U.S. Treasury Sanctions Senior Hong Kong Officials Under Authority of Executive Order on Hong Kong Normalization

Jones Day

In Short

The Situation: On August 7, 2020, the U.S. Department of the Treasury ("Treasury Department") took the first action under the authority of "The President's Executive Order on Hong Kong Normalization" ("HK Normalization EO") by imposing blocking sanctions on 11 senior Hong Kong officials, including Carrie Lam, Chief Executive of the Hong Kong Special Administrative Region, "for undermining Hong Kong's autonomy and restricting the freedom of expression and assembly."

The Result: The 11 senior Hong Kong officials have been placed on the Specially Designated Nationals and Blocked Persons List ("SDN List") maintained by the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC"). U.S. persons are now prohibited from directly or indirectly engaging in or facilitating all transactions involving the 11 individuals and must block, i.e., freeze, their property or interests in property.

Looking Ahead: U.S. financial institutions and other entities should conduct careful diligence with regard to the 11 senior Hong Kong officials in order to avoid potentially participating in or facilitating transactions that are subject to the blocking sanctions. In addition, these institutions and entities should carefully monitor developments relating to Hong Kong, as these sanctions may be precursors to additional sanctions involving Hong Kong that could include foreign financial institutions.

In the first action under the HK Normalization EO, the Treasury Department on August 7, 2020, added 11 senior Hong Kong officials to the SDN List. In placing the Hong Kong officials on the SDN List, the Treasury Department stated that these officials had implemented "nefarious policies" that were "directly aimed at curbing" Hong Kong's democratic processes and they are "responsible for the degradation of Hong Kong's autonomy." See Treasury Department's press release, "Treasury Sanctions Individuals for Undermining Hong Kong's Autonomy," dated August 7, 2020.

According to the HK Normalization EO, China's recently enacted National Security Law for Hong Kong "constitutes an unusual and extraordinary threat" to U.S. national security, foreign policy, and the economy that necessitated declaration of a national emergency. The HK Normalization EO authorizes the Treasury Department to implement the EO, including the imposition of sanctions. Pursuant to that authority, the Treasury Department added the following 11 senior officials to the SDN List:

  • Carrie Lam, Chief Executive of the Hong Kong Special Administrative Region ("HKSAR");
  • Chris Tang, Commissioner of the Hong Kong Police Force ("HKPF");
  • Stephen Lo, Former Commissioner of HKPF;
  • John Lee Ka‑chiu, HKSAR Secretary for Security;
  • Teresa Cheng, HKSAR Secretary for Justice;
  • Erick Tsang, HKSAR Secretary for Constitutional and Mainland Affairs;
  • Xia Baolong, Director of the Hong Kong and Macao Affairs Office of the State Council;
  • Zhang Xiaoming, Deputy Director of the Hong Kong and Macao Affairs Office of the State Council;
  • Luo Huining, Director of the Hong Kong Liaison Office;
  • Zheng Yanxiong, Director of the Office for Safeguarding National Security in Hong Kong; and
  • Eric Chan, Secretary General of the Committee for Safeguarding National Security of Hong Kong.

Because of the designations, U.S. persons must report and block all property and interests in property in the United States that belong to these 11 senior Hong Kong officials or any entities in which they directly or indirectly hold a 50% interest or more. U.S. persons also are prohibited from engaging in or facilitating, directly or indirectly, all transactions with or involving the designated individuals or any entities in which they directly or indirectly hold a 50% or greater interest. Prohibited activities include contributing or providing funds, goods, or services by, to, or for the benefit of these individuals, or the receipt of any contribution or provision of funds, goods, or services from these individuals. The sanctions are effective immediately.

While these sanctions are authorized under the HK Normalization EO, they must be viewed against the backdrop of the Hong Kong Autonomy Act ("HKAA"), which was enacted the same day as the HK Normalization EO. As we previously described in our Commentary, "The Hong Kong Autonomy Act Signed Into Law," the HKAA authorizes the imposition of secondary sanctions against non‑U.S. financial institutions. If the Department of State includes these 11 officials in its initial report under the HKAA—due no later than October 12, 2020—it would lay the foundation for the Treasury Department to impose secondary sanctions on foreign financial institutions that the Treasury Department determines "knowingly" conducted "significant transactions" with these officials.

Three Key Takeaways

  1. U.S. financial institutions and other entities should immediately ensure they are not in violation of the new blocking sanctions with regard to the 11 newly designated senior Hong Kong officials. That includes identifying properties and transactions covered by the sanctions and conducting diligence to avoid participating in or facilitating transactions related to these officials.
  2. U.S. financial institutions and other entities should closely monitor developments in this area, as these designations may be a precursor for additional forthcoming sanctions.
  3. U.S. financial institutions and other entities should also monitor carefully the forthcoming HKAA reports to assess risks relating to Hong Kong as they develop.

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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