Tuesday, October 20, 2020
Overview: On October 14, 2020, pursuant to Part 5(a) of the Hong Kong Autonomy Act (“HKAA”), the State Division issued a report back to Congress (“the Report or Part 5(a) Report”) figuring out ten Hong Kong officers deemed liable for materially contributing to the erosion of the democratic freedoms and autonomy of Hong Kong. The U.S. Division of Treasury, Workplace of Overseas Property Management (“OFAC”) imposed sanctions on all of the people recognized by the State Division again in August, so the Report didn’t create any new U.S. sanctions targets. Nonetheless, the Report successfully imposed a November 13 deadline for international monetary establishments (“FFI”) to terminate all “vital” transactions involving these officers, or face necessary U.S. sanctions. Importantly, the time period international monetary establishment is broadly outlined to incorporate not solely banks, but in addition insurance coverage corporations, brokers or sellers in securities or commodities, funding corporations, sellers in treasured metals, stones, or jewels, journey businesses, companies engaged in gross sales of vehicles, airplanes, boats, and different automobiles, individuals concerned in actual property closings and settlements, and others.
Element: Beneath the HKAA, not lower than 30 days and less than 60 days following the Part 5(a) Report (i.e., between November 13 and December 13), the Secretary of State should:
submit a second report back to Congress figuring out FFI that knowingly conduct “vital” transactions with individuals recognized within the Report;
inside one 12 months, impose on these FFI 5 sanctions from a menu starting from prohibiting international change transactions, to prohibiting all transactions with U.S. monetary establishments, to prohibiting exports to the FFI, to full-blown asset-blocking sanctions on the FFI and/or its principal government officers; and
impose further sanctions from the menu if the FFI seems in consecutive experiences (on account of persevering with to carry out transactions with targets of the Hong Kong sanctions).
In a collection of Incessantly Requested Questions (“FAQ”) revealed the identical day because the Report, OFAC supplied the next key items of steerage:
OFAC is not going to depend as “vital” any transaction that constitutes “good-faith wind down” of enterprise with a named particular person inside 30 days of the Report, or any transaction for which a U.S. particular person wouldn’t require a selected license from OFAC (i.e., transactions which can be exempt from regulation (such a private communications) or for which OFAC has issued a basic license (none on the time of publication)). See FAQ 848, 850.
In figuring out whether or not a transaction is “vital,” OFAC will think about “the totality of the details and circumstances, together with: (i) the dimensions, quantity, and frequency of the transaction(s); (ii) the character of the transaction(s); (iii) the extent of consciousness of administration and whether or not the transaction(s) are a part of a sample of conduct; (iv) the nexus between the transaction(s) and the sanctioned celebration; (v) the impression of the transaction(s) on statutory goals, together with whether or not the transaction(s) (a) have a big and lasting detrimental impact that contravenes the obligations of China beneath the Joint Declaration and the Fundamental Legislation, (b) are prone to be repeated sooner or later, and (c) have been reversed or in any other case mitigated via constructive countermeasures taken by that FFI; (vi) whether or not the transaction(s) contain misleading practices; and (vii) such different components because the Secretary of the Treasury deems related. See FAQ 850.
Earlier than imposing sanctions, the Treasury Division will contact the FFI to inquire about its transactions with the sanctioned celebration. See FAQ 848. FFI’s might be able to keep away from sanctions if the transaction(s): (a) should not have a big and lasting detrimental impact that contravenes the obligations of China beneath the Joint Declaration and the Fundamental Legislation; (b) just isn’t prone to be repeated sooner or later; and (c) has been reversed or in any other case mitigated via constructive countermeasures taken by the FFI.
To the extent they haven’t already finished so, FFIs ought to fastidiously consider whether or not they have relationships with the people recognized within the Report and take steps to mitigate their sanctions threat, together with an evaluation of whether or not seemingly transactions with the people can be deemed “vital” beneath the components described above, and termination of such transactions no later than November 13, 2020.
FFIs also needs to keep in mind that Government Order 13936 authorizes imposition of sanctions at any time on further events collaborating within the suppression of democratic freedoms in Hong Kong, and the HKAA requires the State Division to offer annual updates figuring out such events. Accordingly, relationships that don’t at present expose FFIs to the danger of sanctions might current threat sooner or later.
For ease of reference, the people recognized within the present Report are:
Secretary Normal, Committee for Safeguarding Nationwide Safety of the Hong Kong Particular Administrative Area
Secretary for Justice
Chief Government of the Hong Kong Particular Administrative Area
John Ka-chiu Lee
Secretary for Safety and the top of the Safety Bureau
Director, Hong Kong Liaison Workplace
Commissioner of Police
Secretary for Constitutional and Mainland Affairs
Head of the Hong Kong and Macao Affairs Workplace
Deputy Director, Hong Kong and Macao Affairs Workplace of the State Council
Director, Workplace for Safeguarding Nationwide Safety in Hong Kong
 H.R.7440 – Hong Kong Autonomy Act
 “Treasury Sanctions People for Undermining Hong Kong’s Autonomy”, August 7, 2020, https://residence.treasury.gov/information/press-releases/sm1088
 See HKAA Part 2, defining “monetary establishment” by reference to 31 U.S. Code § 5312.