Hong Kong Autonomy Act Advances in US Congress

Once signed into law, the Act will authorise the use of sanctions against individuals, entities and financial institutions in response to China’s new national security law for Hong Kong.

26 June update – The Trump administration said it would restrict US visas for a number of Chinese officials for infringing on Hong Kong freedoms.

29 June update – China’s Foreign Ministry said it would impose a visa ban on US citizens who interfere with the national security legislation.

2 July update – US House of Representatives passes the Hong Kong Autonomy Act, a day after the national security law was promulgated in Hong Kong.

The US Senate on Thursday (25 June) passed a bill that, if passed in the House of Representatives and signed into law by the President, will mandate that sanctions be imposed against individuals, entities, and financial institutions in response to China’s new national security law in Hong Kong.

In response to the NPC’s (National People’s Congress) 28 May vote to impose a national security law on Hong Kong, President Donald Trump announced, on 29 May, that his administration would sanction Chinese and Hong Kong officials “directly or indirectly involved in eroding” Hong Kong’s autonomy. The Hong Kong Autonomy Act, if passed, would provide one way for the administration to do so.

To date, China has not yet revealed the full details of the national security legislation, though it is expected to pass into law by 30 June, the day before Hong Kong Special Administrative Region Establishment Day. The most complete explanation of the national security law made public so far came from a summary of an NPC statement published by Xinhua News Agency.

The US Senate meanwhile had been circulating a draft of the ‘Hong Kong Autonomy Act’ for about a month. Thursday’s swift passage of the bill in the Senate is said to reflect concerns about the speed at which the NPC is pushing its own legislation along. (see the bill here)

Once passed in the House and signed into law by the President, the Hong Kong Autonomy Act will authorise the use of sanctions against individuals and entities that materially contribute “to the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law” and foreign financial institutions that “knowingly conducts a significant transaction” with such a person.

“The Act does not mandate asset freezes like last year’s Hong Kong Human Rights and Democracy Act, nor does it call for correspondent banking sanctions against foreign financial institutions,” said Nick Turner, Of Counsel at Steptoe & Johnson in Hong Kong, speaking to Regulation Asia by phone. “Instead, it spells out a menu of financial institution sanctions to be imposed in two phases, with conditions for lifting them.”

Section 5 of the bill effectively creates a reporting requirement, giving the President’s Secretary of State 90 days after it is made law to supply Congress with a report identifying ‘foreign persons’ (individuals or entities) that have materially contributed to the erosion of Hong Kong’s autonomy. The report shall also identify any foreign financial institution that “knowingly conducts” significant transactions with the designated foreign person(s).

“Based on the content of the reporting requirement, and annual reports moving forward, sanctions can be applied and lifted,” Turner said. “It appears from the reporting and sanctions timelines that the drafters intend this to be a long-term sanctions bill, not a one-time shot.”

The sanctions against foreign persons include mandatory prohibitions on US property transactions and visa bans, rather than the blocking sanctions featured in last year’s Hong Kong Human Rights and Democracy Act, or the Uyghur Human Rights Policy Act of 2020 signed into law last week. Although the new bill makes sanctions discretionary at the time a foreign person is included in a report under Section 5, the sanctions become mandatory after one year.

“In other words, it appears the sanctions against foreign persons become mandatory 15 months after the bill is signed into law, unless a foreign person is removed from a report,” Turner said, highlighting that there are steps foreign persons named in a report can take to escape mandatory sanctions.

Meanwhile, sanctions for foreign financial institutions named in the report are “menu-based”, and do not include strict prohibitions on or conditions for maintaining correspondent banking or payable-through accounts in the US. However, these are mandatory and can be imposed as soon as 120 days after the President signs the bill into law, i.e. at least 30 days after the first report but not later than one year after its issuance.

The first round of sanctions against a foreign financial institution must include 5 out of the 10 options on the menu. After two years from the date a financial institution is included in a report, all of the 10 sanctions must be imposed, unless the financial institution is excluded from the next report.

The menu of sanctions describes the follows 10 options for sanctioning a foreign financial institution:

  • prohibition on obtaining loans of credit from US financial institutions
  • prohibition on designation as a primary dealer for US government debt instruments
  • prohibition on serving as a repository for US government funds
  • prohibition on foreign exchange transactions subject to US jurisdiction
  • prohibition on transfers of credit or payments between financial institutions subject to US jurisdiction
  • prohibition on property transactions subject to US jurisdiction
  • prohibition on exports, re-exports and in-country transfers of US-origin commodities, software and technology to a financial institution
  • prohibition on obtaining equity or debt investment from any US person
  • prohibition on the entry to the US of corporate officers, principals or controlling shareholders of the foreign financial institution
  • sanctions on principal executive officers of the foreign financial institution in the same manner as other foreign persons sanctioned under the bill.

Irrespective of the bill, however, the US President still has multiple other options for imposing Hong Kong-related sanctions. Turner discussed these options in a previous article, ‘Typhoon Trump: Hong Kong Braces for US Sanctions‘.

For now, the attention shifts to the House of Representatives.

For direct sanctions updates from Nick Turner, Of Counsel at Steptoe & Johnson in Hong Kong, follow him on LinkedIn and Medium, or sign up for his email updates.

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