Scope of application

Unlike the EU Blocking Statute, the Anti-Foreign Sanctions Law does not currently provide a list of extraterritorial legislation which is subject to the application of the Anti-Foreign Sanctions Law. However, the second paragraph of article 3 states that if any foreign country acts in violation of international law and basic norms of international relations and, on the basis of their domestic laws or any other pretext, contains or suppresses the PRC, takes discriminatory or restrictive measures against PRC citizens or interferes with the PRC’s internal affairs, the PRC has the right to take corresponding countermeasures.

As regards the application of the Anti-Foreign Sanctions Law, article 11 requires organisations and individuals within the territory of the PRC to comply with the countermeasures imposed by the relevant departments of the State Council. The departments can restrict or prohibit any organisation or individual found to be in violation of the countermeasures from engaging in the activities concerned. It is important to note that there is no definition of ‘organisations and individuals within the territory of the PRC’ in the text of the Anti-Foreign Sanctions Law, so whether branches of foreign companies in the PRC which have no distinct legal personality are also subject to the law is arguably unclear pending further provisions or clarifications from the relevant departments of the State Council. Further, there is no express provision regarding an authorisation or licence regime under the Anti-Foreign Sanctions Law that may entitle such organisations or individuals to seek an exemption allowing for compliance with the extraterritorial legislation.

Although the Anti-Foreign Sanctions Law does not appear to have extraterritorial effect on non-PRC persons, it is also relevant to non-PRC persons. Under article 4, the relevant departments of the State Council may decide to put any persons or organisations that directly or indirectly participate in drafting, approving or implementing any of the discriminatory or restrictive measures set out in article 3 in a countermeasure list (反制清单). In addition, article 5 subjects the following persons to the countermeasures imposed by the PRC government:

1. the spouse and immediate family members of individuals targeted in the countermeasure list;
2. the senior managers or actual controllers of organisations targeted in the countermeasure list;
3. organisations in which individuals targeted in the countermeasure list serve in senior management positions; and
4. organisations actually controlled by individuals targeted in the countermeasure list or in whose establishment and operations any such individuals participate.

As such, it is important to keep an eye on the countermeasure list to ensure that there are no dealings with individuals and organisations targeted by the Anti-Foreign Sanctions Law which may constitute breaches of the law. A suitable screening process should be put in place to minimise the risk of non-compliance.

Scope of countermeasures

As mentioned above, the State Council has the power to create the countermeasure list and determine the applicable countermeasures. In accordance with article 7, decisions made by the relevant departments of the State Council are final. As mentioned, there is no authorisation or licence regime in place so prima facie one must comply with the decisions in order to avoid breaching the Anti-Foreign Sanctions Law. Article 10 mentions that a procedure will be established to coordinate the work of counteracting foreign sanctions and oversee the overall coordination, with the relevant departments of the State Council being required to raise the level of coordination, cooperation and information sharing.

In accordance with article 6, the State Council may decide to take one or more of the following measures against individuals or organisations that are sanctioned pursuant to articles 4 and 5:

1. refusal to issue visas, denial of entry, cancellation of visas or deportation;
2. sealing up, seizing or freezing of movable and immovable property, or other types of property, within the territory of the PRC;
3. prohibiting or restricting organisations or individuals within the territory of the PRC from conducting transactions, cooperating, or engaging in any other activities with the targeted individuals or organisations; and
4. any other measures considered necessary.

As such, anyone who has a presence or assets in the PRC should pay due attention to the Anti-Foreign Sanctions Law as non-compliance may result in serious consequences for their activities or assets in the PRC.

Civil recovery

Article 12 prohibits organisations and individuals from implementing or assisting in implementing discriminatory or restrictive measures imposed by foreign countries against the PRC individuals or organisations. PRC individuals or organisations may file a lawsuit against such organisations or individuals with the Supreme People’s Court in accordance with PRC law, requiring them to cease the infringement and compensate for any losses incurred. This is similar to the EU Blocking Statute in the sense that only PRC persons are entitled to take legal action to recover losses. Nonetheless, it is not specifically stated whom the PRC persons may take action against, and so it is perhaps best to assume that any foreign persons or companies that implement or assist in implementing discriminatory or restrictive measures imposed by foreign countries against PRC individuals or organisations may be subject to a PRC lawsuit.

