On July 14, 2020, US President Donald Trump issued Executive Order 13936 (Order) and signed into law the Hong Kong Autonomy Act 2020 (HKAA). The HKAA and the Order are a response to the perceived threat of China’s national security law (National Security Law) to Hong Kong’s autonomous status. The National Security Law took effect on June 30, 2020.


Hong Kong Autonomy Act

In broad terms, the HKAA introduces property- and visa-blocking sanctions on foreign persons who are determined to have “materially contributed” to China’s recent actions in Hong Kong (Material Contributors), as well as a variety of sanctions on foreign financial institutions (FFI) who “knowingly conduct significant transactions” with such persons.

Material Contributors

On October 14, 2020, as required by the HKAA, the Secretary of State submitted a report to Congress identifying foreign individuals and entities who have “materially contributed to the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law” (the Material Contributors Report). The Material Contributors Report lists 10 Chinese and Hong Kong officials and provides an explanation of why each individual has been identified.

The HKAA requires the Material Contributors Report to be updated in an ongoing manner and resubmitted annually. While the wording of the HKAA appears intended to target the Chinese officials behind the National Security Law, it is possible that many other individuals and entities could be identified as Material Contributors in the future. This is because the HKAA defines material contribution generally as any action that reduces the autonomy of Hong Kong or prevents the people of Hong Kong from enjoying certain rights and democratic processes.

Persons who are identified in the Material Contributors Report will be subject to mandatory sanctions, such as blocking sanctions and travel and visa restrictions, which must be imposed within a year of identification.

The impact on financial institutions

The HKAA also targets FFIs assisting Material Contributors. The Secretary of the Treasury is required to submit a separate report to Congress identifying any FFI that “knowingly conducts a significant transaction” with a Material Contributor (Identified Institutions Report). The Identified Institutions Report is due within 30 – 60 days of the Material Contributors Report, i.e. between  November 13 and  December 13, 2020.

The wording of the HKAA enables the administration to target a wide range of FFIs, not least because the term “transaction” is not defined in the Act. It is anticipated that the Office of Foreign Assets Control (OFAC) will adopt the same approach used under the Countering America’s Adversaries Through Sanctions Act (in relation to Russia), namely that a “transaction” will include any transfer of value.

OFAC has issued an FAQ explaining that whether a transaction is considered “significant” will depend on the totality of the facts and circumstances. The Secretary of the Treasury may consider, among other things, the size, number, and frequency of the transaction, the nature of the transaction(s), the level of awareness of management and the nexus between the transaction(s) and a Material Contributor.

There is no requirement that the financial institution has knowledge of the fact that a counterparty has been identified as a Material Contributor, as the term “knowingly” refers only to actual knowledge of the conduct of the transaction. And while it is likely that the “significant transaction” must take place after the counterparty has been identified as a Material Contributor, the text of the HKAA is not entirely clear in this respect.

Additionally, the term “financial institution” is defined unusually broadly and extends beyond commercial and investment banks to insurance companies, currency exchanges and even travel agencies and car dealers.

Any FFI listed in the Identified Institutions Report (Identified Institution) will be subject to a menu of 10 mandatory sanctions (Menu), including prohibitions on US financial institutions making loans to the Identified Institution, prohibitions on transfers or payments between financial institutions involving the Identified Institution and a “US Nexus” (including US Dollars), as well as asset freezes.

The HKAA requires the Menu to be phased in over time—within a year of identification, the President is required to impose at least five of the 10 mandatory sanctions on the Identified Institution and, within two years of identification, the entire Menu.


Executive Order 13936

The Order builds on the HKAA, as well as the Hong Kong Human Rights and Democracy Act of 2019. It authorizes the imposition of sanctions on persons determined to be involved in the National Security Law and revokes Hong Kong’s preferential trade treatment.

Blocking sanctions

The Order enables the Secretary of State or the Treasury, in consultation with each other, to identify foreign persons deemed responsible for, or involved in, the development of the National Security Law or actions or policies that violate human rights in Hong Kong. US persons are prohibited from dealing with the property and interests in property of such foreign persons, who, along with their immediate family, are also subject to visa bans (Blocking Sanctions).

The category of foreign persons that may be identified pursuant to the Order is defined liberally. For example, the Blocking Sanctions may apply not only to those who are responsible for, or who are involved in, developing or implementing the National Security Law, but also to those who are involved, even indirectly, in the enforcement of the National Security Law via the arresting or imprisoning of individuals. Furthermore, a wide range of alleged human rights abuses fall within scope of the Blocking Sanctions, including what is referred to in the Order as the undermining of Hong Kong’s democratic processes, peace or stability, the violation of the freedoms of expression, assembly and press enjoyed by the citizens of Hong Kong, and other “gross violations of internationally recognized human rights or serious human rights abuses”.

As of November 9, 2020, 15 individuals have been designated pursuant to the Order. As a result, all property and interests in property of these individuals, and of any entities owned 50 percent or more by one or more designated persons, that are in the US or in the possession or control of US persons are blocked and must be reported to OFAC. Unless licensed or otherwise authorized, all transactions by US persons or within (transiting) the US that involve any property or interests in property of such blocked persons are prohibited. 

To some extent, the Blocking Sanctions overlap with the separate sanctions regime in the HKAA. Notably, each of the 10 foreign persons listed in the Material Contributors Report have also been designated pursuant to the Order. However, a designation under the Order is not equivalent to a Material Contributor designation and it is important to note that to date one individual has been designated under the Order, but has not been identified as a Material Contributor.

