Cross-Border Compliance: The effect of EU and UK Sanctions on Chinese companies

1. Applicability of EU and UK Sanctions to Chinese Companies

Generally, EU and UK sanctions apply where activities have an EU or UK nexus.

In the UK, sanctions generally apply to all conduct inside UK territory, and to conduct globally of UK entities (including their overseas branches) and UK nationals. Under EU law, sanctions also typically apply to activities within EU territory or to conduct by EU Persons outside of the EU.

This means that:

1. EU/UK-incorporated subsidiaries of Chinese companies must comply with EU/UK sanctions at all times, and
2. Non-EU/UK branches of EU/UK incorporated companies must comply with EU/UK sanctions at all times.

This also means that Chinese-incorporated companies may have to comply with EU or UK sanctions:

1. When operating within the EU or UK. For example, a Chinese employee of a Chinese company, who is located in either the EU or UK, must comply with all applicable EU or UK sanctions whilst they are within EU or UK territory. Similarly, if a China-based employee of a Chinese company travels to the EU or UK for work, any decisions they are involved in whilst located in the EU or UK will have to comply with EU or UK sanctions; and
2. In respect of actions taken by EU or UK nationals outside of the EU or UK. For example, EU or UK national employees located abroad (for example, in China) will have to comply with EU or UK sanctions at all times.

2. Increased listing of Chinese companies on EU and UK sanctions lists (“Secondary Sanctions”)

Under their respective sanctions regimes targeting Russia, the EU and UK have also begun to expand their use of “secondary sanctions” designation powers. Practically, this means that Chinese companies have been added to the EU and UK’s sanctions lists because of their activities in and ties with certain sectors of the Russian economy, despite not having any EU/UK touchpoints.

2.1 Listing of Chinese companies as targets of EU and UK asset freeze measures

In 2024, the UK expanded its power to impose sanctions on individuals/entities for “providing financial services, or making available funds, economic resources, goods or technology” to persons involved in obtaining a benefit from or supporting the Russian government. The UK is now able to impose asset freeze sanctions – which are very broad economic blocking sanctions - on individuals and entities which it considers meet this definition.

Similarly, since 2023, the EU has expanded the designation criteria under Council Regulation (EU) No 269/2014 (the "EU Russia Asset Freezing Regulation") so that it may impose sanctions measures on individuals/entities for “(i) facilitating infringements of the prohibition against circumvention of [EU sanctions targeting Russia]; or (ii) otherwise significantly frustrating those provisions.” ²

Recent examples of “secondary” sanctions-type designations

Non-EU/non-UK incorporated entities (e.g., Chinese/Indian/other third country companies) which engage in business with Russia have already been targeted by the EU and UK’s “secondary” sanctions designation powers.

For example, on 19 July 2025, the EU’s 18th sanctions package against Russia, imposed sanctions on three companies based in China that supply goods used by Russia’s military. The EU targeted these specific companies, claiming that their actions are either “supporting actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine” or “supporting materially Russia’s military and industrial complex.”³In February 2025, the UK designated several Chinese suppliers of machine tools, electronics, and dual-use goods used by Russia’s military. In its most recent package of sanctions in February 2026, the UK designated several more Chinese suppliers of dual-use goods and technology used by Russia’s military, as well as Chinese companies involved in supporting the Russian energy sector.

Various Chinese companies and individuals are also subject to EU asset freezing measures under regimes not specific to Russia sanctions, including sanctions for human rights violations or cyber-attacks

Where such entities have been designated, EU Persons and UK Persons, respectively, are prohibited from engaging in any business transactions or economic dealings with them, whether conducted directly or indirectly. These are very broadly drafted economic blocking sanctions with broad-ranging effect.

This means that in cases where Chinese companies have ongoing business relationships involving EU/UK Persons, the potential impact on their business from being designated under EU or UK sanctions will be significant because EU/UK Persons will not be able to continue the business relationship with such a designated Chinese company.

Given these circumstances, many Chinese companies are assessing their exposure to Russia – in particular the extent to which their activities “[provide] financial services, or [make] available funds, economic resources, goods or technology” to persons involved in obtaining a benefit from or supporting the Russian government, because these activities may place non-EU and non-UK companies at particular risk of being designated under EU/UK “secondary” sanctions. For example, the UK government has drawn particular attention to this risk for Georgian businesses in sanctions guidance, accessible: here.

