Do Chinese subsidiaries of EU shareholders and EU nationals in China have to comply with EU sanctions on Russia?

China

Recently the EU imposed additional sanctions on Russia and Russian companies and individuals. For foreign invested enterprises with EU shareholders and EU nationals in China, the questions arises whether they must comply with these regulations when doing business with Russian business partners from China. According to the answers provided by the EU Commission in their FAQs, the following applies:

In principle, EU sanctions do not apply extra-territorially. In accordance with Article 13 of COUNCIL REGULATION (EU) No 833/2014 (the "Regulation"), the Regulation applies:

  • within the territory of the Union

  • on board any aircraft or any vessel under the jurisdiction of a Member State

  • to any person inside or outside the territory of the Union who is a national of a Member State

  • to any legal person, entity or body, inside or outside the territory of the Union, which is incorporated or constituted under the law of a Member State

  • to any legal person, entity or body in respect of any business done in whole or in part within the Union.

From this it follows that EU sanctions must be complied with by all EU persons – both natural and legal – and therefore by all EU incorporated companies, including e.g. subsidiaries of Chinese companies in the EU. Chinese branches of EU companies remain EU persons, and thus are fully bound by the Regulation.

By contrast, Chinese subsidiaries of EU parent companies are incorporated under Chinese law, not under the law of a Member State, hence they are not, in principle, bound by the measures.

However, it is prohibited for EU parent companies to use their Chinese subsidiaries to circumvent the obligations that apply to the EU parent company, for instance by delegating to them decisions which run counter the sanctions, or by approving such decisions by the Chinese subsidiary.

Further, EU nationals working for companies incorporated in China, including Chinese subsidiaries of EU parent companies, are personally bound by EU sanctions and can be held personally liable for participating in transactions which breach EU sanctions. For example, even if the Chinese company itself entered the transaction, EU nationals facilitating the transaction could still be covered by the anti-circumvention clause if they "participate in activities" the object or effect of which was to circumvent the main prohibition. In addition, decisions taken by the foreign subsidiary that need to be cleared or green-lighted by the EU parent company would be relevant, in that the latter is bound in respect of its own actions.