2. Navigating conflicts of law and their implications for PRC and foreign companies

It is unsurprising that the implementation of the Anti-Foreign Sanctions Law will create additional compliance obligations for companies engaging in cross-border transactions, in particular banks in the PRC, which inevitably engage in U.S. dollar transactions but are at the same time subject to PRC laws and regulations. On the one hand, they may have to comply with the U.S. sanctions regime to avoid being denied access to the U.S. market or U.S. dollar transactions. On the other, they may be obliged to comply with the Anti-Foreign Sanctions Law if they have a substantive presence or assets in the PRC.

PRC companies – discrimination against other PRC companies?

The Anti-Foreign Sanctions Law does not resolve the dilemma that many PRC companies may have to face. Access to the U.S. dollar system remains a fundamental feature of the business of many PRC companies and simply disregarding the long-arm jurisdiction of U.S. secondary sanctions may lead to adverse consequences for their business operations. This inevitably leads to a situation where many PRC companies may try to avoid doing business with other PRC entities or persons that are currently subject to U.S. sanctions. It is also standard practice to include sanction-related provisions in a contract to give a party a way to terminate the contract should the counterparty become a person or organisation sanctioned by the U.S. government.

The dilemma can best be illustrated by an example, albeit in a different context. The International Criminal Justice Assistance Law, enacted by the PRC government in October 2018,  requires companies or individuals in the PRC to seek government approval before providing evidence or information to foreign prosecutors in support of criminal proceedings in overseas jurisdictions. As a result, companies must choose whether to disregard the PRC law (if no government approval is given) and cooperate with foreign prosecutors or to abide by the PRC law and risk the consequences of being held in contempt of the foreign court or even being found guilty of obstruction of justice by the foreign court².

While it is often a commercial decision as to with whom to do business, the Anti-Foreign Sanctions Law creates some room for PRC persons who have suffered from discriminatory or restrictive measures under foreign sanctions laws to take retaliatory measures. The legal implications of this cannot be ignored and it is vital for PRC companies to carefully consider sanctions-related provisions in contracts to avoid a situation where they risk being caught by either of the sanction regimes and suffering huge losses as a result. For example, if there is a U.S. sanctions clause in a contract giving a party the option to terminate the contract if the PRC counterparty becomes a sanctions target of the United States, would it constitute a breach of the Anti-Foreign Sanctions Law if the party exercises the option to terminate the contract thereby causing losses to the PRC counterparty? The situation is perhaps less clear when U.S. sanctions have already been imposed on the PRC counterparty and the party chooses not to deal with the PRC counterparty for other, commercial reasons. Of course, how the law will be enforced in practice is a question that only time will answer.

With that in mind, while the practical implications of the Anti-Foreign Sanctions Law remain to be seen, we see no benefit in PRC companies, and indeed foreign companies having a presence or assets in the PRC, failing to give due weight to this PRC ‘blocking statute’; otherwise, there may be serious consequences for their business operations and assets in the PRC. Some may have thought up ways to get around the dilemma – for example, by using non-U.S. dollars in transactions so as to minimise the risk of being caught by the U.S. secondary sanctions regime – but in practice, aside from the practical concern that many parties doing international business still prefer to use U.S. dollars in transactions, it is also difficult to completely eliminate such risk in large, cross-border transactions involving many parties.

Foreign companies

Life is supposed to be easier for foreign companies that do not have a substantive presence or assets in the PRC or deal with the PRC counterparty, but the opposite is often the case. As explained above, given that the Anti-Foreign Sanctions Law has not clearly defined ‘organisations and individuals within the territory of the PRC’, the more precautionary approach is to assume that the law also extends to the PRC subsidiaries of foreign companies as well as the branches (which have no distinct legal personality) of foreign companies in the PRC. It is therefore inevitable that foreign companies will have to face the Anti-Foreign Sanctions Law squarely and consider its impact on their business operations.

Strictly speaking, where a foreign company does not have a presence or assets in the PRC, even if a PRC person can file a lawsuit against the company (which is unclear based on the current text of the law), there are still practical obstacles to serving court documents and enforcing judgments obtained against the foreign company pursuant to the Anti-Foreign Sanctions Law. It is also highly uncertain whether foreign courts (especially U.S. courts) will give effect to and assist in the enforcement of PRC judgments.

