On July 16, 2021, several U.S. government agencies issued a business advisory highlighting for U.S. companies the risks of doing business in Hong Kong. The advisory, which was issued by the Departments of Commerce, Homeland Security, State, and the Treasury, stated that companies operating in Hong Kong face potential regulatory, financial, legal, and reputational risks due China’s recently enacted National Security Law (NSL) in Hong Kong.  The NSL states that “an incorporated or unincorporated body, such as a company or organization” that breaches the law may be subject to a criminal fine and suspension of operations. Notably, the NSL also states that provisions may apply to companies set up in the region even if an offense takes place outside the region.  As a result, the advisory notes that the NSL could adversely affect businesses and individuals operating in Hong Kong.

The U.S. government advisory outlines for individuals, business, research providers, and investors the following potential risks:

  • Heightened risk for businesses and individuals operating in Hong Kong:  Under the NSL, businesses operating in Hong Kong and individuals conducting business in Hong Kong on their behalf are subject to the NSL.  According to the advisory, foreigners, including one U.S. citizen, have been arrested under the NSL.  The advisory explains that under the NSL, protected rights and freedoms in Hong Kong have been substantially curtailed, and individuals have been arrested under the NSL for publishing news articles and attending public gatherings.  Punishments under the NSL can include criminal fines and imprisonment, including life imprisonment in certain situations.  Under the NSL, business can be subject to criminal fines and can have their operations or license suspended.  Individuals who are arrested may have their travel documents confiscated and may be prevented from leaving Hong Kong.
  • Heightened risk regarding data privacy, including warrantless electronic surveillance, and surrender of data. The NSL also expanded the Hong Kong and People’s Republic of China (PRC) authorities’ ability to collect business and individual data for actions that may violate “national security.”  Hong Kong authorities have interpreted “national security” to include participating in elections, political advocacy, and posting on social media.  Hong Kong law enforcement are permitted under the NSL to conduct searches of electronic devices and to require Internet services providers to either provide or delete data for national security cases.
  • Access to business information and open press. Since the NSL’s introduction to Hong Kong, authorities have increased pressure on freedom of expression – primarily freedom of the press. Recently, Hong Kong authorities have exercised powers under the NSL to pursue journalists and a print media company.
  • Exposure to U.S. sanctioned persons and entities. Businesses operating in Hong Kong should be aware of potential consequences of engaging with individuals and/or entities subject to U.S. sanctions. U.S. individuals and entities are prohibited from engaging in certain transactions with blocked persons without a general or specific license from the Treasury Department’s Office of Foreign Assets Control (OFAC), or other exemption. Violations of U.S. sanctions may result in civil or criminal penalties.  Companies should also be aware that Hong Kong has been removed as a separate destination under the Export Administration Regulations (EAR) and items subject to the EAR destined for Hong Kong, including reexport or transfer, will be treated as exports, reexports, or transfers to or from the PRC. Similarly, companies operating in Hong Kong could face retaliation from the Chinese government for complying with U.S. sanction laws.

The PRC Anti-foreign Sanctions Law (enacted June 10, 2021) (the “ASL”) provides China with the legal basis for retaliating against foreign actions deemed to be “restrictive discriminatory” – a vague and nebulous term that provides China with an incredibly broad tool to counter a wide range of actions that it views as counter to its sovereign interests (ranging from foreign sanctions programs to politically sensitive positions such as geopolitical flash points involving Taiwan, South China Sea or Senkaku Islands to the US Withhold Release Order aimed at addressing allegations of forced labor in Xinjiang).  Not only does the ASL give the Chinese government the ability to penalize foreign subsidiaries operating in China, but it also gives aggrieved Chinese parties and entities a private cause of action in Chinese courts to recover losses incurred.  Further, the ASL contains a “catch-all” that allows China to determine what practices are “restrictive discriminatory.” Since many Hong Kong businesses are historically linked with mainland China operations, it is very important that companies review carefully the potential impact of the ASL when entering into new business as well as deciding to terminate businesses as to avoid actions  that could be perceived as “restrictive discriminatory” from a PRC perspective and be subject to retaliation by China or private parties.

The recent advisory comes days after the U.S. government agencies released an updated version of its Xinjiang Supply Chain Business Advisory and following a separate announcement to add 14 Chinese companies to the Department of Commerce’s Entity List for their direct involvement in human rights abuses in Xinjiang.

A link to the advisory is available here.

For more information on actions regarding China as well as actions addressing U.S. sanctions, human rights, and export controls, contact our team and see previous posts below.

Government Releases Updated Version of Xinjiang Supply Chain Business Advisory | International Trade Law (cmtradelaw.com)

Commerce Adds 23 Companies to Entity List Citing Forced-Labor, Military Technology, and Sanctions Concerns | International Trade Law (cmtradelaw.com)

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Photo of Caroline Brown Caroline Brown

Caroline E. Brown is a partner in Crowell & Moring’s Washington, D.C. office and a member of the firm’s White Collar & Regulatory Enforcement and International Trade groups and the steering committee of the firm’s National Security Practice. She provides strategic advice to…

Caroline E. Brown is a partner in Crowell & Moring’s Washington, D.C. office and a member of the firm’s White Collar & Regulatory Enforcement and International Trade groups and the steering committee of the firm’s National Security Practice. She provides strategic advice to clients on national security matters, including anti-money laundering (AML) and economic sanctions compliance and enforcement challenges, investigations, and cross border transactions, including review by the Committee on Foreign Investment in the United States (CFIUS) and the Committee on Foreign Investment in the U.S. Telecommunications Services Sector (Team Telecom).