2.2 Listing of Chinese companies on the EU’s export prohibition list

The EU has adopted measures aimed at prohibiting EU exporters from circumventing its prohibitions on export to Russia by exporting via third countries such as China. One of the tools that the EU has increasingly used to combat circumvention of sanctions on Russia is a prohibition on the export of certain sensitive items (and a prohibition on providing related services)

These companies are listed in Annex IV of Council Regulation (EU) No 833/2014 (the “EU Russia Sanctions Regulation”) ("Annex IV"), which includes several companies incorporated in Mainland China and Hong Kong. To some extent, this list is the EU’s equivalent to the US’ BIS Entity List, with a substantial nuance which is that licensing grounds under EU law are very limited and available only for human health and safety or environment emergencies. In practice, being included in such a list will mean EU Persons cannot ship in-scope items to that company and may entail significant reputational damage and could significantly affect the Chinese company's EU activities. Furthermore, screening tools often consider Annex IV companies as EU asset freeze sanctioned entities without noting the limited scope of such listing.

For example, on 23 October 2025, the EU's 19th sanctions package against Russia added 12 Chinese companies to Annex IV on the basis that they provided direct or indirect support to Russia's military industrial complex or engaging in EU sanctions circumvention. EU Persons are prohibited to sell, supply, transfer or export dual-use and strategic goods and technology.

As from 23 June 2023 with the EU's 11th sanctions package against Russia, Chinese companies have been included in Annex IV. Since then, several of these companies have been de-listed from Annex IV. Given the typically relatively low evidentiary burden engaged for new Annex IV listings, Chinese companies included in Annex IV may wish to engage with the EU institutions or challenge the designation before EU courts.⁴

2.3. Listing of Chinese financial institutions and Chinese subsidiaries of Russian financial institutions on the EU’s transaction ban lists

As part of its effort to tackle Russia’s financing network, the EU has imposed transaction bans, which prohibit EU Persons from engaging in any transaction with listed:

• Entities established outside Russia that use the SPFS of the Central Bank of Russia or equivalent specialised financial messaging services set up by the Central Bank of Russia or the Russian State; and
• Credit and financial institutions and entities providing crypto assets services that (i) are significantly frustrating the purpose of the EU Russia and Belarus sanctions regimes and (ii) support Russia’s war of aggression against Ukraine.

These transaction bans have for now been focused on the Chinese subsidiaries of Russian banks and on a few Chinese banks.

3. EU: Subsidiary Conduct Liability

On 24 June 2024, the EU’s 14th sanctions package against Russia included the addition of Article 8a to the EU Russia Sanctions Regulation ("Article 8a"). Equivalent provisions were included on 29 June 2024 under Article 8i to Council Regulation (EC) No 765/2006 (the “EU Belarus Sanctions Regulation”) ("Article 8i") and on 24 February 2025 under Article 15a to EU Russia Asset Freezing Regulation ("Article 15a"). These provisions require EU Persons to use their “best efforts” to ensure that any non-EU entity that they own or control (such as their non-EU subsidiaries) does not participate in activities which “undermine” sanctions on Russia or Belarus.

In line with the recitals of the various regulations, European Commission guidance has clarified that “best efforts” means “all actions that are necessary.” This is, however, limited to what is “suitable” or “feasible”, given the factual circumstances, the nature and size of the EU Person, and the degree of control that the EU Person has over the relevant non-EU entity.

Examples of such “undermining” activities could include:

• Dealings with persons/entities subject to asset freezes (even indirectly) and/or to transaction bans;
• Exporting goods/technology subject to export restrictions, or investments in certain prohibited sectors within Russia. 
• Licensing or transferring intellectual property rights and trade secrets (“IPTS”) related to restricted goods and technology. Chinese companies with EU shareholders may thus be subject to increased limits and conditions around the transfer and use of IPTS from the EU.

Impact on Chinese companies

Chinese companies which are majority-owned or otherwise controlled by EU Persons will be indirectly caught by Articles 8a/8i/15a. Therefore, such Chinese companies can expect their EU parent companies to exercise scrutiny on any transaction which, if it were to be carried out by an EU entity, would “undermine” the EU Russia Sanctions Regulation, EU Russia Asset Freezing Regulation, or EU Belarus Sanctions Regulation.

