On August 7, 2020, the US Department of the Treasury's Office of Foreign Assets Control ("OFAC") announced the imposition of sanctions on Carrie Lam, the Chief Executive of Hong Kong, and 10 other Hong Kong and Chinese government officials, including the Commissioner of the Hong Kong Police Force and the Director of the Hong Kong Liaison Office. These individuals are being added to OFAC's Specially Designated Nationals and Blocked Persons List ("SDN List"). According to the Treasury Department's announcement, these officials have been designated for their role in implementing China's National Security Law for Hong Kong and for what the Treasury Department describes as "undermining Hong Kong's autonomy and restricting the freedom of expression or assembly of the citizens of Hong Kong." These designations will have implications for both US and non-US persons, including foreign financial institutions, who have dealings with these individuals.

These sanctions come only a few weeks after the President's signing of the Hong Kong Autonomy Act ("HKAA") (see our Legal Update), which provides for mandatory sanctions against individuals, entities and financial institutions in response to China's National Security Law for Hong Kong. The designations were made pursuant to President Trump's Executive Order on Hong Kong Normalization (the "Order") (see our Legal Update), which, among other things, provides for the imposition of sanctions under the HKAA and other sanctions authorities of the President on (i) persons deemed to engage in certain activities that undermine democracy and autonomy in Hong Kong as well as (ii) certain categories of persons deemed to provide "material" support, including financial support, to such persons.

As a result of the August 7 designations, all property and interests in property of the 11 individuals that are in the United States or in the possession or control of US persons are blocked and must be reported to OFAC. This includes any property and interests in property of any entities owned, directly or indirectly, 50 percent or more by the designated individuals (individually or with other blocked persons). As with other parties on the SDN List, US persons will be generally prohibited from engaging in any dealings with the designated Hong Kong and Chinese officials absent authorization from OFAC.

In addition to the impact on US persons, these new designations have potential sanctions implications for non-US persons. Both the Order and the HKAA authorize sanctions against any person with certain dealings with a designated party. Section 4 of the Order provides for sanctions against any person determined by the Secretary of State or the Secretary of Treasury to have engaged in certain kinds of dealings with parties sanctioned under the Order, including persons who provide various kinds of "material" support, including services or "financial" support for a sanctioned person. Moreover, the HKAA targets foreign financial institutions that have been determined by the Secretary of the Treasury to have "knowingly" conducted a "significant transaction" with foreign persons that have materially contributed to any failures by the Chinese government to uphold its obligations under the Joint Declaration or the Hong Kong Basic Law. As described in our previous Legal Update, the HKAA provides a public reporting process under a timeline for the Secretary of Treasury to identify such foreign financial institutions. It remains to be seen whether these new sanctions designations will impact the timing of the Secretary of Treasury's report under the HKAA.

The Treasury Department's announcement states that the United States will continue to use the authorities in the Order to target those it views as implementing policies that contribute to the "degradation of Hong Kong's autonomy." Consistent with its past reaction to US actions targeting Hong Kong, we expect China to take what it views as reciprocal measures targeting US government officials. We will continue to monitor the situation for any additional designations and actions. Meanwhile, both US and non-US companies should assess whether they have any relationships or dealings with the designated parties for potential exposure to US sanctions.

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Originally published 09 August, 2020

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