The US Office of Foreign Assets Control refers to a so-called 50 per cent rule, which says that any company more than 50 per cent owned by individuals placed under sanctions would be unable to participate in the US financial system. US-domiciled companies are obliged to freeze assets owned by these people, including securities or bonds. The sanctions also pose risks for asset managers and other groups that do business with the individuals in question. Mr Kostrzewa points out that officials placed under sanctions are likely to have already moved their dollar assets into the Chinese and Hong Kong currencies, putting them out of Washington’s reach. Secondary sanctions aside, lawyers suggest that banks could avoid any impact if they keep their relationships with the individuals placed under sanctions completely outside of the US financial system and do not cause any other American institutions to deal with them. International transactions, largely conducted in dollars, are often settled through correspondent banks based in the US. Transactions between non-US banks could be affected if they pass through the US financial system. However, lawyers point to the fact that US banks’ foreign subsidiaries that are incorporated overseas are generally understood to be non-US entities, which could put them outside Washington’s jurisdiction.īut non-US banks are not in the clear. US banks are directly prevented from doing business with the individuals placed under sanctions and would have to freeze their assets or risk fines.
But the measures could have big implications for US and international banks that operate in the city if they provide services to the individuals. The Hong Kong Monetary Authority, the territory’s de facto central bank, said the sanctions have “no legal status” within its borders.
“It can be toothless for the sanctioned person, but for banks that have lots of assets in the US, they tend to get enforcement quickly,” said Benjamin Kostrzewa, a lawyer at Hogan Lovells who formerly worked at the Office of the US Trade Representative. He added, sarcastically, that he would send Donald Trump $100 so the US president had something to freeze. Luo Huining, China’s top official in Hong Kong, has said he does not hold “one cent” in overseas assets. Their effectiveness partly depends on whether the individuals placed under sanctions have US assets. They follow a well-established process by which the US government has used its financial system to previously put pressure on individuals in countries such as Iran and Russia. They penalise US financial institutions and individuals that do business with those who have been placed under sanctions. The sanctions are designed to prevent the 11 named individuals, including Hong Kong leader Carrie Lam, from participating in the US financial system.
Washington’s moves could have far-reaching implications beyond the targeted individuals, with banks among those that could be affected. China on Monday announced retaliatory sanctions on US officials. The measures, announced by the Trump administration on Friday, are in response to a draconian national security law Beijing has imposed on Hong Kong. Companies and lawyers are rushing to work out the implications of US sanctions on Chinese and Hong Kong officials, which have raised temperatures between the world’s two biggest economies.