On July 16, 2021, the U.S. Departments of State, Commerce, Homeland Security and the Treasury issued a Hong Kong Business Advisory highlighting growing risks for U.S. companies operating in the Hong Kong Special Administrative Region (SAR) due to ongoing actions taken by the Government of the People’s Republic of China (China). The advisory states that these risks fall into four categories: (1) risks for businesses following the imposition of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (NSL); (2) data privacy risks; (3) risks regarding transparency and access to critical business information; and (4) risks for businesses with exposure to sanctioned Hong Kong or China entities or individuals.
Regarding risks under the NSL, which was implemented in June 2020 and under which China significantly reduced Hong Kong’s autonomy and undermined protected rights and freedom, the advisory notes that potential offenses include secession, subversion, terrorist activities, and collusion with a foreign country or external elements to endanger national security. The NSL states that “an incorporated or unincorporated body, such as a company or organization which commits an offense” may be subject to a criminal fine and to having its operations suspended or its license or business application revoked. Certain provisions may also apply to offenses committed from outside the SAR and apply to these same “incorporated or unincorporated” companies or organizations. The advisory notes that Hong Kong authorities have arrested foreign nationals under the NSL, including one U.S. citizen.
Concerning data privacy, the business advisory notes that China and Hong Kong authorities are using expanded legal authorities to collect data from businesses and individuals in Hong Kong for actions that may violate “national security.” To date, this has included collecting data on participating in primary elections, calling for political steps specifically protected by the Basic Law, posting opinions on social media, and meeting with members of the diplomatic community. Further, the NSL grants Hong Kong law enforcement broad authorities to conduct wiretaps or electronic surveillance. Similarly, with respect to transparency and access to information, the NSL has allowed Hong Kong authorities to increase pressure on freedom of expression and freedom of the press by, ostensibly, allowing authorities to “stamp out fake news” as a matter of “national security.” Since passage of the NSL, journalists have been harassed and arrested for allegedly making false statements, “colluding with a foreign country” or conspiring with foreign institutions.
For U.S. businesses with exposure to sanctioned Hong Kong or China entities or individuals, the business advisory reminds these companies that the United States has implemented several export control and sanctions regulations and orders targeting specific China and Hong Kong persons or entities without a license from the appropriate U.S. government agency. The advisory notes that Hong Kong has been removed as a separate destination and that “all items subject to the EAR that are destined for export, reexport or transfer (in-country) to or from Hong Kong will be treated as exports, reexports or transfers (in-country) to or from [China].” Failure to comply with these U.S. sanctions and current export restrictions can result in civil and criminal penalties under U.S. law. Importantly, the business advisory notes China’s response to these sanctions and export restrictions with its recent passage of a law to “counter foreign sanctions.” The business advisory provided a detailed background of China’s new law on this matter and the countermeasures China may take against such foreign sanctions. As a result, U.S. businesses operating in Hong Kong may face heightened risk and uncertainty in connection with U.S. sanctions and export compliance efforts.
The business 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 United States 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 programs” as they relate to Hong Kong and continuing efforts by China reduce Hong Kong’s autonomy and restrict rights and freedoms.
For past important SmarTrade Updates on Hong Kong, see: