PicoBlog

On Boxing Day the Ministry for Foreign Affairs announced that it is imposing sanctions on US company Kharon. The sanctions are in response to due diligence and compliance work by Kharon related to forced labour and human rights abuses in Xinjiang.

‘Kharon’ (or ‘Charon’) is the name of the ferryman in Greek mythology who carries the souls of the dead across the rivers Acheron and Styx to the land of the dead. The ancient Greeks and also Romans would place a coin the mouth of a deceased as payment to Kharon for the ferry trip to the underworld.

Kharon is a US company based in Los Angeles that uses data analysis to help client organisations identify sanctions and compliance risks in relation to to managing financial crimes, supply chain exposure, export controls, and investment risk. In short, Kharon is a modern data and technology company that helps organisations to manage business risk. In a globalised world, this form of data driven risk management is a critical part of international business investment.

China Sanctions

The PRC government is not likely to appreciate private sector organisations and citizens gaining insight into the true nature of risk in China, which can be a contrary assessment to their own narratives. This is particularly the case in relation to the situation in the Xinjiang Autonomous Region of the PRC, and Foreign Ministry spokesperson Mao Ning commented spoke about the sanctions in answer to a question at a regular press Conference on 26 December:

“In accordance with China’s Anti-Foreign Sanctions Law, we will take countermeasures against American intelligence data company Kharon, which has long collected Xinjiang-related sensitive information and provided so-called evidence for America’s illegal sanctions related to Xinjiang, Edmund Xu, director of investigations of Kharon, and Nicole Morgret, former researcher of the Center for Advanced Defense Studies. The two persons will be prohibited from entering China (including China’s mainland, the Hong Kong SAR and the Macau SAR). China will freeze the property of Kharon and the two persons in China, including their movable and immovable property, and prohibit organizations and individuals in China from transactions and cooperation with them. We again urge the US to stop smearing China, cancel the illegal unilateral sanctions on Chinese officials and companies, and stop implementing wrongful acts such as the Uyghur Forced Labor Prevention Act. If the US refuses to change course, China will not flinch and will respond in kind.”

The government of the People’s Republic of China (PRC) introduced the Anti-Foreign Sanctions Law in June 2021 in response to US sanctions against government officials, companies, and private individuals. The PRC government had already introduced legal measures to counter foreign sanctions, including ‘Provisions on the List of Unreliable Entities’ and ‘Measures for Blocking Improper Extraterritorial Application of Foreign Laws and Measures’, both of which are administrative regulations and hence lower in the legal hierarchy than the national Anti-Foreign Sanctions Law.

Legal measures to counter the economic impact of US and other foreign sanctions are not new, and the European Union (EU) has enacted the ‘Blocking Statute’ that aims to protect people and companies in the EU from having to comply with restrictive measures imposed by other countries. According to the Mercator Institute for China Studies (MERICS), the PRC law differs from the more reactive EU law by allowing the PRC government to implement its own countermeasures against “discriminatory restrictive measures” imposed by foreign states that “violate international law and basic norms of international relations to contain or suppress our nation”.

US Sanctions

US sanctions relating to the PRC are multifarious and cover various areas of concern.

In May 2019, the US government sanctioned Huawei Technologies Co., Ltd. (added to the Entity List) because of the conclusion that Huawei was engaged in activities that are contrary to US national security or foreign policy interests,  including by providing prohibited financial services to Iran and obstruction of justice in connection with the investigation of those alleged violations of US sanctions.

In July 2020, the US Congress enacted the Uyghur Human Rights Policy Act which imposed sanctions on individuals and entities responsible for human rights abuses in Xinjiang and required reports on the subject from the President to Congress and also from the Office of the Director of National Intelligence on individuals and entities responsible for human rights abuses, PRC government policies in Xinjiang that constitute violations of human rights, and the scope and scale of the detention and forced labour of Muslim minority groups in China. The new law required the President to impose property-blocking as well as visa-blocking sanctions on the identified individuals. The law was introduced by Senator Marco Rubio of Florida who in his own words “is leading the charge to rebalance our relationship with Communist China.”

In August 2020, the US Government announced sanctions against individual senior Hong Kong and national PRC leaders for restricting the freedom of expression or assembly of the citizens of Hong Kong and undermining the autonomy of the city. These sanctions were imposed following an Executive Order from President Donald Trump.