Given that the European Commission has recommended that EU companies seek awareness of the activities of any non-EU entities which they own or control, Chinese companies may expect strengthened group compliance programmes, including mandatory reporting, mandatory sanctions training for staff, as well as procedures to rapidly react to sanctions violations.

Chinese companies may wish to assess whether such requests from their EU parent companies are in line with Chinese law, as this could be a key part of the “best efforts” analysis. The liability of the EU parent company may be determined based on what is “feasible” and “suitable” from their perspective, which in our experience requires a nuanced assessment of the factual and legal context in which a third-country incorporated company is operating. By way of example, Russian legal requirements restrict compliance with the legislation of “unfriendly” countries and impose domestic rules on corporate appointments and related matters which, while they do not eliminate the obligation to undertake “best efforts,” they limit the scope of what is expected as “best efforts” obligation in specific cases.

Similarly, subsidiaries and affiliates established in China by EU parent companies must not only comply with EU and UK rules, but also take into account obligations under Chinese law. For example, China recently enacted the Regulations on Counteracting Unjustified Extraterritorial Jurisdiction, which expressly authorise the government to investigate organisations or individuals that implement or assist in implementing foreign unjustified extraterritorial measures, order corrective action, or issue prohibition orders against such implementation. Violating a prohibition order may result in consequences such as restrictions or bans on government procurement, tendering and bidding, import and export of goods or technologies, international services trade, cross‑border data transfers, and the receipt or provision of personal information. Additional measures may include restrictions on entry or residence in China, as well as fines. It is important to note, however, that “unjustified extraterritorial jurisdiction measures” must first be identified and publicly announced by the Chinese government. Accordingly, while Chinese companies are obligated to comply with the Regulations, whether specific EU or UK sanctions qualify as unjustified extraterritorial measures remains subject to determination by the Chinese government.

4. EU: Compliance Obligations Applicable to Activities Relating to Certain Sensitive Items

4.1 Risk Assessment

Also introduced on 24 June 2024 within the EU’s 14th package of sanctions against Russia, Article 12gb of the EU Russia Sanctions Regulation ("Article 12gb") and Article 8ga of the EU Belarus Sanctions Regulation ("Article 8ga") require EU exporters of Common High Priority ("CHP") Items  in Annex XL of the EU Russia Sanctions Regulation and Annex XXX of the EU Belarus Sanctions Regulation, to conduct risk assessments regarding such goods reaching Russia. The CHP List comprises items used in Russian/Belarusian military systems which have been found on the battlefield in Ukraine, or are critical to the development, production or use of those Russian/Belarusian military systems.

Impact on Chinese Companies

EU Persons are required to actively implement appropriate policies, controls and procedures and therefore Chinese companies which import CHP Items from the EU should prepare for enhanced compliance and due diligence requirements.

EU Persons are also required to ensure that any third-country entity owned or controlled by that EU Person and trading CHP Items implements the same policies, controls and procedures. Chinese subsidiaries of EU Persons may therefore wish to assess whether their compliance policies and procedures are in line with EU law and identify areas where such compliance policies may require enhancement. The nebulous scope of the risk assessment requirements under Articles 12gb/8ga may impact the enforcement by competent authorities.

4.2 Obligation for EU Exporters to Include a “No Export to Russia” Clause

Article 12g of the EU Russia Sanctions Regulation ("Article 12g") was introduced on 18 December 2023 as part of the EU’s 12th package of sanctions against Russia. Article 12g requires contractual provisions be entered into by EU Persons with third country (e.g., Chinese) importers of certain categories of goods and technology (“Restricted Goods”), prohibiting the re-export of these goods to or for use in Russia. An equivalent provision was introduced on 29 June 2024 under Article 8g of the EU Belarus Sanctions Regulation ("Article 8g").

Articles 12g/8g also require that such contracts contain a provision for "adequate remedies" should the third-country importer/buyer of the Restricted Goods breach the "no re-export to Russia/Belarus" prohibition, and for EU exporters to inform the competent authorities if a “no re-export to Russia/Belarus” clause is breached. This is designed to ensure that EU exporters cannot turn a blind eye to the re­export to Russia/Belarus of Restricted Goods they sell, supply, transfer or export to third countries.

Impact on Chinese companies

Chinese companies acquiring Restricted Goods will therefore be contractually prohibited from re-exporting such goods to or for use in Russia/Belarus.

