15 June 2021 Andrew Chung  -  Michael Lamson Dispute Resolution

Mainland China passes Anti-foreign Sanctions Law

Following the promulgation by the Ministry of Commerce of the People’s Republic of China of the Rules on Unreliable Entities List in September 2020 and the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (the “MOFCOM Rules”) in January 2021, the Standing Committee of the National People’s Congress of China passed the Anti-foreign Sanctions Law on 10 June 2021 (the “Anti-sanctions Law”), which came into effect immediately. The Anti-sanctions Law creates a new legal framework to combat foreign unilateral sanctions that purport to interfere in China’s internal affairs and certain illegal activities that may endanger China’s national sovereignty, security, and development interests. 

Some highlights of the Anti-sanctions Law are set out as follows:

  •   Sanctions aimed at PRC internal affairs

The main purpose of the Anti-sanctions Law is to address efforts by foreign governments to meddle in the PRC’s “internal affairs”. Under Article 3 of the Anti-sanctions Law, if in violation of international law a foreign government imposes sanctions “under any pretext and by any means” which interfere in China’s internal affairs and have the effect of “discriminatory restrictive measures” against PRC persons and entities (“Discriminatory Measures”), the PRC has the right to take “countermeasures”. An official of the NPCSC, interviewed by Xinhua, stated that examples of such sanctions are those imposed against Chinese state organs and state functionaries in respect of “so-called” pretexts such as the situations in Xinjiang, Tibet, Taiwan, and Hong Kong SAR. 

One countermeasure authorised under Article 4 of the Anti-sanctions law is for the relevant departments of the State Council to add persons and entities to a counter-control list (the “Counter-control List”) who directly or indirectly, formulate, decide on, or implement the Discriminatory Measures (the “Designated Persons”). Under Article 5 of the Anti-sanction law, in addition to the Designated Persons, countermeasures may be taken against associated persons including their spouses and direct relatives (where the Designated Persons are individuals), their senior management personnel or actual controllers (where the Designated Persons are entities), any entity at which the Designated Person holds a senior management position, and any entity established, controlled or operated by the Designated Person. 

The PRC government may take the following anti-sanction measures against any person on the Counter-control List: (i) denial of entry visas and entry into the PRC including revocation of visas and deportation; (ii) freezing or impounding their assets within the PRC; (iii) prohibiting or restricting PRC persons from dealing or co-operating with them; and/or (iv) any other measures.

  •   “Illegal activities” endangering the PRC

Under Article 15 of the Anti-sanctions law, foreign countries, organizations, or individuals that implement, assist or support acts that endanger the PRC’s sovereignty, security, and development interests may also be the target of “countermeasures” under the Anti-sanctions law. The examples in the official explanation of the draft law are if any anti-China forces incite, assist, or provide financial assistance to independence activities associated with Taiwan, Xinjiang, Tibet, or Hong Kong SAR. To enrich the toolkit, in addition to these countermeasures in the Anti-sanctions law, Article 13 empowers the PRC State Council and relevant departments of the State Council to enact administrative regulations and/or rules to take “other” countermeasures for acts that endanger the PRC’s national sovereignty, security, and development interests.

  •   Potential civil liability

As with the MOFCOM Rules, Article 12 of the Anti-sanctions Law provides PRC courts as a forum for PRC persons and organisations that are harmed by the Discriminatory Measures adopted by foreign countries. A PRC person or organization may file a lawsuit in a PRC court requesting that an organisation or individual (whether within or outside the PRC) stop implementing the Discriminatory Measures and compensate for losses incurred. As we understand it, the civil litigation could be initiated even without imposing the countermeasures against the Discriminatory Measures in question. 

  •   Who must comply?

Under Article 11 of the Anti-sanctions Law, individuals and entities in the PRC (which include WFOEs and PRC branches of foreign entities in mainland China) must comply with the published anti-sanction measures (e.g. stopping dealing with the persons on the Counter-control List). The Counter-control List and the corresponding anti-sanction measures will be published (and updated from time to time) but it is not clear at this time whether the PRC will provide a specific and exhaustive list of associated persons of the Designated Persons.

As with the diligence required under U.S. sanctions for so-called “shadow SDNs” who are not specifically listed on the Specially Designated Nationals and Blocked Person’s List maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control, PRC entities may have to set up their own database to screen their customers and business partners to identify who they should refrain from dealing with under the Anti-sanctions Law.

Any entity or individual, whether within or outside the PRC, which imposes or assists in imposing Discriminatory Measures may be subject to civil liability under Article 12 and in the worst case scenario be placed on the Counter-control list. 

  •   Conclusion

As with the MOFCOM Rules, it remains to be seen how the Anti-sanction Law will operate in practice. It is fair to say, however, that with these measures the PRC intends to counter attempts to influence its internal affairs by foreign governments, via sanctions or other measures. Please reach out to your usual Linklaters and Zhao Sheng contacts if you would like to discuss in further detail.