If individuals and organisations wish to comply with the Anti-Foreign Sanctions Law, an important question is whether they can invoke the PRC ‘blocking statute’ (i.e., the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures issued by MOFCOM on 9 January 2021 and the Anti-Foreign Sanctions Law) to protect themselves in U.S. courts. The short answer is yes, but there are two issues here. First, the Rules state that, similarly to the EU Commission under the EU Blocking Statute, MOFCOM is responsible for issuing orders to prohibit targeted laws and regulations from being accepted, executed or observed. However, unlike the EU Blocking Statute, which blocks specific laws such as the Cuban Liberty and Democratic Solidarity Act of 1996³,  MOFCOM has not yet issued any prohibition orders – so individuals and organisations will have to wait until these are issued. Secondly, individuals and organisations must take into consideration foreign courts’ attitudes towards the blocking statutes. For example, in determining whether to direct litigants to violate blocking statutes, the U.S. courts often consider whether the foreign states concerned actively enforce them. The U.S. courts have indicated in previous cases that the blocking statutes may not be given adequate deference unless the foreign states enforce them⁴.  Therefore, there is a chance that the PRC blocking statute may be ignored by U.S. courts since they are rather new and do not yet have a track record of enforcement.

Relevance to Hong Kong

In addition, an interesting question remains as to whether the Anti-Foreign Sanctions Law will also be enacted under the laws of Hong Kong, for example, by way of incorporation of the law into Annex III of the Basic Law or the passing of local laws to achieve the same effect. We consider that the consequences can be potentially more far-reaching as Hong Kong is well established as an international commercial hub where many foreign companies have branches or assets. At the same time, U.S. dollar transactions play a dominant role in Hong Kong’s economic activities and it is almost impossible for companies in Hong Kong to disregard the extensive impact of U.S. sanctions. The dilemma could become even thornier if the Anti-Foreign Sanctions Law is extended to apply in Hong Kong as well.

3. Key takeaways

There is no denying that the Anti-Foreign Sanctions Law, a national law which has been enacted by the highest legislative body in the PRC, has established a sweeping legal basis for the PRC government to counteract the long-arm jurisdiction of foreign sanctions. While the countermeasure list is yet to be finalised and it is yet to be seen how the Anti-Foreign Sanctions Law will be applied in practice, for now, it is safe to conclude that no one can disregard the potentially profound consequences of the Anti-Foreign Sanctions Law, and both PRC and foreign (especially those with a presence or assets in the PRC) companies should carefully assess the risks of this recently enacted national law. We recommend that PRC and foreign companies consider taking the following actions:

1. seeking legal advice on the implications of the Anti-Foreign Sanctions Law for their business operations in the PRC or when dealing with a PRC counterparty;
2. reviewing and improving their compliance systems to take into account the countermeasures imposed by the PRC – for example, taking note of and refraining from dealing with individuals and organisations named in the countermeasure list by the relevant departments of the State Council;
3. considering the incorporation of appropriate clauses into contracts to allow for a situation where the company may be subject to both U.S. and PRC sanctions; and
4. identifying practical options to minimise the legal risks of doing business in the PRC and foreign countries – for example, increasing use of non-U.S. dollars in transactions where possible. 

1. The National People’s Congress of the People’s Republic of China, Report on the Work of the Standing Committee of the National People’s Congress (Summary) (9 March 2021). Retrieved 11 June 2021, from http://www.npc.gov.cn.
2. Dora W Wang, Michael Lowell, Peter Witherington, and Jessica Tian, “A New Normal Amid Rising Trade Tensions”, Global Investigation Review (23 September 2019). Retrieved 11 June 2021, from https://globalinvestigationsreview.com.
3. Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom, Annex 2. Retrieved 11 June 2021, from https://eur-lex.europa.eu.
4. Hoda, M. J., The Aérospatiale Dilemma: Why U.S. Courts Ignore Blocking Statutes and What Foreign States Can Do About It (2018). Retrieved 11 June 2021, from https://lawcat.berkeley.edu.

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