Backdating a Forward and Routing Around Sanctions
An FX salesperson at a Hong Kong bank manages a corporate client that generates USD 800m of annual FX flow. The client's treasury executed a six-month USD/CNH forward at 7.15. Spot is now 7.28, and the forward is USD 1.3m out of the money. The client asks the salesperson to cancel the trade and rebook it at 7.15 with a value date of last Tuesday, saying the original trade was a 'mistake' and that the confirmation can be 'adjusted.' The salesperson's manager says the client is too important to lose and tells the salesperson to 'make it work.' Separately, the client asks the bank to route a CNY payment to a counterparty in a sanctioned country through its Dubai subsidiary and to 'keep the name off the wire.' The salesperson has not yet responded and has asked you for advice.
1. Identify the conduct, compliance, and legal issues raised by the two requests.
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There are two separate issues. First, the request to cancel and rebook at 7.15 with a past value date is a request to create a false record and to transfer a USD 1.3m loss to the bank. A genuine error can be corrected through an approved cancellation-and-rebooking process at the current market rate, with documented evidence and the client bearing the close-out cost. Backdating the new trade, or altering the confirmation, misstates the bank's records and could mislead the client's auditors and regulators. It is not a customer-service adjustment.
Second, routing a CNY payment through Dubai to obscure a sanctioned counterparty is potential sanctions evasion and concealment. 'Keep the name off the wire' is a red flag for structuring and for attempting to deceive the bank's sanctions controls. The bank must not facilitate it. The manager's instruction does not make either request lawful, and the salesperson's own conduct could be judged by what they knew or should have known.
2. Recommend specific actions and escalation, including what to document and what not to do.
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Refuse both requests clearly and in writing. Escalate immediately to compliance, sanctions advisory, and legal; if the bank has a financial crime unit, file an internal suspicious-activity report and consider whether external reporting is required. Preserve the client's messages and the manager's instruction; do not delete or alter them. Do not execute the rebooking, do not change the value date, and do not route or strip the payment.
If the client insists, the bank should decline the transaction and review whether to continue the relationship. Document the rationale, the approvals sought, and the client's response. The salesperson should also report the manager's pressure through the whistleblowing channel if compliance does not act. A legitimate correction requires evidence of the original error, a market-rate close-out, and proper approvals; it never involves a false historical value date.
3. Explain how the bank should handle the relationship and why 'client importance' is not a defense.
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The client's USD 800m annual flow is a commercial fact, not a legal defense. A bank's obligations under sanctions, AML, and record-keeping rules do not bend for revenue. The consequences of facilitating can include criminal liability, regulatory enforcement, loss of correspondent banking relationships, fines, and reputational damage that far exceed the revenue. The correct relationship response is a senior-level conversation with the client explaining the bank's controls, offering a compliant alternative only if the counterparty is not sanctioned and the payment is transparent, and exiting the relationship if the client refuses.
The bank should also review whether the manager's instruction reflects a culture problem and whether other trades with this client were handled properly. The salesperson should not rely on the manager's assurance; escalation is required when a request would create a false record or evade sanctions. A revenue-based exception would set a precedent that undermines the control framework and could be treated as evidence of intentional misconduct.