On 10 June 2021, the Standing Committee of the National People’s Congress (“NPC”) adopted the Anti-Foreign Sanctions Law of the People’s Republic of China (“AFSL”).
The AFSL establishes the regulatory framework for foreign persons, both legal entities and individuals, acting against China’s national interests and expands the scope of penalties and obligations.
For foreign companies and individuals doing business in or with China, AFSL significantly impacts external conduct and communications and public relations.
Previously, several fashion multi-national companies faced criticism in China for boycotting cotton produced in Xinjiang province. Under the AFSL, such business conduct could constitute organisations directly or indirectly involved in discriminatory restrictive measures against Chinese organisations. In such a case, both the company, senior management, and affiliated individuals could face sanctions and penalties in China.
Therefore, China-related marketing conduct and public communications should be risk assessed before execution, specifically for multi-national companies. In this below, we highlight the main impacts of AFSL for those doing business in or with China
1. AFSL objectives
The formulation of AFSL focuses on two main aspects: safeguarding the national sovereignty, security, and development and protecting the legitimate rights of Chinese citizens and organisations.
AFSL provisions the right to take corresponding countermeasures to any foreign country that conducts the following:
- Violates internal law and
- The basic norms of international relations and
- Uses various pretexts or according to its laws to contain or suppress China and
- Takes discriminatory restrictive measures against Chinese citizens and organisations or interferes in China’s internal affairs.
2. Sanction list
The AFSL extends to organisations, individuals, and affiliated individuals who directly or indirectly participate in formulating, deciding, and implementing discriminatory restrictive measures against China. Such organisations and individuals shall be included in a Sanctions List (“List”) and subject to penalties.
For individuals and affiliated individuals included in the List, the AFSL defines as below:
- The spouse and direct lineal family members of the individuals included in the List;
- The senior executives or actual controller or the organisations included in the List;
- The organisations in which the individuals included in the List serve as a senior executive;
- The organisations which the individuals or organisations included in the List actually control or participate in their establishment and operation.
Therefore, such extension of the List could directly affect individuals and organisations indirectly involved in the violation. In practice, a contingency plan should be developed for both organisations and individuals since those blacklisted can face restrictions both in China and involvement with Chinese organisations and individuals, as highlighted in point 3.
Organisations and individuals within the List and dependent on the actual circumstances could be subject to the following penalties:
- Refusal to issue visas, banning entry into China, invalidating visas, and deportation
- Sealing up, seizing, and freezing movable, immovable, and other types of property in China;
- Prohibiting or restricting from conducting related transactions, cooperation, or other activities with domestic organisations or individuals.
- Other necessary measures.
It is important to note that the penalties listed above are non-exhaustive and subject to the actual circumstances. Equally, though there are no extra-territorial measures explicitly stipulated in the AFSL, the restrictions of visa application and conducting related transactions, cooperations, and other activities with both domestic and individuals can subject violators outside of China to penalties – visa restrictions, conducting business with domestic Chinese companies and so forth.
4. Mandatory implementation of countermeasures
Organisations and individuals in China are required to implement any government countermeasures adopted by the relevant departments of the State Council. Any organisations or individuals who fail to implement or cooperate with such countermeasures shall be investigated.
Equally, an organisation shall not implement or assist in implementing discriminatory restrictive measures undertaken by a foreign country against a Chinese citizen or organisation. Such Chinese citizen or organisation could file a lawsuit to the people’s court to request to cease infringement and compensation for any loss.
For foreign companies, we recommend reviewing any future external communications and public relations. Additionally, we advise companies to develop internal China-specific policies to migrate indirect or direct violations from either/ both the company and individuals.
The AFSL follows from the China Export Law and the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures effective from 1 December 2020 and 9 January 2021, respectively (“Laws’).
The enacted Laws establish a strict stance against foreign economic sanctions against Chinese organisations and individuals.
Though some may view the Laws as restricting business operations, the Laws reflect strong protection of national sovereignty and interests. For many companies doing business in or with China risking external mishaps such as insensitive cultural marketing or recognition of Taiwan as a country could lead to serious legal consequences and economic impacts such as loss of the China market. Therefore, companies shall implement policies to mitigate risks for both company and individuals.
If you have questions or would like to know more about the anti-foreign sanctions services available to you from Horizons, please contact us at +86 21 5356 3400 or email firstname.lastname@example.org.
This content appears as a courtesy of Horizons Corporate Advisory, a proud member of the China Collaborative Group (CCG Association). It is informational in nature and does not constitute legal advice or establish an attorney-client relationship between you and its author, publisher or any member of CCG. For more information, please visit www.horizons-advisory.com.