Potential penalties for companies and individuals that comply with foreign sanctions law have been introduced by a series of legal developments in China that could make it difficult for those doing business in China to find ways to comply with both the requirements of Chinese law and that of their home countries. Foreign companies doing business in China may want to review their compliance approaches and watch for further developments in this area.
The Anti-Foreign Sanctions Law, passed in June, makes a number of counter-sanctions available to Chinese authorities, including blocking of assets and transactions and visa restrictions. These measures could be carried out against individuals or entities involved in creating or carrying out China-related sanctions put into place by foreign governments. These could be applied to individuals or companies anywhere in the world that comply with these sanctions, as well as to the foreign officials who implement them.
The Anti-Foreign Sanctions Law follows on the creation of an “Unreliable Entity List” that makes certain companies or organizations that are deemed to harm China’s national security, potential through observance of their home country sanctions laws, possibly subject to fines, asset seizures, and denial of visas to employees. It also follows the promulgation of a “blocking statute” by the Chinese Ministry of Commerce that requires Chinese companies, including Chinese subsidiaries of multinationals, to report restrictions on their businesses due to foreign sanctions, and permits China to issue orders prohibiting compliance with the foreign sanctions laws.
It is unclear how specifically, and how frequently, the Anti-Foreign Sanctions Law and related legislation will be enforced. It is likely that enforcement may wax and wane along with tensions in Chinese-Western relations, and be used in response to new actions taken by the US, EU, and other foreign governments. The first enforcement, on July 23, 2021, came with the imposition of sanctions on six US individuals and one entity in response to the previous financial sanctions imposed by the US government on July 16, 2021, that related to seven Chinese officials in Hong Kong.
Some foreign companies doing business in China are responding by:
- Reviewing their compliance policies and playbooks and incorporating ideas for how to respond to possible inquiries or enforcement actions under the Anti-Foreign Sanctions Law and other legislation.
- Training employees on how to respond to actions taken under the new law if problems arise.
- Reviewing agreements with Chinese customers, suppliers, and partners to understand what would happen if potential violations of both foreign sanctions and the new Chinese laws occur, and revising agreements to mitigate risk.
Seyfarth proactively advises our clients in connection with their PRC investments and businesses and can tap into valuable relationships for additional support when needed.