Counterpunch: China Adopts Landmark Anti-Sanctions Statute to Stop U.S. Sanctions Effects Overseas

Sheppard Mullin Richter & Hampton LLP

  • New law could penalize companies for complying with U.S. sanctions.
  • Penalties include designation to China’s new “Unreliable Entity” list.
  • Statements against the new laws could also be penalized, restricting the capacity of counsel to advise freely on compliance with U.S. sanctions and Chinese countermeasures.

On June 10, 2021, China enacted the Anti-Foreign Sanctions Law (“AFSL”), aimed at punishing countries that impose anti-China sanctions and the companies that comply with those sanctions. The law is effective immediately, and applies to any sanctions imposed against China, Chinese entities, or Chinese individuals by any third country (excluding sanctions adopted by the United Nations).

The AFSL comes in addition to the Measures on Blocking Unjustified Extraterritorial Application of Foreign Legislation (the Blocking measures) issued earlier this year. Those measures were mainly address the extraterritorial effect of U.S. sanctions against China, by punishing companies that comply with U.S. sanctions.

Targeted Individuals and Entities

The new law directly targets countries issuing sanctions against China. The law grants the Chinese State Council the authority to add specific individual policy makers or government agencies (in the United States and elsewhere) to a countermeasures list, when those persons or entities are identified as having participated in promulgating sanctions against China.

Potential Sanctions

The law provides for the following types of countermeasures:

  1. Travel restrictions (for example, denial or revocation of visas, denial of entry);
  2. Asset freezes (Including, among other things, seizure of any movable property, real estate, and all other types of property in China);
  3. Prohibition against certain transactions with Chinese parties;
  4. Prohibition against conducting certain business activities in China; and
  5. Any other measures deemed necessary by the State Council.

In addition to targeting individual policy makers and their departments, the law also permits countermeasures to be applied to spouses and immediate family members of listed individuals.

New Private Right of Action

Strikingly, the law also creates a right to bring civil lawsuits in Chinese courts against persons who implement, or assist in the implementation of, “discriminatory restrictive measures” that harm Chinese people’s “lawful rights and interests.”

Additional Blocking Measures

In addition to robust countermeasures, the new law also adds additional “blocking” measures, by prohibiting Chinese entities and individuals from any sanctions adopted by third countries against Chinese individuals and entities.

The Takeaways

The Rock and the Hard Place

U.S. firms operating in China are required by U.S. law to comply with all U.S. sanctions restrictions. Even non-U.S. firms can face liability under primary and secondary U.S. sanctions regulations for causing sanctions violations or engaging in significant transactions with sanctioned parties.

However, if those companies comply the U.S. regulations, they may violate the new Chinese law. The companies risk having their business in China restricted or being added to the new “Unreliable Entities List.”

Think Before You Speak

If the law is applied along its broadest terms, it punish anyone who may have publicly supported anti-China sanctions. As one commenter noted, his own calls for sanctions in light of China’s actions against the Uyghur people “may legally permit Beijing to deny my brothers’ visas to China, or, if they had assets in China, to seize them.” That measure could have a severe chilling effect on in-house or external counsel to multinationals in China. It might be wise for counsel to advise complying with U.S. sanctions but, if that advice is viewed as a statement against the new Chinese law, the statement could put the company’s personnel or assets in jeopardy.

It remains to be seen how broadly the law will be implemented, but there may be some substantial compliance challenges ahead for multinational companies that do business in China and the United States.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Sheppard Mullin Richter & Hampton LLP

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