On June 11, China's Law on Counter Foreign Sanctions ("the Law" or "the new Law") entered into force. It is the first law China introduced in history to counteract the effect of foreign sanctions. According to the new law, the relevant departments of the State Council are authorized to take actions to neutralize the negative effects of some foreign sanctions. The Law also sets up legal obligations for natural persons and entities, including those outside China, of compliance with the Law.
In this article, we try to bring to attention several must-knows about the new Law and its compliance.
I. Legal Authority
In China's legislative system, laws and regulations promulgated by the National People's Congress rank second in the hierarchy of legal authority in Chinese statutes, subordinate only to the Constitution. The Law governs the specific issue related to unfair or unjustified foreign sanctions towards Chinese nationals and/or entities which renders it superior power compared to general laws regulating general foreign affairs or economic activities. Therefore, the Law generally becomes the starting point when dealing with unfair or unjustified foreign sanctions imposed upon Chinese nationals and/or organizations.
Whether the Law could be enforced in the Hong Kong Special Administrative Region is another hot-debated issue. Only national laws listed in Appendix III of the Hong Kong Basic Law could be implemented directly in Hong Kong. The new Law thus needs to undergo further recognition procedure in Hongkong'legislature for it to be employed in Hong Kong.
II. Umbrella Law
Articles 4-6 of the Law authorizes and coordinates powers among Ministries and Committees of the central government, through which the Law effectively serves as an umbrella law that authorizes, validates and gives effect to ministerial regulations and actions that counteract unreasonable and unfair foreign sanctions.
Late last year and early this year, the Ministry of Commerce released the Provisions on Unreliable Entity List ("PUEL") and the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures ("the Blocking Rules") in response to unreasonable and unfair foreign actions and sanctions upon Chinese nationals and entities. Some then criticisms that those two regulations lack legal authorities may rest under this umbrella law. One may expect the departments of the State Council take similar measures in regulating unfair and unjustified foreign sanctions.
III. Policy Objectives
Article 1 of the Law provides the policy objectives: the Law aims to reiterate China's determinations to safeguard its sovereignty, security and development interest, as well as legitimate rights of Chinese nationals and entities.
Apart from the national security and foreign policy considerations which also appear in the US laws, the Chinese counterpart put special emphasis on protecting the development interest. This policy has also been stressed in the previous two ministerial regulations by the Ministry of Commerce. Consequently, foreign legislations, measures or actions endangering Chinese development interest such as stability and availability of supply chains, independence and interdependence of technologies, may well trigger the implementation of the Law.1
IV. Examples of Foreign Sanctions
Foreign sanctions are interpreted into several categories. The first category,as provided in Article 3, includes measures or actions by foreign countries that violate international law and basic norms of international relations. Interfering state internal affairs, containing or suppressing China, discriminately restricting Chinese nationals or entities are typical examples of this category2.
The second category includes actions endangering Chinese sovereignty, security and development interest. In this category, the impugned actions are not necessarily inconsistent with international laws and basic norms of international relations, nor to interfere with China's internal affairs. Actions that threaten to undermine such interest suffice3.
V. The List
The most prominent rule of the Law is its introduction of the anti-sanction list ("the List"). Being listed may lead to imposition of punishment as provided by the Law. As to the composition of the List, individuals, entities and affiliated parties may be included in the List.
Article 4 of the Law provides that individuals and entities, home or abroad, who have directly or indirectly been involved in the formulation, determination or implementation of foreign sanctions towards China and its nationals or entities, may be put on the List as anti-sanction measure.4 The Ministry of Commerce and other ministries have full discretion on additions to the List.
Meanwhile, spouse and direct relatives of sanctioned individuals, or senior managers and controller of the sanctioned entities, may also be included in the List. In the same vein, entities in which the sanctioned individuals serve as senior managers or control, or entities whose establishment or operation the sanctioned individuals participate in, may also be listed. This rule looks much similar to the US Treasury's 50 Percent Rule, but the ministries and committees under the State Council are granted discretion to determine whether to apply such extension5.
VI. Typical Counter-measures
The Law envisages a broad range of measures to be taken by different ministries and committees in response to unfair and unjustified foreign sanctions. Particularly, the Law exemplifies several kinds of actions that could be taken by the government.6
The first kind is about border control-related measures. For example, the authority may refuse to issue visas to those on the List, or cancel their already effective visas, or even deny their entries into China. Some other similar measures could be vacating working permissions held by those on the List, or denying entries of vessels or other kinds of transportation vehicles associated with the listed ones.
