In recent months, the United States has made a number of changes to both its exports controls and sanctions regulations, and enhanced enforcement. The expansion and increasing overlap of these regimes has made compliance for companies with multinational operations increasingly complex.
At a roundtable on 1 August, Cari Stinebower and Chris Monahan, partners leading the international trade practice at Winston & Strawn, updated members on the current status of U.S. export control and sanction regimes, and their implications for businesses in Hong Kong and Mainland China.
Monahan gave an overview of the legal framework regarding export controls, which has become a hot topic since U.S. actions affecting Huawei and ZTE in recent years.
“One thing that has become fairly obvious from the Huawei exercise is that the jurisdiction that the U.S. exercises when it regulates export controls can be extraterritorial,” he said.
Monahan explained that U.S. export control laws are rooted in national security, but can also be used to cover “dual-use” technologies, which also have commercial uses.
Penalties can be severe – ZTE was penalized US$1 billion in paid fines. “The trend we are seeing is that companies are being penalized more and more severely, and we don't see that trend changing.”
Monahan then addressed the question: “Why am I talking about U.S. law in Hong Kong?”
He explained that U.S. laws apply not only to American citizens, but also to overseas people visiting the country. “Even if you are a Hong Kong person just answering emails in the U.S., you are under U.S. law.”
The U.S. also takes a broad approach to goods.
“If an item originates in the U.S., travels through the U.S., or incorporates a certain amount of controlled U.S. content, then that item is subject to U.S. export controls, even after it has left the U.S.,” Monahan said. “That is a little bit different than most export control regimes.”
What this means in practice is that U.S. suppliers may be keen to check that overseas companies they deal with are complying with the necessary regulations.
Stinebower then gave an overview of the U.S. sanctions regime. As with export controls, it takes a wide approach.
“The U.S. gets jurisdiction in its sanctions regime by applying the rules to U.S. persons. So in general, the 'U.S. person' will be a U.S. national, any U.S. business, and any foreign branch of a U.S. business.”
Large penalties are also being seen in the sanctions space, including fines against European, Australian and Asian financial institutions. Some of these had been doing business with Iran using U.S. dollars.
She explained that entities that have a touchpoint with the U.S. – such as using U.S. dollars, U.S. technology or products – may need to have risk-based compliance programmes.
“That is how the Treasury Department is asserting jurisdiction over transactions that seem to be completely outside of the United States.”
Stinebower introduced some of the different types of sanctions. Firstly, there are embargoes, such as the broad-based sanctions against Iran, Syria and Cuba. Other types are more nuanced, such as smart sanctions based on a specific entity, and sectoral sanctions.
Another issue is secondary sanctions, or the extra-territorial application of U.S. sanctions. These have recently been applied to Mainland China for dealing with Iran, but not to Turkey (a U.S. ally) for buying military equipment from Russia.
“The implications for business is that they not only need to be aware of the sanctions regime, but should also be aware of the particular policy goals that may affect whether sanctions will be implemented,” Stinebower said.
The situation for companies that do business globally is increasingly complicated, she added, as they need to understand the current political atmosphere as well as the U.S. regulatory regimes.