19
June
2024

US considers sanctions on Chinese banks aiding Russia war effort

Secondary sanctions are in effect an ultimatum – stop doing the business, which is legal in that jurisdiction, or the US will take steps to limit certain financial and business interests with the US economy.

John Hartley | Partner and Head of Business Crime and Regulation

It was recently reported that the US is currently drafting what would be described as “secondary sanctions” aimed at Chinese banks involved in the import/export of commercial goods which could be assisting Russia’s military operations and undermining the existing sanctions regime against Russia. Partner and Head of Business Crime and Regulation, John Hartley comments:

“The US operates a complex framework of sanctions but essentially there are two tiers – primary and secondary. Primary sanctions are those where there is a US nexus, and all US persons and entities must comply with them or face the relevant civil or criminal penalty. For example, a US bank would be prohibited from facilitating transfers involving a Russian bank account or a person subject to US sanctions.  

“Secondary sanctions are however more nuanced and operate in situations where there is no US nexus, but where the proposed activity that may be sanctioned is not in alignment with the purpose of the primary sanction regime. For example, neither a Chinese nor Russian bank are within the jurisdiction of the US and so the US cannot impose primary legislation to prevent them from doing business together.  

“However, if that business contravenes the intended purpose of the primary sanction regime (i.e. supporting the Russian military operations in Ukraine) then the US may consider secondary sanctions against one of those parties. This is why secondary sanctions are seen by many to be highly controversial. 

“Secondary sanctions are in effect an ultimatum – stop doing the business, which is legal in that jurisdiction, or the US will take steps to limit certain financial and business interests with the US economy. Such steps may include the refusal of export/import licences and limiting access to financial services and loans etc. The threat of not accessing the US markets may therefore carry more weight than terminating the offending relationship.  

“China has definitely seen an increased financial relationship with Russia in 2022 and 2023 – as Russia looks to Asia for financial support through exports. However, one suspects that the Western market may be far more significant to China and the potential loss of access to the US financial system is an incredibly severe penalty.  

“Should China cease to trade with Russia it will severely impact Russia’s export market and country’s income from the Asian market.”

Our expert business crime solicitors can advise on a number of matters for both businesses and individuals navigating criminal or regulatory investigations. Contact our Partner and Head of Business Crime and Regulation, John Hartley by emailing john.hartley@primaslaw.co.uk

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