Background

U.S. businesses, individuals, and others with operations and activities in Hong Kong face potential reputational, economic, and legal risks by maintaining a presence in that region and should apply due diligence policies and procedures to address those risks, according to a new business advisory from four U.S. government departments.

The advisory warns businesses that “the risks faced in mainland China are now increasingly present in Hong Kong.” Specifically, policies that the governments of China and Hong Kong have implemented “undermine the legal and regulatory environment that is critical for individuals and businesses to operate freely and with legal certainty in Hong Kong.”

For example, businesses face “heightened risk and uncertainty in connection with sanctions compliance efforts.” The advisory notes that the U.S. maintains a number of sanctions and restrictions affecting Hong Kong, including sanctions imposed by the Office of Foreign Assets Control against blocked persons, restrictions on controlled exports to Hong Kong, and asset-blocking sanctions (including on foreign persons) under the Hong Kong Autonomy Act and the Hong Kong Human Rights and Democracy Act. Failure to comply with U.S. sanctions can result in civil and criminal penalties under U.S. law.

However, a law enacted by the Chinese legislature in June authorizes the imposition of countermeasures in response to such sanctions. These may include prohibiting or restricting transactions, cooperation, and other activities with organizations and individuals in China or Hong Kong that directly or indirectly participate in the implementation of such sanctions, or seizing or freezing their real estate and other types of property. In addition, the June 2020 National Security Law makes it a criminal offense to conspire with foreign countries, institutions, organizations, or individuals to impose sanctions against Hong Kong or China.

Other risks identified in the advisory include electronic surveillance without warrants, the surrender of corporate and customer data to authorities, and restricted access to information due to limitations on freedom of the press.

Given these and other changes to Hong Kong’s laws and regulations, the advisory states that businesses operating in Hong Kong, as well as individuals and businesses conducting business on their behalf, should be aware of potential reputational, regulatory, financial, and in some cases legal risks associated with those operations.

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