Biden Administration Issues New Sanctions and Trade Restrictions on Chinese Technology Entities and Adds 34 Chinese Entities to the Entity List
The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) recently added eight Chinese technology firms to the Non-SDN Chinese Military-Industrial Complex Companies (NS-CMIC) list. On December 28, 2021, OFAC further amended the NS-CMIC list to add an additional Chinese firm. Placement on this list prohibits US persons (including US citizens, US companies, permanent residents, and individuals and entities located within the US) from engaging in the purchase or the sale of publicly traded securities with designated entities, or any publicly traded securities that are derivative of such securities or are designed to provide investment exposure to such securities. The US Department of Commerce also added 40 Chinese entities to the Export Administration Regulations (EAR) Entity List.
In November 2020, former President Trump signed Executive Order No. 13959 “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies,” prohibiting security transactions between US persons and Communist Chinese Military Companies. More than a year later, on June 3, 2021, President Biden signed Executive Order No. 14032 entitled “Addressing the Threat from Securities Investments that Finance Certain Companies of the People’s Republic of China.” Executive Order 14032 effectively replaced Executive Order 13959, expanding the overall scope of the prohibition to include certain Chinese surveillance technology companies. The expansion was largely seen as an effort to address growing concern about China’s alleged human rights abuses, specifically those connected to surveillance activities in Hong Kong and Xinjiang.
The latest addition of nine entities signals the Biden Administration’s continued unease over biometric surveillance and tracking activity in China. Specifically, OFAC asserts that these entities actively support the biometric surveillance and tracking of ethnic and religious minorities in China, particularly the predominantly Muslim Uyghur minority in Xinjiang.
The nine newly designated CMIC entities are:
- DJI Technology Co., Ltd, the world’s largest commercial drone manufacturer
- Megvii Technology Limited, an image-recognition software firm
- Dawning Information Industry Co., Ltd, a supercomputer manufacturer
- Cloudwalk Technology Co., Ltd, a facial recognition company
- Xiamen Meiya Pico Information Co., Ltd., a cyber security group
- Yitu Limited, an A.I. company
- Leon Technology Company Limited, a cloud computing firm
- Netposa Technologies Limited, a cloud computing firm
- SenseTime Group Limited, a facial-recognition software firm
The US Department of Commerce also took aim at China by adding 40 entities to the EAR Entity List, 34 of which are entities located in China. Addition to the list implies a determination by the US government that those entities are involved or suspected of being involved in activities that threaten US national security or foreign policy interests.
The US government has expressed particular concern regarding China’s modernizing military, especially in the realm of biotechnology. Among the newly added entities are the Academy of Military Medical Sciences and its 11 research institutes, which were added because of their reported development of brain-control weaponry for the Chinese military.
The newly added entities and those doing business with them will now face additional license requirements for the export, reexport, or transfer of all EAR items, which will face a general policy of denial from the Bureau of Industry and Security (BIS).
Overall, today’s actions align with the Biden Administration’s stated intention to use various foreign policy tools to increase pressure on other nations to cease what the US government views as human rights abuses. It also continues the United States’ general approach of leveraging economic sanctions to achieve foreign policy goals in China. These latest developments are part of a larger trend of worsening relations between the United States and China, which is expected to continue. Against this backdrop, it is likely that additional investment and trade restrictions on China and/or Chinese entities will be announced in the near future.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.