China Enacts Anti-Sanctions Law

China Enacts Anti-Sanctions Law

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On June 10, the Standing Committee of National People’s Congress of China enacted the Anti-Sanctions Law (ASL) on an accelerated basis after only two rather than the normal three readings and without an opportunity for public comment. The ASL applies to sanctions imposed against China or Chinese parties by other countries, as opposed to sanctions imposed by the United Nations or other international bodies which China accepts. The ASL is effective immediately and as a blocking statute serves to both expand and coordinate China’s efforts to respond to sanctions against Chinese entities and individuals.

The ASL differs from and goes beyond the scope of the Rules on Blocking Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (Blocking Rules) promulgated by China’s Ministry of Commerce on January 9.1 The Blocking Rules are intended to block the extraterritorial effect of sanctions issued by foreign parties banning Chinese parties from transacting with third country parties. In other words, the Blocking Rules only impact third country parties caught up by the extraterritorial effect of the sanctions against China without impacting the sanctioning parties. The ASL, on the other hand, is a much more powerful tool as it directly targets and retaliates against the primary parties that sanction China.

Significantly, the ASL creates new vectors of risk for those who have been attempting to delicately balance compliance requirements under conflicting bodies of law.

Parties at Risk of Sanctions

 The ASL begins in Article 3 by outlining China’s overarching policy positions and stating its opposition to what China refers to as hegemony and power politics. Article 4 then provides that government departments under the China’s State Council are empowered to add individuals or organizations which are directly or indirectly involved in drafting, decision-making, or implementing restrictive measures against China to a countermeasures list.

However, once an individual or entity is included on the countermeasures list, the measures may then apply to additional categories of unlisted persons and entities. Article 5 provides that relevant departments of the State Council may also employ countermeasures against the following individuals and organizations:

  1. Spouses and immediate family members of listed individuals;
  2. Senior managers or actual controllers of listed organizations;
  3. Organizations in which listed individuals serve as senior management;
  4. Organizations in which listed individuals are actual controllers of or which participate in the entity’s establishment or operations.

Sanctions Which May Be Imposed

Individuals and organizations after listing become subject to a broad array of potential sanctions, to be determined on a case-specific basis. While it remains to be seen how administering departments will implement the law, on its fact, ASL grants the administering departments extensive discretion. These measures include:

  1. Visas: Not issuing visas, denying entry, canceling visas, or deportation;
  2. Property: Sealing, seizing, or freezing movable property, real estate, and all other types of property within Chinese territory;
  3. Prohibiting or restricting relevant transactions, cooperation, and other activities with organizations and individuals Chinese territory;
  4. Other necessary measures.

This list creates far-reaching potential risks including extraterritorial scope and a seemingly unbounded catchall provision. Further, it should be anticipated that in implementing countermeasures under Article 6(2) and (3), that the departments will evaluate “territory” in a manner consistent with the State Council’s interpretation. As written, by referring to the territory of the People’s Republic of China without qualification, the geographical scope of the ASL would include Hong Kong and Macao which are generally subject to their own legislation, albeit not with respect to foreign policy. In addition, Articles 7 and 8 provide that determinations made regarding listing an individual or organization, as well as the imposition of countermeasures, are final. Although such determinations may be changed by the relevant department depending on later developments, it is not clear that parties adversely impacted by countermeasures will have recourse to judicial review. The Ministry of Foreign Affairs or other departments are instructed to issue orders announcing determination, suspension, modification, or cancellation of countermeasures.

Centralization and a Whole-of-Country Approach

 Despite various departments retaining authority to determine and impose countermeasures, the ASL centralizes governmental policy by instructing the State Council to establish a mechanism for coordinating the work of countering foreign sanctions, which is mandated to oversee related efforts. This mechanism has not yet been disclosed and will require close monitoring to determine its function, placement, and authority within the Chinese government.

The ASL also charges organizations and individuals within Chinese territory to implement the countermeasures. Further, departments are instructed to address organizations and individuals that fail to implement the countermeasures. Article 11.

The ASL also ratchets up the tension between compliance with foreign sanctions regimes and compliance with Chinese law. Article 12 prohibits the enforcement of restrictive measures employed by foreign nations against Chinese citizens and organizations. Article 12 also provides a cause of action against organizations and individuals which comply with foreign sanctions against Chinese citizens and individuals. The ASL enables Chinese citizens and organizations to bring suit in Chinese court for injunctive relief and damages, but lacks an express provision for listed parties to file suit under the Administrative Litigation Law against an erroneous listing decision.

Foreign companies and indeed governments have long been aware of the political and reputational risks of being associated with a position which is deemed to be critical of China, in the form of regulatory repercussions or consumer boycotts implicitly or directly supported by the Chinese Party-state. The ASL formalizes the basis for such action and elevates it to the level of a statute. This presents particular risks in several respects. First, it may deprive administrative departments of discretion to allow companies in China, whether domestically- or foreign-invested, to comply with foreign sanctions by allowing them discretion to decide with whom to do business. This is particularly so for financial institutions like banks and securities companies. Second, it appears to apply to Hong Kong and Macao, which would if so, impair Hong Kong’s status as an international financial center, already placed in some jeopardy by enactment of the Hong Kong National Security Law in 2019.

Companies, other entities and individuals need to monitor implementation of the ASL and evaluate their potential exposure, which would be based not only on official actions but also on actions of employees and others with whom they may be associated. WilmerHale is prepared to advise clients on how to comply with sanctions regimes in a way that sense for their business and to assist as needed in assessing the business implications of the ASL.

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