July 10, 2020
On July 2, 2020, one day after the Government of the People’s Republic of China (PRC) began enforcing an opaque national security law on the people of Hong Kong, the Hong Kong Autonomy Act (the “bill” or “HR 7440”) passed both chambers of Congress. The bill, which would sanction foreign persons and foreign financial institutions transacting with those persons for undermining the rule of law in or autonomy of Hong Kong, is now awaiting President Donald Trump’s signature or veto. If signed into law, HR 7440, as the latest in a series of executive and legislative branch statements and measures targeting the PRC’s increasingly aggressive stance over Hong Kong (e.g., President Trump declaring Hong Kong “no longer sufficiently autonomous,” enactment of the Hong Kong Human Rights and Democracy Act of 2019), is likely to increase tensions between the United States and the PRC. S0, what would the bill require and which government actors would be responsible for implementing its provisions?
HR 7440 seeks to punish the PRC for violating its obligations with respect to the future of Hong Kong. These obligations, codified in both the Joint Declaration and the Basic Law, the two defining documents for Hong Kong (for a discussion of both, please see), include: Hong Kong maintaining a “high degree of autonomy, except in foreign and defense affairs,” “executive, legislative and independent judicial power,” the freedoms of speech, press and association, and universal suffrage to elect Hong Kong’s Chief Executive. The bill provides examples of how the PRC’s actions have undermined, and in some instances, contravened, these promises and obligations.
Broadly speaking, the bill establishes the following framework: first, the Secretaries of State and the Treasury submit reports to Congress identifying (1) foreign persons materially contributing to the erosion of certain rights in Hong Kong and (2) any foreign financial institutions conducting “significant transactions” with the identified individuals; second, the president must impose sanctions on identified individuals and institutions; finally, if the president chooses not to impose sanctions on identified individuals and institutions, Congress can submit joint resolutions attempting to override the president’s decision. The following paragraphs will elaborate on this framework.
Section 5 of the bill sets forth the reporting requirements. Within 90 days of HR 7440’s enactment, if the Secretary of State (SoS), “in consultation with the Secretary of the Treasury,” determines “that a foreign person is materially contributing to, has materially contributed to, or attempts to materially contribute to the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law,” the SoS must provide an unclassified and publicly available report to Congress that identifies the person and describes their activities that led to the identification (the report cannot identify a person, however, if identification could compromise an intelligence or law enforcement operation). A material contribution is one that:
- reduces Hong Kong’s “high degree of autonomy”; or
- results in the “inability of the people of Hong Kong” to either:
- enjoy the freedoms of “assembly, speech, press, or independent rule of law”; or
- to “participate in democratic outcomes.”
Then, within 60 days of the SoS’s report, the Secretary of the Treasury (SoT), “in consultation with the Secretary of State,” must submit a separate report to Congress. This report, also unclassified and publicly available, must identify “any foreign financial institution that knowingly conducts a significant transaction” with the foreign person identified in the SoS’s report. Although the bill defines the elements “financial institution” (by referring to 31 U.S.C. § 5312(a)(2)) and “knowingly” (“actual knowledge of the conduct, the circumstance, or the result”), it does not define “significant transaction,” instead leaving it open to the SoT’s interpretation. Congress is thus granting the SoT quite a bit of discretion when determining whether to include a financial institution in a report.
Lastly, the bill grants the president the authority to exclude a person or institution from a report or to remove a person or institution from a report before imposing sanctions, with Congress having no authority to override the decision. If the president determines that a contribution or transaction (1) “does not have a significant and lasting negative effect” on Hong Kong, (2) “is not likely to be repeated in the future,” and (3) “has been reversed or otherwise mitigated through positive countermeasures taken by” the person or institution, the president can exclude or remove a person or institution from a report. The president has up to a year to remove a person or institution from a report, after which mandatory sanctions (detailed below) kick in. Congress’ only role in this process is passive, with the president required to “notify the appropriate congressional committees and leadership of the determination and the reasons for the determination.”
Sections 6 and 7 of HR 7440 detail the sanctions regime. Under section 6, the president must impose sanctions on persons identified in the SoS’s report within one year of the report’s release (or within one year of an update to the report). The president can impose two types of sanctions on identified persons: property sanctions, such as prohibiting an identified person from acquiring or using property in the U.S.’ jurisdiction, and/or travel sanctions, which involve either denying a visa to the identified person or excluding them from the United States (subject to international obligations).
Section 7 mandates sanctions on a financial institution identified in the SoT’s report. The section lists 10 possible sanctions, including prohibiting the institution from serving as a repository for U.S. government funds and banning U.S. persons from investing in the financial institution. Within one year of Congress receiving the SoT’s report (or an update), the president must impose at least 5 of the listed sanctions; within two years, the president must impose all 10 sanctions. The president, however, cannot impose sanctions under sections 6 or 7 that involve the “importation of goods.”
3. Waiver or Termination of Sanctions
Finally, the president, pursuant to section 8 of the bill, can “waive” (i.e., not impose) or “terminate” (i.e., remove) sanctions on an identified person or institution. The president “may waive the application of sanctions under section 6 or 7” if he (1) determines that waiving sanctions “is in the national security interest of the United States” and (2) submits a report to Congress detailing his reasons for the above determination. The president can terminate sanctions if the SoS and SoT jointly determine that the actions by the person or institution satisfy the three element test described above (i.e., no significant and lasting effect, unlikely to be repeated, reversed or otherwise mitigated).
Unlike excluding or removing a person or institution from a report before the imposition of sanctions, once sanctions are, or should be, imposed, Congress can override the president’s waiver or termination decision. To do so, members of Congress must introduce a joint resolution of disapproval, which, for purposes of the legislative process, functions like a bill. That is, for Congress to override the president’s waiver or termination decision via a disapproval resolution, both houses of Congress must pass the resolution and the president must sign it; if the president vetoes the resolution, Congress can vote to override the veto and impose (or reimpose) sanctions.
Sanctions imposed pursuant to this bill would remain in force until at least July 1, 2047, the earliest date the PRC can alter Hong Kong’s “high degree of autonomy,” according to both the Joint Resolution and the Basic Law. If Congress passes a “termination resolution” after that date, the relevant sanctions may cease.
The PRC Government has so far only responded with public statements, characterizing the bill’s authors as having “vicious motives” and stating that “China will react strongly and the US shall bear all consequences” if HR 7440 becomes law. Yet, recent reporting strongly suggests that President Trump intends to sign HR 7440. When this happens, the U.S. – China relationship will likely deteriorate further, with Hong Kongers continuing to lose the freedoms and autonomy promised to them.