One year into the implementation of the Anti-Foreign Sanctions Law - Advice for "Multinational Enterprises in China"- Zhiheng Law Firm

Author: Hua Junli

June 10, 2022

Since the outbreak of the turbulent Russian-Ukrainian conflict, various "sanctions" and "counter-sanctions" news have been heard endlessly; people gradually understand or realize that the so-called "Western sanctions" will have a direct impact on currency exchange rates, energy prices, and the import and export of goods. At the same time, it will also profoundly affect many aspects of ordinary people's lives.

In such a complex international environment, our country hasOn June 10, 2021, the Anti-Foreign Sanctions Law (hereinafter referred to as "this law" and "the law") was enacted.), which coincides with the first anniversary of the implementation of the lawThis article will analyze how "multinational enterprises in China" should strengthen risk prevention and control after the implementation of the law from the perspective of business risk prevention of "multinational enterprises in China".

The main points and summaries of this article are as follows:

who & why

Which "individuals or organizations" will be subject to counter-sanctions measures by our country? Why are counter-sanctions measures taken by our country?

how

A brief analysis of the possible impact of the law on "multinational enterprises in China", and measures to actively respond.

The following is a brief summary of each:

(1) Which "individuals or organizations" will be subject to counter-sanctions measures by our country? Why will counter-sanctions measures be taken by our country?

Although the Anti-Foreign Sanctions Law has only 16 articles, each of them is very important. If we go through them one by one, it will be protracted and lengthy. We only need to start with the question: Which "individuals or organizations" will be subject to anti-sanctions measures by our country? Start with this question to achieve the purpose of quickly understanding the law.

The following are examples of individuals or organizations that have been subject to measures under the Foreign Sanctions Act:

● Former US Secretary of Commerce Ross, Chair of the US-China Economic and security evaluation Commission (USCC) Carolyn Bartholomew, former Office Director of the Executive Branch China Council (CECC) Jonathan Stivos, "**********" Kim Duyun, Authorized Representative of the American International Republican Institute in Hong Kong Adam King, "****" ********** * and "*******".

● Former U.S. Secretary of Health and Human Services Azza and former U.S. Deputy Secretary of State Cratch.

● *********** (USCIRF) Chairperson Manza, Vice-Chairperson Turkel, Commissioner Bargava, Commissioner Karl.

●Raytheon Technologies and Lockheed Martin.

● ……

The reasons why the above-mentioned "individuals or organizations" were subject to counter-sanctions by our country are set out in Article 3 of the law:"... Interfering in China's internal affairs under any pretext or in any way;... using various excuses or in accordance with its own laws to contain and suppress our country, taking discriminatory restrictions on our country's citizens and organizations, and interfering in our country's internal affairs..."。

Therefore, it is self-evident which "individuals or organizations" will be subject to "counter-sanctions measures" and why they will be subject to "counter-sanctions measures." Just refer to Article 3 of the Act above. At the same time, we need to note that "Raytheon Technologies" and "Lockheed Martin" have "****" behavior.

The measures taken include banning entry, freezing their assets in China, and prohibiting Chinese citizens and institutions from dealing with them.

From the above description and examples alone, the impact of the law on "multinational enterprises in China" seems less obvious, but a brief analysis of Article 5 of the law shows that"Anti-foreign sanctions"It could also be:

●Organizations in which the aforementioned sanctioned "individuals" serve as senior managers;

●The actual control or participation in the establishment and operation of the aforementioned sanctioned "individuals and organizations".

● ……

Take the example of "former US Secretary of Health and Human Services Azar and former US Deputy Secretary of State Clark". Before they joined the White House, one was a board member of the multinational pharmaceutical company Eli Lilly, and the other was a senior executive of General Motors (the news came from the Internet).

Suppose, if "Azar" or "Krachi" leaves the White House and joins "a multinational company", will the multinational company become the applicable object of "anti-foreign sanctions" in the future? Whether it will really become the applicable object, I believe it will have a certain impact on the "multinational company".

