Jun 15, 2021

China’s Anti-Sanctions Law Poses Compliance Challenges for Businesses

On 10 June 2021, China passed an anti-sanctions law to counteract the sanctions imposed by the US, EU, Canada, and the UK against various Chinese entities, and officials, in recent years. The new law permits China to penalize individuals or entities involved in the design or implementation of foreign sanctions, including those entities engaged in “discriminatory practices” against Chinese citizens and organizations. The phrase “discriminatory practices” is not defined in the new law, but the broad language appears to encompass those companies who comply with US and other foreign sanctions. The law extends to Hong Kong as well.

Under the so-called “blocking statute”, individuals and entities engaging in “discriminatory practices” can be sanctioned by the Chinese government—a decision which is final and non-appealable. If an individual or entity is sanctioned, it could result in individuals or their family members having visas denied, as well as having property seized and being blocked from conducting transactions with Chinese institutions.

The passage of this new law puts US and other foreign companies with a presence or operations in China in the difficult position of determining whether to comply with their home-countries’ sanctions or comply with this new Chinese law. For US companies operating in China, there will undoubtedly be questions as to how a US company is expected to decline to do business with a sanctioned or listed Chinese entity, such a Huawei, without running afoul of China’s new law. Similarly, businesses that refuse to source cotton or tomatoes from the Xinjiang Province because of the US Customs and Border Protection’s Withhold Release Order on such products may similarly be subject to sanctions by China under this new law.

The Office of Financial Assets Control (“OFAC”) within the US Department of Treasury implements and enforces US sanctions. OFAC requires all US persons, including US incorporated entities and their foreign branches, regardless of where they are located, to comply with sanctions. In certain circumstances, foreign subsidiaries owned or controlled by US companies must also comply with OFAC sanctions. China’s new anti-sanctions law presents a clear conflict with OFAC compliance obligations.

It is still too early to determine how China will employ this new law when it comes to foreign businesses. But the language is broad enough to present real compliance issues until those businesses receive additional guidance. However, if a party is subject to OFAC jurisdiction, there is little to no doubt that OFAC will still require compliance even in the midst of the uncertainty surrounding the application of China’s new anti-sanctions law.

Should you have any questions about US sanctions matters, please contact:

JON P. YORMICK – jyormick@flannerygeorgalis.com• M: 216.269.5138, or

EMILY MIKES – emikes@flannerygeorgalis.com• M: 216.650.8655, or

The Flannery | Georgalis attorney with whom you have a relationship.