In Part 2 of a three-part series examining how U.S. enforcement activities affect Chinese companies, Kirkland attorneys examine recent U.S. sanctions, export controls, and anti-money laundering trends and their implications for Chinese companies.
In recent years, the U.S. government has taken actions against Chinese companies that violated U.S. law or otherwise engaged in conduct contrary to America’s foreign policy interests.
The U.S. government has sanctioned Chinese individuals and entities for a variety of reasons, including for engaging in illicit business with North Korea, a country targeted by extensive sanctions administered by the United States, the European Union, and the United Nations.
In addition, the U.S. government recently imposed secondary sanctions on China’s Equipment Development Department and its director because the department purchased defense equipment from a Russian defense company. These measures reflect the first and only time that the U.S. government has imposed secondary sanctions pursuant to the Countering America’s Adversaries Through Sanctions Act.
The U.S. government has brought several high-profile enforcement actions against Chinese companies and their personnel.
In March 2017, ZTE agreed to pay $892 million to the U.S. Departments of Justice, Commerce, and Treasury to resolve ZTE’s liability for violating U.S. sanctions and export controls by building, operating, and servicing telecommunications infrastructure in Iran using U.S.-origin equipment and software.
In June 2018, ZTE entered into a superseding settlement agreement with the Commerce Department’s Bureau of Industry and Security in which ZTE agreed to pay $1 billion in penalties (and put another $400 million in escrow), replace its directors and senior personnel, and be subject to enhanced U.S. government oversight for 10 years.
The U.S. government also recently indicted Huawei Technologies Co. Ltd., the world’s largest telecommunications equipment manufacturer, as well as three other Huawei entities (collectively, Huawei), for sanctions, export control, and other federal law violations related to Huawe’s dealings with Iran.
Huawei allegedly repeatedly misled banks about the nature of its Iranian business, which resulted in the banks unwittingly processing and clearing more than $100 million in U.S.-dollar payments related to Iran. Huawei’s chief financial officer was charged in her individual capacity in the same indictment.
In May 2019, Huawei and 68 of its affiliates were added to the Entity List. Because of this listing, U.S.- and non-U.S. companies are prohibited from exporting, re-exporting, or transferring any items subject to the Export Administration Regulations (which include U.S.-origin items and certain products manufactured outside of the United States) to Huawei without a license from the U.S. Department of Commerce.
The U.S. government has issued a temporary general license authorizing various transactions with Huawei and its listed affiliates through Aug. 19, 2019.
Anti-Money Laundering Measures
In 2017, the Financial Crimes Enforcement Network (FinCEN) imposed special measures on the Bank of Dandong, which effectively cut it off from the U.S. financial system. FinCEN determined that the Bank of Dandong was a “primary money laundering concern” because it had processed billions of dollars for North Korea through its U.S. correspondent accounts.
The U.S. government has utilized other measures, including damming warrants, to seize funds of Chinese banks acting on behalf of North Korea as well.
Chinese companies should take specific steps to understand and mitigate their U.S. regulatory risks:
- Understand Applicable U.S. Laws: US sanctions, export controls, and anti-money laundering laws contain broad prohibitions and can apply to persons throughout the world. By understanding how these laws may cover their global business operations, Chinese companies will be better positioned to understand their potential exposure.
- Conduct Risk Assessments: Chinese companies should carry out formal reviews to analyze their risk of violating US laws or being targeted by sanctions. A Chinese firm’s risk profile will depend on many factors, including whether it operates internationally, participates in cross-border transactions, or deals in defense products or services. The industrial sector in which a Chinese company operates is relevant as well. After completing such an assessment, companies can proactively take steps to mitigate their specific risks.
- Tread Carefully When Dealing with Iran, North Korea, and Russia: The US government has imposed comprehensive sanctions on Iran and North Korea, and extensive sanctions on Russia. Foreign companies that deal with these countries—including Chinese firms—risk being targeted by sanctions, facing enforcement actions, or incurring other penalties. As a result, Chinese companies should carefully monitor their business in these territories, and then evaluate whether continued interactions make sense in light of the US regulatory risks.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Michael S. Casey is a partner in the Government, Regulatory & Internal Investigations group in the London office of Kirkland & Ellis International LLP. His practice focuses on representing clients in investigations, transactions, and regulatory matters related to economic sanctions, export controls, money laundering, international corruption, customs, and the CFIUS review process.
Cori A. Lable is a partner in the Government & Internal Investigations practice in the Hong Kong office of Kirkland & Ellis International LLP. She advises multinational clients throughout Asia on international risks related to cross-border investments and operations, including corruption, money laundering, economic sanctions, and financial fraud, and defends clients facing U.S. criminal and regulatory investigations on these issues.
Tiana Zhang is a partner in the Shanghai office of Kirkland & Ellis International LLP, where she advises clients on complex, cross-border government investigations and dispute resolution. She handles complicated legal and compliance matters for many companies with business operations in both China and the United States.
Jodi Wu, a partner in the Shanghai office of Kirkland & Ellis International LLP, has broad experience in the areas of cross-border litigation, government enforcement, and internal investigations. She advises public and private multinational companies in China on cross-border litigation, anti-corruption, trade sanctions, antitrust, data privacy and cyber securities matters.
Part I of this series addressed the FCPA and Part III will address trade secrets regulations.