Unlike the HKAA, the Blocking Sanctions authorize sanctions to be immediately imposed once persons are identified by the Secretary of State and/or Secretary of the Treasury. In addition, the Blocking Sanctions arguably target a larger category of foreign persons than those targeted under the HKAA, as the Blocking Sanctions refer to a greater range of identified freedoms and employ broader language when defining their scope. Crucially, the Blocking Sanctions also extend to those who materially assist, sponsor or provide support or goods or services to persons whose property and interests in property are blocked pursuant to the Order, as well as persons owned or controlled by, acting on behalf of, or who are leaders, officials, board members or senior executive officers of such persons.

It is important for non-US persons to note that this “material assistance” language, typical of US blocking sanctions, means that non-US companies doing business with those targeted by the Order are also at risk of being targeted, especially because the term “material assistance,” which is not defined by OFAC, potentially applies to a wide range of business activities.

Revocation of preferential treatment

Following the 1997 handover, Hong Kong continued to enjoy preferential treatment from the US under the United States-Hong Kong Policy Act 1992 (HKPA), which essentially recognized Hong Kong as a customs territory separate from mainland China. The HKPA had for decades sheltered Hong Kong from various US tariffs and export controls, including the major “Section 301” tariffs imposed on Chinese products in 2018. For the position on section 301 tariffs, see our article, US CBP issues notice requiring goods produced in Hong Kong to be marked as products of China.

However, on May 27, 2020, US Secretary of State Mike Pompeo certified to Congress that Hong Kong was no longer sufficiently autonomous to justify such treatment under the HKPA, prompting the President to call for the elimination of policy exemptions giving Hong Kong preferential treatment.

On June 29, 2020, the US Department of State announced that it is ceasing exports of US-origin defense equipment to Hong Kong and will take steps toward imposing the same restrictions on US defense and dual-use technologies to Hong Kong as it does for China. Concurrently, the US Department of Commerce announced it would be suspending regulations affording preferential treatment to Hong Kong over China, including the availability of export license exceptions under the Export Administration Regulations (EAR) effective June 30, 2020.

The Order is the culmination of this process and formalizes the revocation of US preferential treatment of Hong Kong. It confirmed the suspension or elimination of the different and preferential treatment of Hong Kong, to the extent permitted by law and in the interest of the US. Agency heads were directed to commence “all appropriate action to further the purposes of [the Order]” by July 29, 2020.

The immediate impact of the Order is not entirely clear, as agency heads have significant discretion in determining how preferential treatment will be revoked – a discretion widened by their ability to propose any further actions “deemed necessary and prudent” to end preferential treatment of Hong Kong to the President for his consideration.

Other provisions of the Order are more specific, including provisions to end preferences for Hong Kong passports, academic cooperation and existing extradition agreements. Notably, the Order revokes preferential treatment under the Arms Export Control Act. As a result, sales and exports of defence articles are prohibited (save where specific licenses have been granted by the Directorate of Defence Trade Controls) and future license applications for such sales and exports are subject to a presumption of denial.

Furthermore, the Order officially revoked Hong Kong’s export license exemptions under the EAR. This has led to restrictions on the export, re-export and transfer (in-country) to Hong Kong of a significant number of controlled goods, including certain computers, aircraft, and technologies and software.


Other developments

China sanctions

On August 10, 2020, following the imposition of US sanctions under the Order, China sanctioned 11 US nationals in response to their “egregious behaviour on Hong Kong-related issues”. On November 30, 2020, China announced sanctions against 4 US nationals and entities for “interfer[ing] in Hong Kong affairs and China’s internal affairs”.  

On September 19, 2020, the Ministry of Commerce of China issued the Measures on Unreliable Entities List (the Measures), which came into effect on the same date. This is an important step toward establishing a regime of unreliable entities (UEL Regime), which was first mentioned by the spokesperson for the Ministry of Commerce at the end of May 2019. The Measures provide a legal basis for the implementation of the UEL Regime. For further information on the Measures, please see our article, China’s Ministry of Commerce issues Measures on Unreliable Entities List.

TikTok and WeChat

On August 6, 2020, the US President issued two executive orders, mandating a ban on transactions with ByteDance Ltd. and Tencent Holdings Ltd., the companies owning TikTok and WeChat, respectively. The prohibitions were scheduled to take effect on September 20 and 27, respectively, but are now suspended due to preliminary injunctions issued by federal courts in favour of WeChat and TikTok. For further information, please see our article, TikTok and WeChat bans suspended.


The US Department of Commerce, Bureau of Industry and Security has published a final rule that strengthens existing restrictions under the EAR on exports of items manufactured utilizing US technology or software to Huawei Technologies Co., Ltd. and its affiliates designated on the Entity List. For further information, please refer to our article, US expands existing restrictions on exports to Huawei and broadens Entity List scope.

Communist Chinese military companies

On November 12 2020, the US President issued Executive Order 13959 (Order) targeting securities investments that finance Communist Chinese military companies (CCMCs). Beginning January 11, 2021, the Order prohibits any transactions in (i) publicly traded securities of any CCMCs; (ii) derivatives of such securities; or (iii) securities designed to provide investment exposure to targeted securities. For further information, please see our article, US targets securities investments associated with Communist Chinese military companies.

Please note that there are various other sanctions and export controls which may involve China or Chinese entities and this article is not exhaustive in this respect.



Given the above, it is important for all businesses with trade in China to consider the above law, monitor any developments and to seek advice where necessary.

We will continue to monitor the implementation of the Order and the publication of the Identified Institutions Report and issue additional briefings.



Recent publications

Subscribe and stay up to date with the latest legal news, information and events . . .