Frequently Asked Questions

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Hong Kong-related Sanctions

840. If an official of the Government of the Hong Kong Special Administrative Region (HKSAR) is designated as a Specially Designated National (SDN), does that mean that the HKSAR government is blocked?  What are the prohibitions on U.S. persons dealing with a designated HKSAR government official?

The designation of an official of the Government of the HKSAR does not itself block the HKSAR government or any government agency where the SDN is an official or otherwise exercises control.  Accordingly, engaging in a routine interaction with an agency in which an SDN is an official, but which does not involve the SDN directly or indirectly, is not prohibited. 

U.S. persons are prohibited from engaging in transactions or dealings with, and dealing in the property or interests in property of, designated HKSAR government officials, including any entities that are directly or indirectly owned 50 percent or more in the aggregate by one or more blocked persons.  U.S. persons should be cautious in dealings with HKSAR government agencies in which an SDN is an official to ensure that they are not engaged in transactions or dealings, directly or indirectly, with an SDN (e.g., by entering into contracts that are signed by an SDN, entering into negotiations with an SDN, or processing transactions, directly or indirectly, on behalf of the SDN), absent authorization from OFAC or an applicable exemption.  However, U.S. persons may, for example, enter into HKSAR government contracts signed by a non-SDN official of the HKSAR to whom the HKSAR government has delegated the authority to enter such contracts.

848. What are the sanctions implications of the Secretary of State’s October 14, 2020 report to Congress pursuant to section 5(a) of the Hong Kong Autonomy Act (HKAA), and subsequent updates of this report, identifying foreign persons that are materially contributing to, have materially contributed to, or attempt to materially contribute to the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law?

Pursuant to section 5(a) of the HKAA, the Secretary of State submitted a report (“Section 5(a) Report”) on October 14, 2020 to the appropriate congressional committees and leadership identifying foreign persons that the Secretary of State, in consultation with the Secretary of the Treasury, determined are materially contributing to, have materially contributed to, or attempt to materially contribute to the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law.  

Section 6 of the HKAA requires blocking sanctions to be imposed on each foreign person identified in the Section 5(a) Report, or in an update to that report under section 5(e) of the HKAA.  The individuals identified in the October 14, 2020 Section 5(a) Report were designated by OFAC on August 7, 2020 pursuant to Executive Order (E.O.) 13936, and the property and interests in property of those individuals that are in the United States or in the possession or control of U.S. persons are blocked.

Further, section 5(b) of the HKAA requires the Secretary of the Treasury, in consultation with the Secretary of State, to submit a report to Congress 30–60 days after the Section 5(a) Report is submitted, identifying any foreign financial institution (FFI) that knowingly conducts a significant transaction with a foreign person identified in the Section 5(a) Report.  For the purposes of the report under section 5(b) (“Section 5(b) Report”), the Treasury Department will only identify FFIs that knowingly conduct a significant transaction with a foreign person identified in the Section 5(a) Report or any update to that report following the person’s listing in the Section 5(a) Report.  As a general matter, transactions with persons identified in the Section 5(a) Report that constitute a good-faith wind down within 30 days of a person’s identification on such report will not be considered “significant” for purposes of the Section 5(b) Report.  In addition, the Treasury Department will reach out to an FFI to inquire about its conduct before identifying it in a Section 5(b) Report.

Pursuant to section 7(a) of the HKAA, within one year of an FFI’s inclusion in the Section 5(b) Report, five out of 10 of the sanctions set out in section 7(b) of the HKAA must be imposed on that FFI.  Not later than two years after an FFI has been included in the Section 5(b) Report, all 10 sanctions set out in section 7(b) must be imposed on that FFI.  

Any FFI that knowingly conducts a significant transaction with a foreign person named in the Section 5(a) Report or an update to that report is potentially subject to mandatory secondary sanctions under the HKAA.  Accordingly, with respect to foreign persons in the Section 5(a) Report that also appear on the List of Specially Designated Nationals and Blocked Persons (SDN List), OFAC has updated the SDN List to include the language, “Secondary sanctions risk: pursuant to the Hong Kong Autonomy Act of 2020 – Public Law 116–149.”
 

849. Can a foreign financial institution (FFI) be excluded or removed from the Section 5(b) Report so that sanctions under the Hong Kong Autonomy Act (HKAA) would not apply?

Pursuant to section 5(d)(2) of the HKAA, an FFI may be excluded from the Section 5(b) Report or an update to that report under section 5(e) of the HKAA, or may be removed from the Section 5(b) Report or an update to that report prior to the imposition of sanctions under section 7(a), 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.

850. How does the Treasury Department determine whether a transaction is “significant” for purposes of section 5(b) of the Hong Kong Autonomy Act (HKAA)?

For purposes of implementing section 5(b) of the HKAA, the Secretary of the Treasury may consider the totality of the facts and circumstances when determining whether transactions are “significant.”  As a general matter, the Treasury Department may consider some or all of the following factors in determining whether a transaction is “significant”:  (1) the size, number, and frequency of the transaction(s); (2) the nature of the transaction(s); (3) the level of awareness of management and whether the transaction(s) are part of a pattern of conduct; (4) the nexus between the transaction(s) and a foreign person identified in a report submitted by the Secretary of State under section 5(a) of the HKAA or in updates to that report; (5) the impact of the transaction(s) on statutory objectives, including whether the transaction(s) (A) have a significant and lasting negative effect that contravenes the obligations of China under the Joint Declaration and the Basic Law, (B) are likely to be repeated in the future, and (C) have been reversed or otherwise mitigated through positive countermeasures taken by that FFI; (6) whether the transaction(s) involve deceptive practices; and (7) such other factors that the Secretary of the Treasury deems relevant on a case-by-case basis.  For purposes of section 5(b) of HKAA, a transaction will not be considered significant if a U.S. person would not require a specific license from OFAC to conduct or participate in the transaction.

851. How will the following key terms in section 5(b) of the Hong Kong Autonomy Act (HKAA) be defined:  “financial institution” and “knowingly”? 

Section 2 of HKAA defines these terms as follows, which OFAC intends to incorporate into relevant regulations:

“financial institution” – the term “financial institution” is defined to have the same meaning as a financial institution specified in section 5312(a)(2) of title 31, United States Code.  

“knowingly” – the term “knowingly”, with respect to conduct, a circumstance, or a result, means that a person has actual knowledge of the conduct, the circumstance, or the result.