The Department of the Treasury's Office of Foreign Assets Control (OFAC) stated on December 16, 2021, that it was adding eight more Chinese technology businesses to its Non-SDN Chinese Military-Industrial Complex Companies List (CMIC List). This action was taken in accordance with Executive Order 13959 (as amended by Executive Order 14032), which prohibits U.S. individuals from engaging in any transaction involving publicly traded securities or stakes that are derivatives of or designed to provide investment exposure to publicly traded securities of any companies on the CMIC List. The eight firms added to the list "actively facilitate the biometric surveillance and tracking of ethnic and religious minorities in China, notably the primarily Muslim Uyghur minority in Xinjiang," according to OFAC.
The Chinese firms are as follows:
- Cloudwalk Technology Co., Ltd.
- Dawning Information Industry Co., Ltd. is an acronym for Dawning Information Industry Co., Ltd.
- Company Leon Technology Limited
- Megvii Technology Limited
- Netposa Technologies Limited SZ DJI Technology Co., Ltd.
- Meiya Pico Information Co., Ltd. Xiamen Meiya Pico Information Co., Ltd.
- Yitu Enterprises Limited
The provisions were enacted in accordance with Executive Order (E.O.) 14032, which took effect in August 2021. It forbids U.S. citizens from investing in Chinese enterprises with connections to the military or the surveillance sector.
DJI, the world's largest commercial drone maker, is one of the eight companies sanctioned. Others include a business that uses face recognition technology to follow minority groups and inform officials if too many people assemble in specified places and another that tracks picture, audio, and location data from citizens' cell phones.
OFAC's move comes against the background of broader difficulties surrounding China's development and deployment of innovative technology, as well as increasingly tense global supply networks.
In July, the U.S. government issued a multi-agency corporation advisory reminding financial institutions of their responsibilities beneath the Bank Secrecy Act (BSA) to include in suspicious activity reports (SARs) "all applicable indications of human trafficking recognized in financial transactions or sequence of trades or through other appropriate ways."
Controversies between the United States and China over technology businesses and their access to global markets prompted the Financial Times editorial board to warn of "a clear narrative of superpower estrangement." It cites the U.S. move to ban a key Chinese artificial intelligence business and Didi, China's counterpart to Uber, being delisted from the New York Stock Exchange as examples. According to the US-China Economic and Security Review Commission, there are 248 Chinese firms listed in the U.S. as of May 2021, valued at a total of $2.1 trillion.
The semiconductor business exemplifies how tensions between the United States and China over technology and trade are playing out. China is striving to attain self-sufficiency in semiconductor manufacture, relying mainly on foreign equipment. However, Intel, one of the world's leading semiconductor manufacturers, was compelled to apologize in December 2021 after releasing a statement to partners and customers in China stating that it would not utilize workers or commodities from the Xinjiang area. The message went viral on Chinese social media networks, prompting a Chinese pop artist and former Intel ambassador to sever connections with the company. One nationalist media station accused Intel of "biting the hand that feeds it."
A quarter of Intel's sales comes from the Chinese market, showing the practical difficulties involved with the legislative drive to limit relations between the U.S. and China.
Compliance teams should be aware of the relationship between technology businesses, the Chinese market, and Xinjiang-based enterprises in particular. This includes analyzing indirect risks, such as when the eventual benefactor is a Xinjiang-related surveillance or technology firm. Firms should also assess their risk tolerance, keeping in mind that tensions in the technology industry are likely to change swiftly, and more measures and remedies may be imposed at short notice.
