On Friday, July 31, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed additional sanctions against the People’s Republic of China (PRC), designating a PRC governmental entity, the Xingjian Production and Construction Corps (XPCC), and two governmental officials in connection with alleged human rights abuses in the Xinjiang Uyghur Autonomous Region of China. The XPCC is a paramilitary organization that reportedly controls broad swaths of the Xinjiang Region’s economy, including significant involvement in China’s cotton exports, among other agricultural products.
The U.S.’s new sanctions were imposed pursuant to Executive Order 13818, which implements the Global Magnitsky Human Rights Accountability Act (Global Magnitsky Act). Notably, the U.S. had previously imposed sanctions against the PRC and certain governmental officials under the same authority on July 9, 2020, which we previously reported on.
Concurrent with the U.S.’s sanctions announcement on July 31, OFAC issued General License 2 authorizing certain wind down and divestment activities with respect to subsidiaries of XPCC. Specifically, General License 2 authorizes transactions and activities through September 30, 2020 that are ordinarily incident and necessary to: (i) divest or transfer debt, equity, or other holdings of blocked XPCC subsidiaries to a non-U.S. person; or (ii) facilitate the transfer of debt, equity, or other holdings in any blocked XPCC subsidiary by a non-U.S. person to another non-U.S. person.
Notably, General License 2 does not authorize wind down activities with respect to XPCC itself — only its subsidiaries that are owned 50% or more (in the aggregate). Furthermore, General License 2 does not permit any debits to an account of a blocked XPCC subsidiary on the books of a U.S. financial institution. OFAC addressed additional issues relating to the sanctions and the General License in a new FAQ.
In short, OFAC’s new sanctions represent an additional escalation in U.S. and PRC tensions, presenting challenges for U.S. and non-U.S. companies doing business in the region. We will continue to closely monitor developments in this space. If you have any questions or concerns about U.S. sanctions, please contact Bruce G. Paulsen (212-574-1533) or Andrew S. Jacobson (212-574-1477) at Seward & Kissel’s Sanctions Practice Group.
