On July 16, 2021, the U.S. Departments of State, Treasury, Commerce, and Homeland Security collectively published an extensive Hong Kong Business Advisory focusing on the regulatory challenges facing U.S. companies operating in Hong Kong. This Advisory follows several actions by the U.S., including the implementation of sanctions with respect to Hong Kong and numerous People’s Republic of China (PRC) officials, which have escalated over the past year. For prior S&K alerts regarding U.S. sanctions in relation to the PRC and Hong Kong, please see here.

Notably, the Advisory addressed some of the key heightened risks for U.S. businesses operating in Hong Kong, including the risks imposed by the National Security Law. Additionally, the Advisory addresses the risks resulting from heightened data privacy standards (as imposed by the National Security Law) and challenges to freedom of the press.

The Advisory also highlighted U.S. sanctions with respect to Hong Kong, including those administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). Specifically, the Advisory “strongly encourages”:

Organizations subject to U.S. jurisdiction, as well as foreign entities, including foreign financial institutions, that conduct business in or with the U.S. or U.S. persons, or deal in U.S.-origin goods or services, to employ a risk-based approach to sanctions compliance by developing, implementing, and routinely updating a sanctions compliance program.

The Advisory provides an overview of the Hong Kong Autonomy Act, Executive Order 13936, and the Hong Kong Human Rights and Democracy Act, each of which provide broad authority for the U.S. to sanction foreign persons in relation to Hong Kong.

Finally, and significantly, the Advisory details the PRC’s new and evolving counter-sanctions and blocking programs, which could present conflict of law challenges to businesses in the region that have an obligation to comply with U.S. sanctions. Specifically, the Advisory warns that businesses in Hong Kong “may face heightened risk and uncertainty in connection with sanctions compliance efforts.” The Advisory does not take an explicit position regarding conflict of laws, but does make clear that failure to comply with U.S. sanctions can result in civil and criminal penalties under U.S. law, suggesting that OFAC and other U.S. regulators continue to take the view that U.S. sanctions take priority, regardless of local blocking laws.

If you have any questions or concerns regarding U.S. sanctions, please contact Bruce G. Paulsen (212-574-1533) or Andrew S. Jacobson (212-574-1477) at Seward & Kissel’s Sanctions Practice Group.