What happened?

The sanctions by Department of the Treasury’s Office of Foreign Assets Control (OFAC) were imposed pursuant to Executive Order (E.O.) 13936, “The President’s Executive Order on Hong Kong Normalization,” which President Trump issued on July 14, 2020. See our client alert dated July 16, 2020 at reedsmith.com.

The following is extracted from a statement by the Department of the Treasury of the US:-

E.O. 13936 declares a national emergency with respect to the situation in Hong Kong, including recent actions taken by the People’s Republic of China to fundamentally undermine Hong Kong's autonomy and democratic processes, and provides for the imposition of sanctions on actors engaged in these malign activities. E.O. 13936 also builds on and implements provisions of the Hong Kong Human Rights and Democracy Act of 2019 and the Hong Kong Autonomy Act of 2020. The recent imposition of draconian national security legislation on Hong Kong has not only undermined Hong Kong’s autonomy, it has also infringed on the rights of people in Hong Kong, allowing mainland China’s security services to operate with impunity in the region, mandating “national security education” in Hong Kong schools, undermining the rule of law, and setting the groundwork for censorship of any individuals or outlets that are deemed unfriendly to China. Full statement can be accessed at home.treasury.gov.

Sanctions Implications

As a result of today’s action, all property and interests in property of the individuals named above, and of any entities that are owned, directly or indirectly, 50 percent or more by them, individually, or with other blocked persons, that are in the United States or in the possession or control of U.S. persons, are blocked and must be reported to OFAC. Unless authorized by a general or specific license issued by OFAC or otherwise exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution or provision of funds, goods or services from any such person. More information on the entities designated today treasury.gov.

Importantly, E.O. 13936 also contains what is commonly referred to as a “material support” provision, and non-U.S. persons will be exposed to a risk of sanctions if they provide financial, material, or technological support for, or goods or services in support of, any of the 11 persons who have been sanctioned pursuant to this executive order.

The HKMA Position

The Hong Kong Monetary Authority (HKMA) is Hong Kong’s central banking institution and its four main functions include promoting the stability and integrity of the financial system, including the banking system, in Hong Kong. The HKMA is responsible for the authorization, regulation and supervision of banking business and the business of taking deposits in Hong Kong. The following is extracted from a statement by the HKMA on August 8, 2020:-

Hong Kong fully implements targeted financial sanctions in compliance with United Nations Security Council Resolutions, which are implemented in Hong Kong via the United Nations Sanctions Ordinance (Cap. 537) and the United Nations (Anti-Terrorism Measures) Ordinance (Cap. 575). The HKMA does not issue or maintain any form of sanctions or designation list but it has a supervisory role within the targeted financial sanctions regime in relation to AIs’ [authorised institutions] systems and controls for complying with these legal requirements.

For the avoidance of doubt, unilateral sanctions imposed by foreign governments are not part of the international targeted financial sanctions regime and have no legal status in Hong Kong. Therefore, no obligation is created for AIs under Hong Kong law.

The full statement can be accessed at tid.gov.hk under “Financial Sanctions (For AIs)” dated August 8, 2020.