New Sanctions On Mainland Chinese Entity Threaten Cotton Supply Chains

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The US Office of Foreign Assets Control has placed mainland China’s Xinjiang Production and Construction Corporation (XPCC), as well as two current or former government officials, on its Specially Designated Nationals List on 31 July.

XPCC’s placement on this list means that all US entities or non US entities subject to US jurisdiction (covered persons) are now banned from engaging, directly or indirectly, with XPCC without a licence from OFAC.

XPCC was added to the SDN List for serious rights abuses against ethnic minorities in mainland China’s Xinjiang Uyghur Autonomous Region (XUAR). XPCC engages in cotton farming and sales in XUAR for certain types of cotton. Mainland China accounts for 20% of all the cotton in the world and XUAR accounts for 80% of mainland China’s cotton. This production represents 50% of global spinning capacity.

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As a result of this action, all property and interests in property of XPCC and the two government officials, and of any entities that are owned, directly or indirectly, 50% or more by them, individually or with other blocked persons, that are in the United States or in the possession or control of US persons, are blocked and must be reported to OFAC.

Unless authorised by a general or specific licence issued by OFAC or otherwise exempt, OFAC’s regulations generally prohibit all transactions by US persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons.

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The prohibitions include the making of any contribution or provision of funds, goods or services by, to or for the benefit of any blocked person or the receipt of any contribution or provision of funds, goods or services from any such person. OFAC may consider any transaction by a covered person that directly or indirectly benefits XPCC as a violation of these sanctions, including apparel related transactions made anywhere in the world that contain XPCC cotton.

A general licence is available through 30 September for companies to wind down their supply chains to exclude XPCC. However, details regarding any transactions or activities necessary to the wind down of transactions involving XPCC subsidiaries that are authorised under the general licence, including the names and addresses of the parties involved, the type and scope of activities conducted, and the dates on which the activities occurred, must be reported to OFAC by 14 October.

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