European Commission guidance also suggests that EU exporters should draft this contractual clause such that Chinese companies acquiring Restricted Goods from the EU are themselves required to use their "best efforts" to ensure that those goods are not supplied to or for use in Russia/Belarus further down the commercial chain, including by possible resellers. Therefore, when such clauses are included in commercial contracts, it places an active duty on such Chinese companies to take steps to prevent any non-EU third parties acquiring the Restricted Goods for use in Russia/Belarus. This duty applies even in cases where parties further down the commercial chain are not EU entities and have no existing links to the EU. When such clauses have been included by the EU exporter in the contract with the immediate buyer, this requirement therefore also applies to Chinese companies which acquire Restricted Goods from a non-EU entity, where the goods originate from the EU. Contractually, these Chinese companies will themselves be barred from re-exporting the goods to or for use in Russia/Belarus, as doing so falls within the restriction against parties further down the commercial chain re-exporting to Russia/Belarus.

With Articles 12g/8g covering only a limited subset of items subject to export restrictions under the EU Russia Sanctions Regulation and the EU Belarus Sanctions Regulation, and with no prescribed language of the "no re-export to Russia/Belarus" clause, Chinese companies may wish to assess whether contractual obligations requested by their EU counterparts go beyond Articles 12g/8g requirements.

Chinese companies should therefore review whether they intend to acquire any Restricted Goods from the EU, and if so whether their contracts with their supplier include such clauses. They may also assess the safeguards that can be implemented in order to prevent the goods from being provided to Russia/Belarus by parties further down the commercial chain. UK official guidance also suggests that UK companies include clauses requiring Chinese companies acquiring goods controlled by the UK not to re-export such goods to or for use in Russia. This means that in practice the substance of the Article 12g/8g requirements on Chinese companies can also effectively apply to Chinese companies acquiring goods from the UK.

4.3. Required contractual clauses in IP contracts

Article 12ga of the EU Russia Sanctions Regulation ("Article 12ga") requires all EU Persons to include a contractual clause in agreements for the sale, license or transfer in any other way of IPTS as well as granting rights to access or re-use any material or information protected by such IPTS, related to CHP Items. This clause must prohibit third-country commercial counterparts, and require them to prohibit possible sublicensees of such IPTS, from using such IPTS or other information in connection with such items that are intended for sale, supply, transfer or export, directly or indirectly, to Russia or for use in Russia.

Impact on Chinese companies

Chinese companies seeking to acquire, access or re-use IPTS from EU Persons should therefore assess in advance whether their intended use would breach a "no use of IP rights in relation to Russia" clause, as EU Persons are legally obliged to require such Chinese counterparties to agree to this restriction.

This requirement will not only impact Chinese companies negotiating the acquisition or use of IPTS going forward, but also Chinese companies which have previously entered into such contracts prior to 25 June 2024. EU counterparties to these contracts must have either amended them appropriately or wound them down, as not including the full “no use of IP rights in relation to Russia” language in relevant agreements amounts to a breach of the EU Russia Sanctions Regulation. Similarly, not reporting to the competent authorities a breach of the clause by a Chinese counterpart would also amount to a breach.

In light of the above requirements, we suggest that Chinese companies take the following steps: Non-EU owned or controlled Chinese companies:

• Map business they conduct directly or indirectly involving EU/UK-designated persons, or entities operating in strategic/defense sectors within Russia, and assess whether these activities could place any Chinese company at risk of EU/UK sanctions designation.
• Consider implementing, when necessary, appropriate measures to ensure that Chinese activities are not involving an EU or UK nexus inadvertently.
• Review any proposed acquisition of Restricted Goods from the EU and UK and ensure that the consequences of any sanctions compliance contractual clause have been adequately identified.
• Assess in advance whether any intended use of IPTS acquired or accessed from EU Persons would breach a "no use of IP rights in relation to Russia " clause.
• Chinese companies owned or controlled by an EU Person:
• Review Russian/Belarusian-related business activities in order to assess the extent to which such business activities might undermine EU sanctions.
• Assess whether compliance policies and procedures are in-line with EU law and identify areas where such compliance policies require enhancement.

Please contact any of the Hogan Lovells contacts listed above with any questions or concerns regarding the potential implications of these updates and other related sanctions and international trade issues.

Authored by Aline Doussin, Lourdes Catrain, Stepahnie Sun, Chris James, Kacper Maksymczuk, Pierre Estrabaud, Xiaoxian Wan, Navpreet Moonga, and Dan Shapland.