In November 2020, former President Trump signed an executive order prohibiting US investors from investing or purchasing from PRC companies the US Department of Defense identified as “Communist Chinese military companies.” Further sanctions have been imposed on Chinese companies since the Russian invasion of Ukraine in 2020, including Sinno Electronics in Shenzhen for supplying Russian Military networks in September, and Spacety China for providing satellite imagery to the Wagner Group.

In October 2022, the US government (now led by President Biden) announced limits on sales of new semiconductors to the PRC. In December 2022, US sanctions were imposed on PRC nationals and ten entities affiliated connected to human rights abuses relating to what the US calls illegal, unreported and unregulated fishing.

Investigating the Underworld

Sanctions are a long standing risk that international companies need to avoid the legal consequences of breaching. Such sanctions can be multilateral as well as unilateral.

The United Nations Security Council has a mandate to apply sanctions that must be complied with by all UN member states, but due to competing national interests amongst the Security Council members there is difficulty in securing consensus.

National sanctions are more straightforward as they are unilateral, but for most countries with limited effect. The US has far stronger influence with unilateral sanctions because of the use of the US Dollar in wide areas of international trade and commerce, making these areas susceptible to US sanctions on the use of the currency through clearing channels (notably banks).

To the PRC Government, and to many others, unilateral sanctions from the US are “smearing China” and “illegal unilateral sanctions on Chinese officials and companies” (in the words of Mao Ning of the Ministry of Foreign Affairs). However, US unilateral sanctions are thematic against specific problems (e.g. counter narcotics, counter terrorism, cyber, foreign interference in US elections, non-proliferation, rough diamond trade, transnational criminal organisations, etc), or specific to countries engaged in acts considered egregious breaches of international norms or detrimental to US national interests (e.g. Afghanistan, Belarus, Burma, Central African Republic, Cuba, Iran, Iraq, Libya, Mali, Nicaragua, North Korea, Russia, Somalia, South Sudan, Syria, Venezuela, Yemen, Zimbabwe, etc).

The list cited above is not a catalogue of benign states, and illustrates the common strand of human rights running through US sanctions. In contrast, sanctions from the PRC Government are usually aimed at people or entities who have taken part in the enactment or implementation of US sanctions. For instance, the Ministry for Foreign Affairs stated in July 2021 that “In response to the erroneous practice of the US side, China has decided to take reciprocal countermeasures, and impose sanctions on seven US individuals and entity according to the Anti-Foreign Sanctions Law, including former US Secretary of Commerce Wilbur Louis Ross, Chairman of US-China Economic and Security Review Commission (USCC) Carolyn Bartholomew, former Staff Director of Congressional-Executive Commission on China (CECC) Jonathan Stivers, DoYun Kim at National Democratic Institute for International Affairs, senior program manager of the International Republican Institute (IRI) Adam Joseph King, China Director at Human Rights Watch Sophie Richardson, and Hong Kong Democratic Council.” The Human Rights Watch NGO has committed the egregious act of commenting on human rights abuses, not committing such abuses.

The impact of PRC counter sanctions against those involved in investigating human rights abuses or even only involvement in due diligence compliance as part of trade and commerce is to constrain access to information regarding people or organisations that may be sanctioned by the US, or simply involved in illegal activity. For instance, there are US sanctions on people and organisations in Burma, several African countries, Cuba, Iran, Libya, Nicaragua, North Korea, Russia, Somalia, Syria, Venezuela, Yemen, which investigative companies such as Kharon investigate to assist clients from dealing with them, but what if some of those involved in illegal activity or human rights abuses were connected to PRC state owned companies or senior Chinese political leaders? It is a reasonable scenario given the expansion of PRC business and investment around the world, in particular via the Belt and Road initiative.

PRC counter sanctions and rhetoric against firms such as Kharon have the intent and the impact of influencing companies to avoid business due diligence in some geographical areas and commercial sectors because of the risk of offending unknown Chinese interests. Removing the ability to conduct effective due diligence dilutes business risk management, which will influence some investors to turn to alternative markets with less risk. This can in turn be counterproductive to the development of the Chinese economy.

Companies such as Kharon help companies to understand the underworld. They are a necessary part of business due diligence and risk management. Paying the ferryman has been advisable since ancient times, and remains so now.

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