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China likely to apply Anti-Foreign Sanction Law in Hong Kong

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Hong Kong’s Financial Secretary Paul Chan has welcomed China’s recently introduced Anti-Foreign Sanction Law (AFSL), strongly indicating that many of its components will also become law in Hong Kong. 

The AFSL marked China’s first major attempt to set out an overarching framework for countering foreign sanctions, and came in response to US government sanctions on seven Chinese officials earlier in July. The law empowers China to act against foreign individuals, companies, their spouses and relatives if they are seen to be acting against China’s interests by complying with foreign sanctions. Punitive measures may include denying visas, asset freezes and even deportation. It also allows local companies to sue foreign firms if they’re impacted by international companies complying with sanctions on China. 

While the scope of the legislation is broad, China’s initial flexing of its new powers was seen as moderate. For example, no senior Biden administration figures or US companies were targeted. Instead, the first wave of counter-sanctions introduced under the law targeted seven American individuals and entities, including Wilber Ross, former President Trump’s Commerce Secretary. 

It has been reported that China’s top legislative body will meet later in August to discuss adding more national legislation to Hong Kong’s Basic Law, including the AFSL. While arguing China has a right to “fight back” against US sanctions, Chan also indicated the law would be applied via local legislative processes. This suggests adaptations could be made that reflect Hong Kong’s substantial role in international trade and finance.

The broad scope of the AFSL, and the uncertainty as to when and how it will be applied in Hong Kong, adds yet more complexity to an already challenging local compliance landscape. It’s hard for companies to assess how a wide-ranging law that isn’t fully defined in China yet will be implemented in Hong Kong, where local logistical and legal hurdles remain. There is also the risk of cases emerging where financial institutions are obliged to follow a sanction despite there also being a prohibition against complying with it in Hong Kong. 

International firms should act quickly to assess their risk exposure in Hong Kong – including through supply chains – and ensure they have comprehensive sanctions software in place that will update its China data quickly. 

The AFSL builds on other recent efforts by China’s Ministry of Commerce (MOFCOM) to combat US sanctions. This includes the Blocking Statute introduced in January 2021, which requires Chinese companies to inform MOFCOM when they are prohibited by foreign law from engaging in economic and trade-related activities. 

The Provisions on the Unreliable Entity List (UEL) which came into force in September 2020 also marked an important regulatory effort to tighten China’s export controls. It lists foreign individuals and organizations seen to be engaging in activities that endanger China’s sovereignty and development. More broadly, the growth in the scale and scope of China’s independent sanctions regime, and the probability of its application in Hong Kong, reflect the country’s use of these tools as part of its wider national security and economic statecraft objectives. In particular, these efforts are targeted at China’s ongoing geopolitical battle with the United States. 

Our article on China’s sanctions regime provides an overview of the key trends and hotspots compliance teams need to be aware of. You can read it here

Originally published August 5, 2021, updated May 6, 2022

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