On 2 June 2020, the US Congress passed legislation, the Hong Kong Autonomy Act, which mandates the imposition of economic sanctions and travel bans against individuals, entities, and financial institutions, in connection with Hong Kong’s evolving status. As of this writing, the legislation has passed both the House of Representatives and the Senate and awaits the US president’s signature to become law.
Summary of the Hong Kong Autonomy Act
The Hong Kong Autonomy Act begins with a recitation of findings by Congress regarding Hong Kong’s political development since the adoption of the Sino-British Joint Declaration of 1984 and the Basic Law of the HKSAR through to recent events in early 2020. Sections 5, 6, and 7 outline the sanctions measures.
Section 5 – Reporting to Congress
Section 5 of the Hong Kong Autonomy Act requires the US secretary of state to submit a report to Congress within 90 days of the law’s passage identifying any foreign person who “is materially contributing to, has materially contributed to, or attempts to materially contribute to the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law.”
Then, between 30 and 60 days later, the US secretary of treasury must submit a report identifying any foreign financial institution (“FFI”) that “knowingly conducts a significant transaction” with a foreign person identified above.
Reports under Section 5 must be updated in an ongoing manner.
Section 5(d) of the Hong Kong Autonomy Act allows the US secretary of state to exclude a foreign person or financial institution from a report under Section 5 if their activities (i) do not “have a significant and lasting negative effect that contravenes the obligations of China under the Joint Declaration and the Basic Law;” (ii) are not likely to be repeated; and (iii) have been “reversed or otherwise mitigated through positive countermeasures.”
In other words, even if a foreign person or FFI is included in a report, steps can be taken to avoid mandatory sanctions that would come into effect after one year.
Sections 6 and 7 – Sanctions
For foreign persons, Section 6(b) authorises the US president to prohibit or restrict transactions in respect of any property subject to US jurisdiction in which the foreign person named in the Section 5 report has an interest. Additionally, individuals sanctioned under the Hong Kong Autonomy Act would be subject to a US travel ban. The sanctions are optional at first but become mandatory after one year, unless a person is excluded from the Section 5 report.
For FFIs, Section 7(b) authorises a “menu” of 10 sanctions against that include: (i) a prohibition on lending by US financial institutions; (ii) a prohibition on acting as a primary dealer of US government debt; (iii) a prohibition on serving as a repository of US government funds; (iv) restrictions on foreign exchange transactions; (v) restrictions on banking transactions; (vi) a prohibition or restriction on property transactions under US jurisdiction; (vii) restrictions on the export of US goods, technology, or services from the United States to the foreign financial institution; (viii) restrictions on US persons investing in debt or equity of the foreign financial institution; (ix) US travel bans against corporate officers, principals, or significant shareholders; and (x) sanctions under Section 6(b) against officers of the foreign financial institution.
With respect to FFIs, the US president must first apply at least five of the sanctions described in Section 7(b) against a financial institution included in a Section 5 report. The sanctions may be imposed immediately or within one year of the report. After two years, the US president must apply all ten of the sanctions listed in Section 7(b).
Implications for Hong Kong
In comparison with other congressional sanctions bills, the sanctions described in the Hong Kong Autonomy Act appear to potentially allow for sanctions that are less stringent than typical asset freezes or correspondent account sanctions. The White House may opt to further limit the scope of sanctions by adopting regulations narrowing their application to specific types of transactions. However, the wording in the Act is sufficiently broad to also allow for more stringent sanctions.
– Wendy Wysong
– Susan Munro
– Ali Burney
– Nick Turner
Steptoe & Johnson HK LLP
Editorial Note: This is a summary of the article “U.S. Sanctions and Hong Kong: Summary of the Hong Kong Autonomy Act” which was circulated via Hong Kong Lawyer eNewsletter and posted on Hong Kong Lawyer website in July 2020.