Anti-foreign Sanction Law comes into effect

Phillipe E. Snel

Since 2004, Philippe is permanently established in Shanghai and has assisted numerous foreign investors to establish, develop and operate their businesses in China. Philippe mainly advises in the fields of corporate law, compliance and technology transfer.

On June 10, 2021 the Standing Committee of the 13th National People’s Congress passed the so-called “Anti-Foreign Sanction Law” (the “Law”), which became effective immediately.

Similar to the EU’s “Blocking Statute”, the Law creates a comprehensive legal framework that is aimed to block the impact of (illegal) foreign sanctions and prevents Chinese individuals and entities from suffering damages resulting from such sanctions. The Law goes beyond the scope of the Blocking Rules which were released earlier this year and dramatically expands the potential regulatory penalties and civil liabilities for foreign individuals and organizations acting contrary to Chinese national interests.

Right to take countermeasures
Article 3 of the Law states that “China has the right to take countermeasures if a foreign country violates international laws and basic norms of international relations, uses various excuses or in accordance with its own laws contains and suppresses China, adopts discriminatory restrictive measures against Chinese citizens and organizations, and interferes in Chinese internal affairs.”

Countermeasure List
The foreign individuals and organizations that (in)directly participate in the formulation, decision, and implementation of the restrictive measures in Article 3 may be included on the Countermeasure List.

Apart from those persons and organizations, countermeasures may also be imposed on their spouses and direct relatives, senior executives and actual controllers, organizations in which the individual serves as senior executive and organizations that are actually controlled, established or operated by the listed individual or organizations.

Countermeasures
The countermeasures are listed as follows:
– denial of visa issuance, entry rejection, visa cancellation or deportation;
– sealing, seizing, and freezing of movable property, real estates and other various types of property within the territory of China;
– prohibiting or restricting the organizations or individuals within the territory of China from making relevant transactions, cooperation or other activities;
– other necessary measures.

It should be noted that the Countermeasures (List)’ decisions cannot be subject to judicial or administrative review, which means that the countermeasures can only be suspended, modified or canceled by the administration that imposed them, if the circumstances which prevailed at the time of they were imposed, have changed.

Mandatory Implementation of countermeasures
Organizations and individuals within the territory of China are obliged to implement the countermeasures adopted by Chinese authorities against foreign sanctions. Any persons or organization who fails to implement the countermeasures may be subject to restrictions of its relevant activities and may be subject to legal liabilities.

Prohibition to implement foreign measures
It is prohibited to implement or assist in the implementation of foreign restrictive measures against Chinese citizens and organizations. Chinese citizens and organizations can bring legal actions in court against any organizations or individual implementing or assisting in the implementation of foreign measures, to cease the infringement and recover damages.

Implications
The Law expands the risk for foreign organizations and individuals with direct involvement in foreign legislative, regulatory, and social activities which may be considered harmful to Chinese national interests.

But the scope of application of the Law is much broader. The Law will definitively make it harder for companies and individuals to navigate between conflicting measures and potential countermeasures applicable in different jurisdictions. For instance, businesses with ties in the US and in China may be compelled to comply with specific US sanctions or restrictions imposed on China or Chinese companies/individuals while at the same they may face a risk of being subject to Chinese countermeasures as a consequence of doing so.

Besides many international trade and investment contracts contain provisions dealing with sanctions and export control compliance. Such provisions will for example provide terms allowing a party to terminate or adjust the contractual arrangements in case of violation of an applicable sanction or export control rule. It could be that a party which is invoking such terms would be seen as “assisting” in the implementation of foreign sanctions against Chinese parties and therefor made subject to some of the Countermeasures.

Conclusion
Even if it is not yet clear how exactly the competent authorities will apply this new legislation, it is already certain that it will add a whole new compliance requirement for anyone who is operating a business in China or dealing with Chinese counterparties. Company policies and international agreements will need to be reviewed and analyzed for their computability with this new Law.
If you have any questions or concerns regarding this subject, please feel free to reach out to us.