US OFAC: Hong Kong-Related Sanctions Regulations (31 CFR Part 585)

Mechanism

EO 13936 (July 14, 2020) was the Trump administration's formal response to China's imposition of the National Security Law (NSL) on Hong Kong on June 30, 2020. The EO invoked IEEPA authority and the United States–Hong Kong Policy Act of 1992 (§ 202), declaring that Hong Kong was "no longer sufficiently autonomous to justify differential treatment" from the People's Republic of China under US law. OFAC was delegated authority to designate persons who:

• Acted or purported to act for or on behalf of any foreign person determined to have

contributed to the erosion of Hong Kong's autonomy;

• Were owned or controlled by designated persons; or
• Materially assisted, sponsored, or supported such designated persons.

The January 15, 2021 Federal Register publication translated the EO's blocking authority into formal CFR codification (31 CFR Part 585), creating the regulatory basis for compliance obligations, penalty enforcement, and licensing. The rules were issued in abbreviated form under OFAC's practice of providing immediate public guidance while preparing comprehensive regulations. Property and interests in property of SDN-listed persons in the United States (or possessed/ controlled by US persons) are blocked and may not be dealt in.

Downstream implications

• Established the permanent regulatory chassis for HK-related designations that followed

(July 2021 and subsequent rounds targeting NSL enforcers, officials, and CCP-linked figures).

• Firms with HK-headquartered counterparties, joint ventures, or correspondent banking flows

must screen against the HK-OFAC SDN sub-list; failure creates IEEPA civil penalty exposure.

• The abbreviated publication signals OFAC's intent to expand — general licenses (e.g., for

wind-down, humanitarian) and interpretive guidance on "material assistance" thresholds were expected but slow to arrive, creating compliance uncertainty for US-HK financial flows.

• EWH (iShares MSCI Hong Kong ETF) and FXI (China Large-Cap) are the primary equity proxies

for HK-linked market impact; neither was directly prohibited, but counterparty and correspondent-banking risk increased for US-listed securities of SDN-adjacent firms.

Open questions

• Has OFAC published the comprehensive supplement to 31 CFR Part 585 as promised? (As of

filing, the regulation remains in abbreviated form — a compliance gap for definitional edge cases.)

• How many persons have been designated under EO 13936 to date, and do any hold positions in

US-listed entities or ETF constituents?

• Does the Biden administration maintain or expand EO 13936 designation authority post-Jan 2021?