US Issues Hong Kong Advisory, New Sanctions

The U.S. released an advisory to highlight the sanctions and export controls risks for companies doing business in Hong Kong and announced a new set of Hong Kong designations July 16. The advisory, issued by the State, Treasury, Commerce and Homeland Security departments, describes “considerations” for businesses operating in “this new legal landscape,” which includes several sanctions regimes targeting Beijing and Hong Kong.

The agencies said the risks fall into four categories: risks associated with Hong Kong’s so-called national security law, data privacy, access to “critical” business information, and exposure to sanctioned Chinese government officials and entities. The advisory builds on previous sanctions issued by the U.S. to target Beijing’s crackdown on Hong Kong’s freedom, including seven new designations issued last week. The sanctions target Dong Chen, Jing He, Xinning Lu, Hong Qiu, Tieniu Tan, Jianping Yang and Zonghua Yin, who are deputy directors of the Liaison Office of the Central People’s Government of Hong Kong. They were designated under the Hong Kong Autonomy Act.

Beijing “has broken its promise” to provide Hong Kong with autonomy from the Chinese government, Secretary of State Antony Blinken said in a statement. “Today we send a clear message that the United States resolutely stands with Hong Kongers.” Liu Pengyu, a spokesperson for China’s U.S. embassy, said China is "firmly determined to oppose U.S. interference in Hong Kong affairs" and denied the accusations in the advisory. "The U.S. should adhere to international law and basic norms governing international relations, stop meddling in Hong Kong affairs in any form and stop interfering in China’s domestic affairs," the spokesperson said in an email.

The advisory describes the potential risks incurred by companies doing business in Hong Kong and stresses that all their activities in the region are subject to the island’s national security law. The agencies warned that the law grants Hong Kong law enforcement “broad authorities to conduct wiretaps or electronic surveillance,” censor information, collect private data, conduct police searches, place restrictions on attending public gatherings and more. Companies may also be subject to sanctions imposed by the Treasury’s Office of Foreign Assets Control. Those measures block U.S. people and entities from “engaging in certain transactions” with designated people and entities without a license.

The advisory said OFAC “strongly encourages organizations subject to U.S. jurisdiction, as well as foreign entities” that conduct business with the U.S. or trade in U.S.-origin goods to “employ a risk-based approach to sanctions compliance by developing, implementing, and routinely updating a sanctions compliance program.”

Businesses should also be aware that Commerce’s Bureau of Industry and Security last year removed Hong Kong as a separate destination under the Export Administration Regulations (see 2012220053), and imposed new military and military intelligence end-use and end-user restrictions on exports to the region (see 2007090075 and 2102190042).

The advisory also pointed to China’s recently implemented foreign sanctions law, which gives the government broad discretion to penalize companies for obeying U.S. and other countries' restrictions against China (see 2107080057). While the law doesn’t “expressly prohibit companies from complying with U.S. sanctions,” those activities are likely to face retaliation by the Chinese government, the advisory said. “Accordingly, businesses operating in Hong Kong may face heightened risk and uncertainty in connection with sanctions compliance efforts.”