Sanctions Top-5 for the week ending 8 January 2021

Here are five things that happened this week in the world of economic sanctions that I think you should know about.

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  1. China’s Ministry of Commerce (MOFCOM) issued “Order №1 of 2021 on Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures.” The order creates a framework for prohibiting or discouraging compliance with foreign sanctions, although it does not name specific sanctions that are in scope and does not appear to broadly prohibit compliance with US or other sanctions. (More on this below.)
  2. The US Office of Foreign Assets Control (OFAC) issued another four FAQs (862, 863, 864, 865) on Executive Order 13959, which (as of yesterday) prohibits US persons from purchasing securities related to so-called “Communist Chinese military companies” (CCMCs). OFAC also issued General License №1 (GL-1) which authorizes US persons to transact in securities of companies not listed on OFAC’s Non-SDN CCMC List, until 28 January 2021. (The Non-SDN CCMC List was also updated.)
  3. Here we go again. The White House released Executive Order 13971 to direct the Commerce Department to issue rules prohibiting transactions with “persons who develop or control” eight China-made mobile apps (Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office). The order gives the Commerce Department 45 days to decide which transactions and companies will be caught by the rule.
  4. OFAC announced a USD 8,572,500 settlement with a French bank for 127 violations of OFAC’s Syria-related sanctions. According to the settlement notice, the bank carried out internal transfers and back-to-back trade transactions related to Syria that were linked to payments through the US financial system. (In other words, breaking up a prohibited transaction into two parts doesn’t make it OK.)
  5. A US federal judge in the Southern District of New York granted a request for a preliminary injunction in a case challenging the Trump administration’s sanctions on the International Criminal Court (ICC) under Executive Order 13928. The judge held the plaintiffs — the Open Society Justice Initiative and four professors who work with the ICC — could ultimately succeed in their challenge on First Amendment grounds. (Opinion available here.)

Comments

It started as a hot potato. Now it’s a mashed potato. Executive Order 13959 officially took effect yesterday with respect to 31 of the 35 CCMCs on OFAC’s new Non-SDN CCMC List. How many issuers are really affected? It’s anyone’s guess. FAQ 857 said OFAC will list subsidiaries of CCMCs separately. Then the New York de-listing debacle happened. So FAQ 864 tells us the rules also apply to issuers whose names “closely match” a name on the list. (Not vague at all.) GL-1 gives everyone until 28 January to figure it out. I’ll have mine with butter and chives.

The MOFCOM order against “unjustified” and “extra-territorial” foreign sanctions is a big deal. Or is it . . ? On the one hand, China is building a bulwark against foreign sanctions that impinge on its national interests and sovereignty. (Inevitable, if you ask me.) And Saturday’s order complements the Provisions for the Unreliable Entity List issued in September 2020.

On the other hand, the order closely resembles the EU blocking statute and may not even be intended to address US sanctions targeting Chinese companies. (Wang Zichen at Pekingnology has more on that point here — highly worth a read.) At the end of the day, the order could be limited to “secondary sanctions” against Iran and other countries where Chinese firms suffer collateral damage. We won’t know for sure until MOFCOM issues “prohibition orders” detailing which foreign sanctions are actually in scope. Still a big deal, in my book.

Did I miss something? Send me a message or comment on LinkedIn.

(The views expressed are my own and do not constitute legal advice. Photo from Vladislav Reshetnyak.)

US attorney in Hong Kong specializing in economic sanctions, financial crimes. Sign up for emails: http://eepurl.com/cVhTXf LinkedIn at: http://goo.gl/KX1jER

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Nicholas Turner

Nicholas Turner

US attorney in Hong Kong specializing in economic sanctions, financial crimes. Sign up for emails: http://eepurl.com/cVhTXf LinkedIn at: http://goo.gl/KX1jER

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