Regulatory intelligence for US exporters

EU Should ‘Mirror’ US Secondary Sanctions Authority Against Foreign Banks, Think Tanks Say

EU governments need to do more to stop China from exporting dual-use items to Russia, including by sanctioning more Chinese companies and imposing secondary sanctions on foreign banks and other entities that are helping to facilitate those transactions, three think tanks said in a recent report.

Start A Trial

“After two years of failing in convincing Beijing to curtail its export of non-lethal equipment to Russia, it is time to change the approach in Europe and take measures that can make a difference,” said the Mercator Institute for China Studies, Chatham House and the German Marshall Fund of the U.S.

Ending Russia’s war against Ukraine must include introducing more effective restrictions on Chinese dual-use exports to Russia’s military, researchers with the think tanks said. They acknowledged that it “will not be easy,” and new restrictions could invite retaliation from China and “temporarily push China and Russia closer together. However, the alignment between the two is here to stay and will grow, regardless of such decisions.”

The report argues that the EU should work with the Group of 7 nations to sanction EU and foreign companies in third countries that may be helping Russia evade sanctions. “This is currently only possible under US legislation,” the report said.

The researchers specifically called for a new EU secondary sanctions authority to allow the bloc to sanction foreign banks and other financial institutions that are helping to facilitate transactions of dual-use exports to Russia. The Biden administration announced a similar sanctions authority in a December executive order (see 2401120051 and 2312220023), and Treasury Secretary Janet Yellen said the measures have so far had a “meaningful impact” on Russian supply chains (see 2405230043).

This new EU authority should “mirror” the U.S. executive order, the report said. “This may become the most effective way of stopping such transactions, as the effect of the recent US threat to use this authority on the Chinese financial services sector has shown.”

The report also said the EU should increase export restrictions against all mainland Chinese and Hong Kong-based companies for “which there exists evidence of sanctions’ circumvention.” The bloc should combine those controls with more export enforcement inside EU member states, suggesting European governments should do a better job of penalizing companies for directly or indirectly exporting controlled goods.

European governments should also take into account whether a transaction could lead to “support for the Russian war effort” when evaluating a license application or an investment involving critical technologies, the researchers said. They said this could be a “longer term” change introduced in possible future economic security legislation.

Until then, the EU needs to do more to disrupt the “economic lifeline” China is giving Russia, the report said. “The EU cannot afford to hesitate further on how to end China’s support to Russia’s war efforts through dual-use equipment. It must do this in lockstep with its closest partners.”