​On 14 July 2020, President Trump signed Hong Kong Autonomy Act (HKAA) providing for mandatory sanctions against individuals, entities, and financial institutions in response to China’s National Security Law for Hong Kong. There is a strong disagreement between China and US regarding China’s obligation to maintain Hong Kong autonomous status under the Joint Declaration and the Basic Law.

Hong Kong, though is part of China, has a distinct separate legal and economic system with protection for civil rights such as freedom of speech. This is particularly enshrined in the Joint Declaration and the Basic Law.

Under section 5(a) of HKAA, the US Congress has to be annually table a report informing about:

a) foreign individuals and entities that materially contributed to China’s failure to comply with the Joint Declaration or the Basic Law and

b) Foreign financial institutions (FFI) that deliberately conducted a significant transaction with such identified individuals and entities.

The HKAA shall impose property blocking sanctions on an individuals or entity named in the report, and visa blocking sanctions on a named individual. The identified FFI may face sanctions including blocking of loans facilities from US financial institutions.

Section 5(b) provides that between 30 and 60 days after the submission of the Secretary of State’s report under section 5(a), the Secretary must submit “a report that identifies any identified FFI that knowingly conducts a significant transaction with a foreign person identified in the report”.

Further, section 6 of the HKAA empowers the President to impose sanctions, in the form of freezing of assets and prohibitions on dealing of any kind with the entities or identified FFI. Section 7(a) empowers the President to impose sanctions on an identified FFI. The Act enshrines 10 possible sanctions. The law would require the President to impose at least five of them within a year after an identified FFI is named in the Secretary Report and then to impose all of these sanctions within two years after the identified FFI is so named. The ten potential sanctions are given in section 7(b)

1

No credit from US financial institutions. The US Government shall prohibit the US financial institutions from making loans or providing credits to the identified FFI.

2

Prohibition as a Primary Dealer. The Federal Reserve Bank of New York would not be permitted to designate or permit the continuation of any prior designation of, the identified FFI as a primary dealer in the US Government debt instruments.

3

Foreign Exchange. The President may prohibit any transactions in foreign exchange that are subject to the jurisdiction of the US and in which such identified FFI has an interest.

4

Repository of Government Funds. The identified FFI would not be permitted to serve as an agent of US Government or serve as repository of US Government Funds.

5

Prohibiting Banking Transactions. The President may prohibit any transfers of credit or payment between such identified FFI to the extent that such transfers or payments are subject to the jurisdiction of US. The identified FFI would be cut off from the US dollar transactions.

6

Property Transactions. The President may prohibit any person or identified FFI from conducting property transactions with US persons. The identified FFI or persons will be blacklisted in OFAC.

7

Export Restrictions. The President also has the powers to prohibit exports of goods, technology, or services, directly or indirectly, from US to the identified FFI including US banking services.

8

Probition on investment in Equity or Debt. The President may prohibit any US person from investing in or purchasing significant amounts of equity or debt instruments of the identified FFI.

9

Exclude officers or controlling shareholders from the US. The President may deny a visa to any corporate officer or principal of, or a shareholder with a controlling interest in the identified FFI.

10

Imposition of any sanctions (1) to (8) above on the individual officers of the identified FFI.
​The intention of these sanctions is in the first year after being listed, five of the less powerful of the available sanctions could be imposed to limit and cripple the identified FFI. If the identified FFI or the entity does not repent then within the next one year other sanctions will also be imposed on the identified FFI.

Section 8(a) empowers the President, at his discretion, to waive the imposition of sanctions with respect to any identified FFI especially if such waiver will be in the interest of the national security interest of the US.

However, the law requires advance notice to Congress before any such waiver is exercised. Section 8(b) also enshrines the President to remove any person, or identified FFI from the relevant report if that person or entity has taken steps to remediate the wrong doing or that the wrong doing is unlikely to be repeated. It will be interesting to see how this HKAA will be deterrent to the foreign financial institution and other entities to conduct their acts which will be contrary to the law given under Joint Declaration and Basic law. It will also be interesting to see how China reacts to such HKAA. Whether we see a World War 3 is not sure but we are sure to see a new Trade War.
K Satish Kumar
K Satish Kumar, is a Keynote Speaker, Author, the Global Head of Legal and Chief Data Protection Officer of Ramco Systems. Among the many awards he has received, the coveted are “Top 50 Legal Leaders 2019” by Legal IP Gorilla in Singapore, “GC PowerList India 2018” by London based Legal 500 , “Legal Counsel of the Year -2018” by INBA. He is actively involved in many pro bono activities through Chennai Lawyers. The author can be reached at getksk@gmail.com. The views expressed are his personal.
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