US Adds SenseTime to Chinese Military List, Considering Tighter SMIC Rules

The Office of Foreign Assets Control imposed investment restrictions on SenseTime Group Ltd., a major Chinese technology company, and sanctioned 15 people and 10 other companies for human rights abuses, the agency said Dec. 10. SenseTime, which had prepared to price shares Dec. 10 in its initial public offering in Hong Kong, will now be subject to a U.S. investment ban and added to OFAC’s list of companies with ties to China’s military (see 2106030067).

OFAC said it added SenseTime to its Non-Specially Designated Nationals Chinese Military-Industrial Complex Company list because it operates in China's surveillance sector. The company owns Shenzhen Sensetime Technology Co. Ltd, which develops artificial intelligence-powered facial recognition systems to target Uyghurs and other ethnic minorities in China, OFAC said. SenseTime in 2019 was added to the Commerce Department’s Entity List, which subjects it to strict export licensing requirements for certain goods (see 1910070076). The company didn’t respond to a request for comment.

The U.S. is also considering strengthening restrictions against other Chinese companies, including SMIC, which may be benefiting from a regulatory loophole, The Wall Street Journal reported Dec. 9. Although the Chinese semiconductor company was added to the Entity List last year (see 2012180039), the Defense Department is looking to tighten restrictions to better bar it from purchasing certain U.S. chip manufacturing equipment.

SMIC is subject to a license review policy of denial for items used to produce semiconductors at advanced technology nodes of 10 nanometers or below, but the company has still been able to buy “many” U.S. manufacturing tools that fall outside the scope of those restrictions, the report said. Defense Department officials recently proposed changing the licensing policy wording to restrict exports of items capable of producing semiconductors with 14-nanometer circuits and smaller.

But the agency has faced opposition from the Commerce Department, the report said, which fears increased restrictions could damage U.S. businesses and further exacerbate the global chip shortage. A Pentagon spokesperson said the agency doesn’t comment on interagency discussions. Commerce and SMIC didn’t comment.

Regardless of whether SMIC’s licensing restrictions are tightened, the U.S. will continue to add more Chinese companies to the Entity List, its investment restriction list and Specially Designated Nationals List in the coming months, the report said.

Those initial designations began this week, as OFAC also sanctioned Shohrat Zakir and Erken Tuniyaz, the former chairman and current acting chairman, respectively, of China’s Xinjiang Uyghur Autonomous Region (XUAR). OFAC said both Zakir and Tuniyaz led the XUAR as it used digital surveillance systems to detain more than 1 million Uyghurs and other Muslim minority groups.

OFAC also sanctioned people and entities associated with human rights abuses in other countries, including Bangladesh. The agency sanctioned the Rapid Action Battalion, a joint task force formed by the country’s military and police forces, as well as six RAB officials.

The agency also designated Russian and European entities for helping to export workers from North Korea, and sanctioned North Korea’s Central Public Prosecutors Office, North Korea’s state-owned animation studio SEK Studio and other associated people and companies.

Also designated are four Myanmar government officials and three Myanmar entities for operating in the country’s defense sector.