OFAC Issues Guidance Following State Department Report on Hong Kong Sanctions
OFAC clarified the potential application of secondary sanctions to foreign financial institutions ("FFIs") in connection with a report submitted to Congress by the Secretary of State pursuant to section 5(a) of the Hong Kong Autonomy Act ("HKAA").
The Secretary of State's report to Congress named persons determined to have materially contributed to "the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law." In FAQ 848, OFAC noted that the individuals named in the report were previously sanctioned by OFAC on August 7, 2020 (see coverage here). Pursuant to section 5(b) of the HKAA, the Secretary of the Treasury will submit an additional report to Congress within 30-60 days, identifying FFIs that "knowingly conduct a significant transaction" with persons identified in the State Department's section 5(a) report. These FFIs will, in turn, be subject to mandatory secondary sanctions.
OFAC further explained that, in general, FFIs will not be subjected to sanctions for transactions conducted within 30 days of a person's identification in the section 5(a) report. In addition, "the Treasury Department will reach out to an FFI to inquire about its conduct" before identifying the FFI in the Department's forthcoming section 5(b) report.
Additionally, OFAC issued three FAQs clarifying:
- the conditions under which an FFI may excluded from Treasury Department's section 5(b) report or updates thereto (FAQ 849);
- how the Treasury Department will identify "significant" transactions for purposes of compiling its section 5(b) report (FAQ 850); and
- definitions of the key terms "financial institution" and "knowingly" under section 5(b) of the HKAA (FAQ 851).