º¬Ðß²ÝÉçÇø

In recent years, the US, the UK, the EU and other major economies have expanded international trade controls and foreign business sanctions under various pretexts, with numerous Chinese companies among those targeted. In response, China introduced the Anti-Foreign Sanctions Law (AFSL) in 2021, alongside complementary regulations and measures, establishing legal countermeasures against any enterprises or entities implementing or facilitating discriminatory foreign sanctions.

Both foreign and domestic enterprises, particularly multinational corporations (MNCs), now face increasingly complex and evolving compliance challenges in navigating sanctions and trade restrictions. Caught between competing legal demands, businesses increasingly find themselves in legally precarious positions with limited room for manoeuvre.

This article provides a preliminary examination of the compliance issues arising from sanctions and counter-sanctions.

Divergent approaches

China, the EU, the US and other countries have developed distinct sanctions and counter-sanctions regimes, differing in their targets, eligibility criteria and enforcement mechanisms. Multinational corporations must navigate these jurisdictional variations in sanctions listings and applicability while frequently confronting irreconcilable compliance conflicts across territories.

Take the US sanctions regime, for example. When included in the specifically designated nationals and blocked persons list (SDN list) by the US Department of the Treasury, an entity ¨C including any organisation it directly or indirectly controls with more than 50% ownership ¨C faces comprehensive restrictions:

1. All US persons are prohibited from conducting transactions with the listed entity without authorisation by the Office of Foreign Assets Control (OFAC);
2. Any US-based assets or those under American control are immediately frozen; and
3. Dollar-denominated accounts and payment channels are blocked.

Secondary sanctions may extend these restrictions globally ¨C non-US entities engaging in specified transactions with entities under secondary sanctions risk being SDN-listed, creating a powerful deterrent effect that often forces counterparties to reconsider business relationships.

Unlike the US approach, sanctions regimes in the UK, the EU and other jurisdictions typically exclude subsidiaries from automatic designation (omitting the 50% ownership rule) and refrain from imposing secondary sanctions. Their enforcement mechanisms also demonstrate notably less extraterritorial reach compared to American measures.

China¡¯s emerging sanctions framework ¨C encompassing sanctions by the Ministry of Foreign Affairs, the unreliable entity list and export control catalogues by the Ministry of Commerce ¨C carries potentially severe consequences. These may include comprehensive transaction bans, import/export restrictions, asset freezes and entry prohibitions.

Nations have enacted legislation to counter foreign sanctions. China¡¯s AFSL establishes under article 12 that no entity or individual may implement or facilitate discriminatory restrictions imposed by foreign states against Chinese citizens or organisations. Violators face civil liability, with affected Chinese citizens and organisations entitled to seek injunctions and damages through domestic courts.

This provision creates significant legal exposure for businesses that terminate contracts solely due to a counterparty¡¯s inclusion on US restrictive lists, particularly those targeting Chinese entities. Such foreign designations do not constitute valid legal grounds for contract termination under Chinese law, potentially leaving compliant firms liable for breach of contract claims.

Compliance recommendation

Businesses navigating the concurrent application and potential conflicts of multiple jurisdictional sanctions regimes can develop balanced compliance mechanisms through three strategic pillars: institutional safeguards, transactional due diligence and rigorous internal controls.

First, companies should prioritise establishing a sanctions compliance programme encompassing executive commitment, risk assessment protocols, internal control procedures, ongoing monitoring and staff training programmes.

Foreign enterprises operating in China must particularly scrutinise their parent companies¡¯ compliance policies and contract templates through the lens of China¡¯s counter-sanctions regulations. They should identify and amend any provisions that could be construed as facilitating discriminatory foreign measures. The inclusion of neutrality clauses may prove essential to mitigate exposure to China¡¯s retaliatory measures when implementing corporate group directives.

Companies should also regularly verify whether business partners appear on the US, the EU or other sanctions lists, including through beneficial ownership analysis where necessary. While basic checks can be conducted using publicly available tools like OFAC¡¯s sanctions list search and the EU consolidated list, the proliferating scope of US restrictions and expanding sanctions regimes (now including jurisdictions like Japan and Singapore) render such methods insufficient for comprehensive risk management.

To address these limitations, organisations should invest in professional third-party screening solutions for systematic vetting of both new and existing counterparties. For transactions involving high-risk jurisdictions or sensitive sectors, engaging legal specialists to conduct context-specific due diligence ¨C examining deal structures, asset types and participant profiles ¨C becomes essential to identify and mitigate potential sanctions exposure.

Companies should strengthen staff training programmes to explicitly prohibit any conduct that could facilitate foreign sanctions or compromise sensitive information. Establishing ongoing partnerships with external legal counsel is equally critical, ensuring access to professional guidance for major cross-border transactions, M&A and international co-operation agreements. Such relationships also enable swift, legally sound responses when facing potential sanctions exposure or regulatory investigations.

Through a combination of robust institutional frameworks and pragmatic operational practices, businesses can navigate the increasingly complex sanctions landscape to establish compliant and commercially viable operations that balance legal obligations across jurisdictions with commercial imperatives.

Jia Weiheng is a partner at Han Kun Law Offices. He can be contacted by phone at +86 134 7251 5230 and by mail at weiheng.jia@hankunlaw.com

Zong Minhui is a paralegal at Han Kun Law Offices. She can be contacted by phone at +86 147 8204 9058 and by mail at minhui.zong@hankunlaw.com