Companies Transacting with Chinese Shipowners Face New Sanctions Risks

Last week, the Trump Administration imposed sanctions against Chinese entities and individuals that it has determined have been trading in Iranian oil

The sanctioned parties include subsidiaries and executives of COSCO Shipping Corporation Ltd., as well as of China Concord Petroleum, Pegasus 88 Limited, Kunlun Shipping Company and Kunlun Holding Company. A complete list is available here.

These latest sanctions are another part of the US's so-called maximum pressure campaign against Iran and come on the heels of the attack on Saudi oil processing facilities that the US claims was carried out by Iran. Chinese companies are some of the few in the world that are still willing to buy and ship Iranian oil, so this round of sanctions is designed to deny Iran a critical source of revenue. However, the sanctions also have important repercussions for European companies.

The sanctions work by designating a number of Chinese companies and individuals as Specially Designated Nationals ("SDNs") under Executive Order 13846. US persons are prohibited from dealing with these SDNs, as well as with companies that are owned 50% or more by SDNs. The new sanctions also prohibit non-US persons from materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of these SDNs or companies owned 50% or more by the SDNs.

The sanctions do not apply to COSCO Shipping Corporation Ltd. itself or to those of its subsidiaries or affiliates that are not listed as SDNs and are not owned 50% or more by an SDN-listed person or entity. Thus, neither US persons nor non-US persons face sanctions risks for transactions with COSCO Shipping Corporation Ltd. or its non-SDN subsidiaries and affiliates.

In practice, the sanctions means that non-US companies involved in Chinese shipping now need to more carefully screen their counterparties to determine ownership stakes and the involvement of SDN-listed entities. Where a counterparty's direct shareholder is a corporate entity, the shareholders of this corporate entity should also be screened.

The US State Department's press release on these latest sanctions is available here. A FAQ from OFAC here.