Management of legal compliance during a pandemic

By Zhang Ting, DOCVIT Law Firm

The novel coronavirus pandemic has severely battered global markets. Based on the impact of the pandemic on various provinces in China, their high courts issued, at the beginning of February, responses to various issues concerning the trial of commercial cases involving the COVID-19 pandemic, all of which have held, under different applicable conditions, that the pandemic constitutes force majeure.

Types of compliance risks

Termination of contracts due to pandemic as force majeure. Although the provisions on the conditions for the termination of contracts due to the pandemic as force majeure in different domestic regions are not completely identical, and the differences in the specific criteria for the determination of force majeure in the different legal jurisdictions at home and abroad are quite large, if the pandemic results in the termination of a contract, particularly a trade contract that is directly affected by domestic and/or international transport controls, or an investment or financing contract that is affected by the major jumbling effect on the industry layout caused by the pandemic, the parties involved can face high breakup fees and liquidated damages.

Zhang Ting
Director of International Legal Services

Restrictions on the cross-border movement of people. As many regions across the globe have implemented entry and exit restrictions, cross-border exchanges and work have been profoundly affected, e.g., employees of multinational corporations cannot carry on cross-border work or technical exchanges, and cross-border due diligence work and business discussions in cross-territorial investment and financing business affected by the pandemic cannot be conducted.

Customs risks involved in the provision of epidemic prevention supplies by group holding companies to their overseas subsidiaries. At present, certain countries and regions have placed restrictions on the export of certain medical supplies necessary to combat the pandemic. With the spread of the virus, the possibility that certain countries will implement restrictive measures, or exploit the pandemic to increase trade barriers in a clandestine manner, cannot be discounted.

More stringent reviews of overseas investments. For example, the regulations of the Committee on Foreign Investment in the United States (CFIUS), which came into effect on 13 February 2020, expand reviews of foreign investments and the scope of transactions subject to mandatory filing. It should be noted that investments by way of which a foreign investor, in which a foreign government has a substantive interest, secures a substantial interest in a TID (technology, infrastructure or data) company, or investments by way of which a foreign investor could acquire control of a US TID company that is involved in specific key sectors, require mandatory filing.

Furthermore, on 16 March 2020, the US Department of Commerce’s Bureau of Industry and Security placed Wuhan IRCEN Technology and 23 other entities from China, Iran, Pakistan, Russia and the UAE on its “entity list”, and on 18 March, the US Department of the Treasury’s Office of Foreign Assets Control placed 13 entities of six Chinese enterprises on the specially designated nationals (SDN) List for violation of US regulations on sanctions against Iran. From these incidents, it is obvious that US export controls are becoming more and more stringent.

Global laws and regulations

Since the novel coronavirus outbreak, countries have issued drafts or laws addressing the pandemic, starting initially with restrictions on the movement of specific persons, through to prohibitions against the export of medical protective equipment, which impact to different degrees commercial trade and global investment, and financing layouts and actions.

Publicly available information reveals that on 5 February, the office of the US president issued the Proclamation on Suspension of Entry as Immigrants and Non-immigrants of Persons Who Pose a Risk of Transmitting COVID-19 and Other Appropriate Measures to Address This Risk, restricting entry into the US for 14 days all foreigners who had spent some time in mainland China.

On the same day, the Indonesian Ministry of Trade issued notice No. 10 of 2020, suspending the import of live animals from China. On 13 February, the Ministry of Health, Labour and Welfare of Japan issued order No. 30, treating asymptomatic carriers of SARS-CoV-2 (the strain of coronavirus that causes COVID-19) as infected persons and targeting them as subjects of treatment.

On 25 February, India’s Ministry of Trade issued notice No. 48, placing restrictions on the export policy for masks and other such personal protective equipment, banning the export of N95 masks and NBR gloves. On 2 March, the Russian federal government issued the Provisions Temporarily Prohibiting the Export of Certain Types of Products from the Russian Federation, specifically masks, bandages, cotton thread, gauze, breathing equipment and gas masks.

On 4 March, Germany’s Ministry of Health issued the Provisions Prohibiting the Export of Medical Protective Equipment, prohibiting the export to foreign countries of medical protective equipment, with exceptions only permitted in such specific circumstances as international aid activities. On 6 March, South Korea’s National Assembly issued the Bill for Amending the Law for the Prevention and Management of Contagious Diseases, which, when the prices of preventive, epidemic prevention and treatment supplies skyrocket, or such supplies become scarce due to the COVID-19 pandemic or other such category A infectious disease, gives the government the authority to prohibit exports or shipments to foreign countries of health masks, hand sanitizer and protective equipment, with violators liable to prison terms of up to five years or fines of up to KRW50 million (about US$4 million).

Cross-border preventive measures

Firstly, it is necessary to keep a close eye in real time on the laws, regulations and policies issued by countries of concern on business and customs affairs, and summarize the relevant key points. With respect to risks, and the regulations and policies issued or updated by various countries from time to time, it is necessary to conduct risk screening and update the same every two weeks. Multinationals additionally have to timely share the above-mentioned information within the group.

They should also make arrangements for maintaining communications and contacts with the overseas business, and formulate appropriate response plans in light of the pandemic situations in, and policies of, different countries. Special concern has to be placed on, and reviews conducted of, foreign-related contracts and compliance matters, including such matters as management of overseas suppliers, protection of personal information, etc. In extraordinary times, Chinese counsel shall lead foreign counsel to guide the response to overseas litigation.

Zhang Ting is the director of international legal services at DOCVIT Law Firm

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