Caroline brings over a decade of experience as a national security attorney at the U.S. Departments of Justice and the Treasury. At the U.S. Department of Justice’s National Security Division, she worked on counterespionage, cybersecurity, and counterterrorism matters and investigations, and gained unique insight into issues surrounding data privacy and cybersecurity. In that role, she also sat on both CFIUS and Team Telecom and made recommendations to DOJ senior leadership regarding whether to mitigate, block, or allow transactions under review by those interagency committees. She also negotiated, drafted, and reviewed mitigation agreements, monitored companies’ compliance with those agreements, and coordinated and supervised investigations of breaches of those agreements.

Photo of Evan Chuck Evan Chuck

Evan Chuck is a partner in the firm’s Los Angeles office and is a member of the firm’s International Trade and Corporate Groups. He leads the firm’s Asia practice and is also a director of the firm’s China office in Shanghai.

Evan has…

Evan Chuck is a partner in the firm’s Los Angeles office and is a member of the firm’s International Trade and Corporate Groups. He leads the firm’s Asia practice and is also a director of the firm’s China office in Shanghai.

Evan has more than 25 years of international trade and cross-border transactional experience. He has been a strategic advisor to Fortune 500 companies in structuring market entry, global supply chain and e-commerce strategies across the Asia-Pacific region. He has in-depth experience in China with cross-border acquisitions/dispositions, government regulatory compliance, and investigations. He advises major multinational companies on navigating the potential conflicts between and among U.S., E.U., and newly emerging Chinese law, including the Anti-foreign Sanctions Law, the PRC “Blocking Statute”, the PRC Export Control Law, Unreliable Entity List, the PRC Cybersecurity Law, and the PRC Data Security Law. He has also been representing a select group of large, multinational Chinese companies with complex U.S. transactional, tax, and regulatory issues. Evan works closely with the firm’s government affairs group and consulting group, Crowell & Moring International, to align global geo-political policy and strategy with cross-border legal advice.

Photo of Anand Sithian Anand Sithian

For high-stakes internal and government investigations and complex regulatory and compliance matters, companies and individuals look to Anand to provide strategic advice and counseling, particularly on issues relating to the Bank Secrecy Act and Anti-Money Laundering (“BSA/AML”), economic sanctions, and digital assets. Anand

For high-stakes internal and government investigations and complex regulatory and compliance matters, companies and individuals look to Anand to provide strategic advice and counseling, particularly on issues relating to the Bank Secrecy Act and Anti-Money Laundering (“BSA/AML”), economic sanctions, and digital assets. Anand is resident in the firm’s New York office and a member of the firm’s International Trade, White Collar and Regulatory Enforcement, and Financial Services groups.

A former federal prosecutor, Anand leverages his government experience to guide clients through complex white-collar matters, including grand jury and regulatory investigations, enforcement proceedings, and internal investigations. Anand has deep experience in parallel criminal and civil investigations and proceedings, and often represents clients in defending against civil lawsuits related to government investigations.

Representing some of the world’s largest banks and technology companies, Anand has addressed a wide range of issues, including economic sanctions, BSA/AML; economic sanctions and national security; payments and cryptocurrency; securities laws; and cybersecurity enforcement. In the regulatory space, Anand prides himself on providing commercial and actionable advice, including in the developing areas of digital assets, FinTech, and payments.

Photo of Frances P. Hadfield Frances P. Hadfield

Frances P. Hadfield is a counsel in Crowell & Moring’s International Trade Group in the firm’s New York office. Her practice focuses on forced labor and withhold release orders (WRO), import regulatory compliance, and customs litigation. She regularly advises corporations on matters involving…

Frances P. Hadfield is a counsel in Crowell & Moring’s International Trade Group in the firm’s New York office. Her practice focuses on forced labor and withhold release orders (WRO), import regulatory compliance, and customs litigation. She regularly advises corporations on matters involving customs compliance, audits, customs enforcement, as well as import penalties.

Frances represents clients before the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit, as well as in proceedings at the administrative level. She advises corporations on both substantive federal and state regulatory issues that involve U.S. Customs and Border Protection, the Federal Trade Commission, Food and Drug Administration, and U.S. Fish & Wildlife in matters pertaining to product admissibility, audits, classification, import restrictions, investigations, marking, licenses, origin, penalties, and tariff preference programs.

Photo of Martín Yerovi Martín Yerovi

Martín Yerovi is an international trade analyst in Crowell & Moring’s Washington, D.C. office. He provides practice support to the International Trade Group on import regulatory matters pending before the Office of the U.S. Trade Representative (USTR) and U.S. Customs and Border Protection…

Martín Yerovi is an international trade analyst in Crowell & Moring’s Washington, D.C. office. He provides practice support to the International Trade Group on import regulatory matters pending before the Office of the U.S. Trade Representative (USTR) and U.S. Customs and Border Protection (CBP). He works closely with attorneys developing courses of action for clients impacted by investigations under Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962. He also supports unfair trade investigations, including antidumping (AD) and countervailing duty (CVD) investigations, sunset reviews, and changed circumstance reviews before the Department of Commerce and the International Trade Commission (ITC).