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US Cyber Sanctions May Disrupt US-China Tech Partnerships - Trade Advisor

© AFP 2021 / Greg BAKERUS President Barack Obama (L) walks with Chinese President Xi Jinping
US President Barack Obama (L) walks with Chinese President Xi Jinping - Sputnik International
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US President Barack Obama’s reported plan to sanction China for cyber-related offenses will impose onerous due diligence requirements on American technology companies who want to collaborate with Chinese businesses, US Defense Trade Advisory Group member Lawrence Ward told Sputnik.

WASHINGTON, (Sputnik) — In recent days, US media outlets have reported, citing unnamed government officials, that the Obama administration is preparing an unprecedented package of economic sanctions against Chinese entities involved in cyber-theft.

“Other US economic sanctions programs may have had limited practical impact on such US tech companies, but those companies will now need to be particularly mindful of who they ‘partner’ with,” Ward, a partner at the international business law firm Dorsey and Whitney, said on Tuesday.

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The US Treasury’s Office of Foreign Assets Control (OFAC), Ward explained, requires companies to conduct rigorous due diligence to ensure partners do not qualify for the Specially Designated Nationals (SDNs) sanctions list, which made more complex by the ownership structure of Chinese corporations.

“This will especially be the case in China where the ownership chain of many ‘private’ companies is often very convoluted,” he argued.

Under OFAC rules, a potential Chinese partner company will make the sanctions list if one or more SDNs owns 50 percent of the company, Ward noted.

In April, he added, Obama issued an executive order that authorized the State and Treasury Departments to levy sanctions against those engaging in “significant malicious cyber-enabled activities.”

“Although the President did not name any specific individuals or entities to be targeted back in April, it was widely assumed that the Order would be a way to sanction primarily Chinese companies and individuals involved in these cyber-warfare type activities,” Ward said.

On Monday, State Department spokesperson Mark Toner said that penalizing Beijing for cyber-theft remains an option. However, Toner would not confirm if the United States was readying to implement economic sanctions on Chinese persons and entities.

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