In the past 20 years, the U.S. government has been utilizing economic and financial sanctions to pursue its foreign policy goals. According to the U.S. Treasury Department, sanctions designation by OFAC has increased by 933% from 2000 to 2021. During Trump’s presidency, the U.S. government especially expanded the use of secondary sanctions against non-U.S. entities. A list of Chinese companies have been sanctioned by OFAC for their trade with Iran, North Korea and other designated parties.
Since President Biden entered the White House, the world has expected to see the ease of U.S. sanctions. In October 2021, the U.S. Treasury Department released the results of a broad review of sanctions programs under its administration. Deputy Secretary Wally Adeyemo, who led the review, concluded that while sanctions are “a fundamentally important tool” to advance U.S. security interests, the Department is “committed to working with partners and allies to modernize and strengthen this critical tool”. Among others, the report also emphasizes the importance of calibrating sanctions to mitigate the unintended economic, political and humanitarian impact.
Considering the recommendations made by the report and the recent trend in OFAC’s policy changes and enforcement actions, we expect that:
- Enforcement of secondary sanctions will continue in the coming years. As China is one of the largest trading partners with Iran, North Korea, and Russia, the risk of secondary sanction enforcement actions against Chinese companies should not be overlooked. As enforcement actions have a certain degree of time lag, we believe that secondary sanction cases relating to these countries will gradually surface. On the other side, it is unclear how China’s newly promulgated "Anti-Foreign Sanctions Law" and "Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures" will affect the foreign sanctions enforcement actions.
- The Biden administration is likely to keep most existing economic sanctions programs while calibrating the policy design to eliminate some negative effects. For Chinese companies, the pressure of the U.S. sanctions will not be significantly reduced in the short term. Although President Biden has sought to lift the comprehensive sanctions on Iran, the negotiation with the Iranian government has been stalled. The withdrawal of the U.S. from JCPOA has damaged the trust between the two parties.
- Human rights, corruption, and cyber security will continue to be a focus of the U.S. government. The stringent export control of high-tech products and other existing sanctions against China is likely to continue.
- For U.S. allies and partners, the pressure of economic sanctions may reduce. The Treasury Department’s report specifically emphasizes the collaboration with allies and partners. On the other hand, Europe has seen President Biden waiving sanction on the company behind the Nord Stream 2 gas pipeline and its person in charge, to mend its ties with Germany. This controversial project has been completed in September this year.
- More scrutiny will be seen in the cryptocurrency industry. The U.S. government recognizes that cryptocurrency can be a tool used by criminals and its adversaries to circumvent the economic sanctions, and eventually weaken the effectiveness of its sanction regimes. In October 2021, OFAC issued the "Sanctions Compliance Guidance for the Virtual Currency Industry". And a month earlier, OFAC designated for the first time a virtual currency exchange for its complicity in ransomware attacks.