Therefore, the following will briefly describe the possible impact of the law on "multinational enterprises in China", and the measures to actively respond.

(2) A brief analysis of the possible impact of the law on "multinational enterprises in China", and measures to actively respond.

Under the Anti-Foreign Sanctions Law, there are clear regulations on which actions "can be" and which "cannot be", that is, "positive obligations" and "negative obligations".

so-called"Positive Obligations"Any person or organization in China, including the domestic subsidiaries of multinational companies, shall implement the countermeasures taken by the Chinese government against the direct and related objects, including cooperating with the Chinese government's actions to freeze assets against the direct and related objects, and shall not conduct transactions or cooperate with the direct and related objects.

Otherwise, the Chinese government authorities will punish them in accordance with Chinese law and will restrict or prohibit them from engaging in related activities (see Article 16 of the Law).

so-called"Negative Obligations"No individual or organization may directly implement or assist in the enforcement of discriminatory restrictions imposed by foreign countries against Chinese individuals or organizations (see Article 12 of the Law).

Therefore, we have the following suggestions for "multinational enterprises in China":

1. The HR department of a "multinational enterprise in China" needs to have a certain understanding of the specific situation of the company's existing executives [including their spouses and immediate family members (the same below) ]; at the same time, it is also necessary to conduct certain background checks on the above content before the new executives are hired; at the same time, it is necessary to carry out targeted training for the employees of the company.

As previously stated in the "Applicable Objects" of "Anti-Foreign Sanctions", if an executive of a "multinational enterprise in China" is listed as a specific applicable object of "Anti-Foreign Sanctions", then (in theory, there is a small possibility) that the executive may be affected by "the organization where the executive is a senior manager" (only in theory, "the organization where the senior manager is a senior manager" also includes the "multinational enterprise in China").

Because the "Anti-Foreign Sanctions Law" has not yet formulated specific implementation rules; although the legal compliance of "multinational enterprises" in ordinary day-to-day operations is basically enough to prevent and control corporate risks, at the same time, if the company HR can take a little time,Try to understand the specific movements and social positions of your executives outside of their work, and prevent the situation that corporate executives are listed as "applicable objects" of "anti-foreign sanctions" without knowing itIn any case, it must be "beneficial and harmless" for the day-to-day operations of "multinational enterprises in China".

At the same time, it is also beneficial to start a special project to learn the "Anti-Foreign Sanctions Law" for the company's employees to improve the awareness of risk prevention.

2. "Multinational enterprises in China" should refine the internal management system of the company and add relevant content.

In the company's internal management system, specific rules and regulations related to the "Anti-Foreign Sanctions Law" should be formulated, clearly instructing employees (especially executives) to fully avoid unnecessary risks to the company in their social positions and specific behaviors.

3. Transactions with "sanctioned objects" should be avoided, and transactions with possible "sanctioned objects" should also be avoided as much as possible.

The "Anti-Foreign Sanctions Law" has been in place for a year. For direct targets that have been sanctioned, "multinational enterprises in China" should avoid any transactions; secondly, when there are entities that are very similar to "sanctioned targets" in the company's transaction objects, if they can be anticipated as "possible sanctioned targets", they should try to avoid transactions with them as soon as possible.

4. Modify the existing contract template to add response content related to the "Anti-Foreign Sanctions Act".

Existing contract templates should be supplemented with "foreign sanctions laws", such as:

●Fully clarify that when the transaction object is listed as a "sanctioned object", it has the right to terminate the transaction;

●It should be fully clarified that the transaction object should be aware of and comply with the "Anti-Foreign Sanctions Act" and related regulations.

5. Pay full attention to the news information during the implementation of the "Anti-Foreign Sanctions Law".

Follow the specific news of the implementation of the "Anti-Foreign Sanctions Law" by the State Council (especially the Ministry of Foreign Affairs), and keep abreast of the specific information listed as the object of the "Anti-Foreign Sanctions Law".

The above are some of our small suggestions for "multinational enterprises in China". It is only a professional analysis from a legal perspective and does not represent any views related to political positions.