Secretary Of State Submits Hong Kong Autonomy Act Report To Congress; OFAC Publishes FAQs

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On October 14, 2020, the U.S. Secretary of State, pursuant to section 5(a) of the Hong Kong Autonomy Act (“HKAA”), submitted a report to Congress identifying foreign persons who are “materially contributing to, have materially contributed to, or attempt to materially contribute to the failure of the People’s Republic of China (“PRC”) to meet its obligations under the Sino-British Joint Declaration or Hong Kong’s Basic Law.” The Secretary of State identified ten PRC and Hong Kong officials, which the U.S. Department of the Treasury’s (“the Treasury”) Office of Foreign Assets Control (“OFAC”) added to the Specially Designated Nationals (“SDN”) list.

OFAC also published four new Frequently Asked Questions (“FAQs”) to provide further information on reporting requirements under the HKAA. FAQ 848 clarifies that any foreign financial institution (“FFI”) that “knowingly conducts a significant transaction” with a foreign person named in the Secretary of State’s section 5(a) report, or any update to that report, is potentially subject to mandatory secondary sanctions under the HKAA.

Section 5(b) of the HKAA requires the Secretary of the Treasury to submit a report to Congress 30-60 days after the Secretary of State’s section 5(a) report is submitted. In this report, the Secretary of the Treasury will identify any FFI’s that knowingly conduct significant transactions with the foreign persons identified in the section 5(a) report.

FAQ 849 explains that an FFI may be excluded from the Treasury’s section 5(b) report “if the significant transaction or transactions of the FFI that merited inclusion in that report: (A) does not have a significant and lasting negative effect that contravenes the obligations of China under the Joint Declaration and the Basic Law; (B) is not likely to be repeated in the future; and (C) has been reversed or otherwise mitigated through positive countermeasures taken by that FFI.”

FAQ 850 lists the several factors that the Treasury may use to determine whether a transaction or series of transactions should be considered “significant.” FAQ 851 defines the term “financial institution” and the term “knowingly” in the context of FAQs 848 and 849.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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