews”. March 23, 2001. Cambridge University Press.

James, Harold. “The Nazi Dictatorship and the Deutsche Bank”. September 10, 2007. Cambridge University Press.

Originally published at https://www.linkedin.com.



Alexandra Wong

I dabble. And experiment. Writing helps.