Most people read China's first blocking order as a shield for Chinese firms. For companies caught in the middle, it's the opposite — it puts the conflict squarely on their desk.
Here's what actually happened, precisely. On May 2, 2026, China's Ministry of Commerce issued its first-ever blocking order. The legal basis — the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation (the "Blocking Rules") — has existed since January 2021, but this is the first time in five years it was actually invoked. That's why international firms are only now publishing detailed analyses: the rule of the game shifted.
The order targets five Chinese local refineries listed by the US OFAC on the SDN list for buying and processing Iranian crude (over March 2025–April 2026). It prohibits entities in China from recognizing, executing, or complying with OFAC's sanctions against those five. It applies to Chinese citizens, legal persons and organizations — including foreign-invested subsidiaries operating in China — but not to foreign individuals in China.
That's where the "sandwiched" problem bites. Banks, insurers, suppliers with one foot in USD settlement and the other touching a sanctioned entity used to answer to just one side. Now: freeze and cut off per OFAC, and you breach the blocking order; keep transacting per the blocking order, and OFAC penalizes you anyway. From managing one regulator to a genuine compliance conflict.
My habit in cross-border compliance is to assume the worst case first — both orders landing at once — and ask whether you hold a decision record that survives scrutiny. So three practical moves:
- Map your exposure. List every high-risk transaction that touches both sides. Don't freeze or cut off anything before that map is clear.
- Use the official channels. The Blocking Rules provide reporting and exemption mechanisms. Silently absorbing the conflict is the worst option.
- Document everything. Every decision, its basis, who you consulted — in writing. That record is your defense whichever side asks.
Local OFAC application varies case by case — rely on local counsel and current rules.
First step: spend half a day listing your "touches-both-sides" transactions. Stuck? Send me the specifics.
#CrossBorderLaw #SanctionsCompliance #ChinaLaw #OFAC #InternationalTrade
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Mike Wu, China-licensed Attorney · Cross-border practice
4 languages (CN/EN/ES/JA)
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