U.S. Agencies Issue Business Advisory Warning Of Xinjiang-Related Supply Chain Exposure And OFAC Imposes Blocking Sanctions On Chinese Persons Related To Human Rights Abuse In Xinjiang

Published date13 July 2020
Subject MatterGovernment, Public Sector, International Law, Constitutional & Administrative Law, Money Laundering, Export Controls & Trade & Investment Sanctions, Human Rights
Law FirmAkin Gump Strauss Hauer & Feld LLP
AuthorMr Lars-Erik Hjelm, Wynn H. Segall, Kevin J. Wolf, Christian C. Davis, Andrew R. Schlossberg, Suzanne Kane, Nnedinma C. Ifudu Nweke, Shiva Aminian and Chris Chamberlain

Key Points

  • On July 1, the Departments of Commerce, Homeland Security, State, and the Treasury issued a joint advisory on the "Risks and Considerations for Businesses with Supply Chain Exposure to Entities Engaged in Forced Labor and Other Human Rights Abuses in Xinjiang" ("the advisory").
  • The advisory describes efforts by the Trump administration and Congress to increase scrutiny of surveillance practices and labor conditions in the Xinjiang province of the Peoples Republic of China ("China" or PRC) and provides specific recommendations to exporters, importers and financial institutions to evaluate and mitigate associated risks.
  • The advisory does not create new requirements or prohibitions; however, it presages potential forthcoming enforcement actions, including additions to the Commerce Department's Entity List, Withhold Release Orders (WROs) on imports of goods, and economic sanctions against entities and individuals implicated in surveillance and labor conditions in Xinjiang and elsewhere in China. On July 9, 2020, the Treasury Department took the first of such actions by designating four PRC officials including Chen Quanguo, the Communist Party Secretary of the Xinjiang Uyghur Autonomous Region, and the Xinjiang Public Security Bureau under the Global Magnitsky sanctions program.
  • Businesses and individuals, including importers and exporters of record, financial institutions, and government contractors and subcontractors should read the advisory and consider implementing compliance measures consistent with its recommendations.

Background

On July 1, 2020, the U.S. Departments of Commerce, Homeland Security State, and the Treasury issued a joint advisory on the "Risks and Considerations for Businesses with Supply Chain Exposure to Entities Engaged in Forced Labor and Other Human Rights Abuses in Xinjiang." The advisory follows months of increased attention by Congress, the Trump administration, and nongovernmental organizations (NGO) on labor conditions in Xinjiang and the treatment of Uyghurs and members of Muslim minority groups in China. Specifically, the advisory describes a range of specific abuses including "mass arbitrary detentions, severe physical and psychological abuse, forced labor and other labor abuses oppressive surveillance used arbitrarily or unlawfully, religious persecution, political indoctrination, forced sterilization, and other infringements of the rights of members of those groups in Xinjiang." The advisory also describes how these concerns are in the words of Secretary of State Pompeo "no longer confined to the Xinjiang region" but spread across China through "government-facilitated arrangements with private sector suppliers."

Impact and Guidance for Exporters, Importers, and Financial Institutions

Against this backdrop, the agencies warn businesses of the "reputational, economic, and legal risks of involvement with entities that engage in human rights abuses, including but not limited to forced labor in the manufacture of goods intended for domestic and international distribution." The agencies specifically call on "[b]usinesses, individuals, and other persons, including but not limited to academic institutions, research service providers, and investors ["businesses and individuals"] that choose to operate in Xinjiang or engage with entities that use labor from Xinjiang elsewhere in China" to heed the warnings in the advisory and "implement human rights-related due diligence policies and procedures."

Towards this end, while the advisory itself is "explanatory only and does not have the force of law," the agencies outline a range of ongoing U.S. government efforts to curb alleged human rights abuses related to Xinjiang in the areas of import and export controls and financial sanctions. They also provide specific guidance to importers, exporters, and financial institutions on how to identify Xinjiang-related risks. The advisory further urges businesses and individuals to "evaluate their exposure" to Xinjiang-related risks and "to the extent necessary, implement due diligence policies, procedures, and internal controls to ensure that their compliance practices are commensurate with identified risks and international best practice across the upstream and downstream supply chain, and in making investment decisions."

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