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In the world of sanctions compliance, the main focus of 2022 was
the Russia-Ukraine war. G7 policy makers continue demonstrating a
strong commitment to cooperation. The set-up of the Russian Elites, Proxies, and Oligarchs
(“REPO”) Task Force and the OFSI-OFAC enhanced partnership last year are
good examples of this multilateral cooperation. Since the war
outbreak, new sanctions measures have been introduced at an
unprecedentedly rapid pace. Businesses and governments are still
adapting to the changes resulting from the sanctions measures
– including energy shortages, and rising commodity prices, to
name just two.
Turning our eyes to China, the sanctions and export control
activities in 2022 continued the regulatory trends we had seen in
the previous year.
The following are some key takeaways:
- U.S. regulators continued restricting the export of
critical technologies to China. The U.S. has especially
tightened the export control of certain technologies, e.g.,
electronic design automation (“EDA”) and advanced chips.
Restrictions on end users were extended. Almost 70 entities were
added to the BIS Entity List last year. While the U.S. Department
of Defense extended the Chinese Military Companies list by 13
entities in October, no new entity was added to the OFAC Non-SDN
Chinese Military-Industrial Complex Companies List
(“NS-CMIC”) in 2022. - Human rights accusations remain a key reason for
China-related designations. Uyghur Forced Labor Prevention
Act (“UFLPA”) came into effect in June 2022. A new UFLPA
Entity List was introduced at the same time. In 2022, over 50
Chinese individuals and entities, as well as 157 Chinese vessels
were added to SDN lists. Most designations were made under the
Global Magnitsky, Iranian and North Korean programs. Furthermore,
several BIS Entity List additions were due to the alleged use of
forced labor. No new listing was made under the Hong Kong
program. - China is further strengthening its legal framework of
export control. In June, China Ministry of Commerce issued
the Export Control Regulations for Dual-Use Items (Draft for Public
Comment) in order to streamline the export regulation of dual-use
goods as defined in China’s Export Control Law. The Unreliable
Entity List remains empty. In September, the Measures for the
Security Assessment of Data Exports took effect, setting
requirements for exporting important data and personal
information. - Taiwan gained attention as a source of sanctions
risk. In 2022, the Chinese government announced only a
handful of sanctions on foreign officials and entities – the
majority of those were related to activities allegedly supporting
Taiwan’s independence. The cross-strait relationship between
China and Taiwan will likely remain a key risk area to monitor in
the coming years.
U.S. regulatory measures against China accelerated in the second
half of 2022. This trend is expected to continue into 2023. U.S.
Deputy Attorney General Lisa Monaco publicly called sanctions
“the new FCPA“. There seems little doubt
that U.S. regulators and enforcement agencies will step up their
regulatory supervision and enforcement actions in the future. We
recommend that multinational companies consider the following
measures to stay prepared for the increasing regulatory
challenges:
- Actively monitor sanctions policy updates, enforcement
trends, and assess the risk exposure based on their
business and operational footprint. - Establish a sanctions compliance program if
they have not done so and regularly revisit its
effectiveness, including testing of relevant internal
controls. - Enhance the business continuity plan to
incorporate measures in response to sudden escalations of sanctions
and export control measures in sensitive industries and regions.
This is especially relevant to corporates producing or trading
dual-use goods or technologies on the Critical and Emerging
Technologies List, such as advanced computing and aero engines.
This also applies to financial institutions as they must take swift
actions to implement new regulations. - Diversify supply chains to reduce the business
impact of unexpected disruption caused by potential sanctions in
high-risk regions and industries.
AlixPartners has deep expertise in assisting financial
institutions and corporates to develop sanctions compliance
programs, manage supply chain disruption and overcome operational
challenges. Please reach out if you have any inquiries relating to
this article or our services.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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