On Monday 3 August we published the second in our series of briefings on the Hong Kong National Security Law (NSL), focusing on the interaction between foreign sanctions laws and the NSL, and legislative measures taken by the US government to create a framework within which sanctions could be applied to Hong Kong or PRC parties.

On Friday 7 August, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury imposed sanctions on 11 individuals pursuant to Executive Order (EO) 13936.

The individuals targeted hold senior official positions in Hong Kong, including Carrie Lam, HKSAR’s Chief Executive. Other officials targeted include the HKSAR Secretary for Justice, the current and former heads of the Hong Kong Police Force, the Director of the Hong Kong Liaison Office with China, and the inaugural director of the Office for Safeguarding National Security in Hong Kong, created pursuant to the NSL.

In a press release accompanying the designations, OFAC stated that EO 13936 “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 action by OFAC is notable in several respects:

  • These are the first designations in the US Administration’s new Hong Kong/China sanctions program, which was created with EO 13936. OFAC indicated that there may be more designations to come. It is not clear at the present time which individuals or entities may be targeted in future designations.
  • The 11 individuals designated have been added to OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List). As a result of the designations, US persons face the prospect of criminal or civil penalties for having any dealings with the named individuals. Non-US persons may also face exposure to US sanctions if they are found “to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” any of the designated individuals.
  • OFAC’s action has accelerated the anticipated timetable for designations in relation to Hong Kong as provided for in the Hong Kong Autonomy Act, signed into law on 14 July 2020, the same day as EO 13936. The Hong Kong Autonomy Act requires the US Secretary of State to submit a list of any persons determined to be in violation of the Act within 90 days of 14 July. On this basis, a potential preliminary round of sanctions could have been imposed by October 2020.

Over the weekend, both the Hong Kong Monetary Authority (HKMA) and Securities & Futures Commission (SFC) have issued notices in response to these designations.

In its brief statement, the SFC offers a general reminder to intermediaries to “carefully assess any legal, business and commercial risks that they may be exposed to” in considering the implications of sanctions, and expresses its expectation that “any response to the sanctions to be necessary, fair, and have regard to the best interests of their clients and the integrity of the market.”

In its somewhat more detailed letter, addressed to all Authorized Institutions (AIs) and the HKSAR Chief Executive, the HKMA explicitly distinguishes between Hong Kong’s targeted financial sanctions regime, under which AIs are expected to uphold sanctions in compliance with UN Security Council resolutions, and unilateral sanctions imposed by foreign governments, which, per the HKMA’s letter, “have no legal status in Hong Kong” and create no obligation for AIs under Hong Kong law.

We will continue to monitor developments. Please reach out to any of the Herbert Smith Freehills contacts listed below with any questions.

Kyle Wombolt
Kyle Wombolt
Global Head, Corporate Crime & Investigations, Hong Kong
+852 2101 4005
Jeremy Birch
Jeremy Birch
Partner, Hong Kong
+852 2101 4195
John O'Donnell
John O'Donnell
Partner, New York
+1 917 542 7809
Jonathan Cross
Jonathan Cross
Counsel, New York
+1 917 542 7824
Hannah Cassidy
Hannah Cassidy
Partner, Hong Kong
+852 2101 4133
Dominic Geiser
Dominic Geiser
Partner, Hong Kong
+852 2101 4629
Jojo Fan
Jojo Fan
Partner, Hong Kong
+852 2101 4254
Christopher Boyd
Christopher Boyd
Associate, New York
+1 917 542 7821