The second kind is to block property or interest of property located within Chinese territories held or owned by those on the List. This measure resembles closely those taken by OFAC against SDN designators. In this area, China has abundant practices in enforcing anti-laundering laws and regulations. It is speculated that PBOC, the central bank, will deploy similar procedures to deal with property blocking issues.
The last is to forbid or restrict Chinese nationals and entities from transacting or cooperating with those on the List. This rule expands the coverage of the measure to involve a prohibition of cooperations, compared to the PUEL which only targets transaction and investment bans. Based on this authorization, the Ministry of Commerce may take further actions to implement cooperation bans.
VII. Modification of the List and Delist
The Law does not clarify any single agency in charge of managing the List. Instead, it specified that the Ministry of Foreign Affairs and other ministries and committees of the State Council have the legal authority to determine, suspend, modify or cancel the List and associated countermeasures7.
Furthermore, the Law requires the central government to establish a cross-ministry coordination mechanism to systematize measures and actions taken by various ministries and committees8. For example, the Office of the Central Commission for Foreign Affairs may serve this purpose.
Reading Articles 9 and 10 together, we can conclude that the agency that put an individual or entity on the List has the right and obligation to receive the modification or removal applications from those affected by the order. Further, there will be a review committee comprising of delegates from all related ministries and committees who will decide whether to modify the List, a mechanism similar to the End-User Review Committee under the US Department of Commerce.
VIII. Procedure Rights and Judicial Review
The Law articulates that the decision on the listing and counter-measures to be taken shall be final9. Some may interpret this provision as these decisions are inadmissible in courts under Chinese laws and regulations.
We tend to construe that there will be no preliminary decisions about these issues when implemented. According to the Administrative Reconsideration Law and Administrative Procedure Law, decisions made by the ministries and committees of the State Council are still open for judicial reviews and administrative reconsiderations. Therefore, interest parties may challenge any decision by government agencies under the Law via either court procedures or administrative reconsideration procedures.
IX. Legal Obligations
The Law requires comprehensive compliance from Chinese and foreign nationals. All Chinese individuals and entities bear legal obligations to fully comply with and implement the Law and associated regulations and measures. Foreign nationals are prohibited from engaging in such foreign sanctions.
The Blocking Rules. Chinese and foreign nationals are disallowed in implementing or facilitating foreign sanctions against China and its nationals. Further, any Chinese who violates the Law, regulations and measures may suffer restrictions or disqualifications from engaging in certain businesses10.
PUEL rule. Furthermore, those, home or abroad, who implemented or assisted the implementation of foreign sanctions may be sued for injunction and losses incurred by such actions in People's courts by Chinese nationals affected11. This rule grants broad authorizations to the PUEL and alike measures enacted by the Ministry of Commerce.
Therefore, Chinese subsidiaries of foreign companies have the same legal duty to comply with the Law and the countermeasures.
X. Compliance requirements
To be fully compliant with the Law and relevant measures, individuals and companies, particularly the Chinese subsidiaries of foreign entities, actions may be required under the Law.
The first actions could be keeping close track of the List and its amendments as a part of due diligence check before making business or employment decisions. As required by the Law, it is not only about the listed individuals and entities, but also those individuals and entities which are affiliated with the listed parties.
Second, it is advisable to follow the Ministries and Committees' news releases and notices regarding changes of counter foreign sanction measures from the Ministries and Committees, such as the Ministry of Foreign Affairs, the Ministry of Commerce, the Ministry of Public Security and the People's Bank of China.
Third, gathering evidential materials for a potential immunity application. Those who believe to be wrongfully incorporated in the List may apply for administrative reconsideration, and in some cases apply for an immunity order from the relevant Ministry for specific measures.
Last but not least, updating the compliance manual to reflect the requirement of the Law. For example, the Export Control Law provides immunity to those whose actions are minor violation if they have implemented well organized and effective compliance programs.
Footnotes
1. Article 1 and Article 1 of RUEL.
2. Article 3.
3. Artile 13 and Article 15.
4. Article 4.
5. Article 5
6. Article 6.
7. Article 9.
8. Article 10.
9. Article 7.
10. Article 11.
11. Article 12.
Originally Published 21 June 2021
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
