On December 11, 2020, the US Treasury Department’s Office of Foreign Assets Control (OFAC) issued a much-anticipated report under Section 5(b) of the Hong Kong Autonomy Act (HKAA) that—to the relief of non-US financial institutions, including those in Hong Kong—stated the Treasury Department had not identified any foreign financial institution (FFI) at risk of secondary sanctions under the HKAA at this time.
Background
Under Section 5(b) of the HKAA, Congress directed the Treasury Department to identify any FFI that knowingly conducted a significant transaction with a person identified by the State Department in a report under Section 5(a) of the HKAA. The State Department issued its report on October 14, 2020, identifying ten individuals, including Hong Kong’s Chief Executive and other prominent government officials.
(For more information about the HKAA and the State Department’s Section 5(a) report, see our blog post of October 15, 2020, “Update: Hong Kong Financial Institutions Face US Secondary Sanctions after State Department Issues First Report under Hong Kong Autonomy Act.”)
Under the HKAA, FFIs identified in a Section 5(b) report could be subject to a “menu” of ten secondary sanctions described in Section 7 of the HKAA. Those sanctions would become mandatory after one year of the report’s issuance.
Ongoing Reporting
Since the issuance of the October 14 report, FFIs in Hong Kong have been assessing their risks and, in some cases, minimizing their exposure to the ten individuals, in anticipation of the Treasury Department’s Section 5(b) report. With the Treasury Department’s “null report,” the risk of secondary sanctions is mooted for the time being.
According to the Section 5(b) report, the Treasury Department, “in consultation with interagency partners, has conducted regular searches of all available sources of information, including classified and unclassified holdings, for any potential significant transactions by FFIs with the foreign persons identified in the Section 5(a) Report.” However, those “efforts have not yielded any information on significant transactions with these foreign persons.”
In accordance with the HKAA, both the Section 5(a) and Section 5(b) reports could be updated at any time based on new findings. In its Section 5(b) report, the Treasury Department stated it “will continue to actively monitor this type of activity” and “will update the Section 5(b) Report in an ongoing manner.”
Blocking Sanctions
Separately, OFAC has designated a total of 29 PRC and Hong Kong government officials as Specially Designated Nationals (SDNs) under Executive Order 13936, including 14 PRC officials targeted on December 7, 2020. Those individuals continue to be subject to blocking sanctions, and FFIs could face OFAC enforcement risk for transactions subject to US jurisdiction that involve the individuals, their property, or interests in property.