Treasury’s Iran “Economic D-Day”: 60 Parties and Not One Bank

Can a Bank Satisfy Both a US Designation and China’s Blocking Order?

Two legal systems can disagree indefinitely without creating a problem, so long as a party can satisfy both at once. The conflict becomes real only when one system prohibits the exact act the other is built to induce, because at that point compliance stops being a matter of judgment and becomes a choice about which law to break.

Courts & Constitutional Law. That is the position the May 2 order creates. It prohibits recognizing, enforcing or complying with the US measures imposed on the five named companies under Executive Orders 13902 and 13846. The question for a bank is not whether it agrees, but whether any course of conduct satisfies both instruments. On the face of them, none does.

US law has a name for this. In Hartford Fire, the Supreme Court held that comityThe principle that one state's courts may defer to another's law. Under Hartford Fire it displaces US law only where a true conflict exists, meaning a party cannot obey both states at once. displaces US law only where a true conflict exists, meaning a party cannot obey both states at once. Beijing's order manufactures precisely that predicate. Whether a US court would ever apply that reasoning to a sanctions designation is a separate and much harder question, and nothing here suggests a counterparty has a comity defense at OFAC.

Markets & Finance. Silence is not an exit. In Bank Melli Iran v. Telekom Deutschland, decided under the EU Blocking Statute, Regulation (EC) 2271/96, the Court of Justice of the European Union held that a company may terminate a contract without giving reasons, then placed the burden on the operator to establish that its conduct did not seek to comply with the foreign sanctions. You may decline to explain yourself. You will still have to prove why you acted.

It is no longer theoretical. In February and March, the Shanghai and Beijing financial courts accepted damages claims by a Chinese energy company against two US correspondent banks over their implementation of OFAC measures, seeking about 40 million dollars. Both remain pending, and acceptance of a filing in a Chinese court is a threshold rather than a finding. But the defendants are correspondent banks, which is the same account relationship through which Washington asserts its jurisdiction in the first place.

There are two narrow exits, and neither satisfies both systems. Each is a permission from one side to disobey it. China's blocking rules let a Chinese party apply for an exemption from the prohibition, decided within 30 days, on criteria the rules do not state and against no published register, and it operates as a complete defense to the damages claim. The other exit is structural rather than legal: ring-fence the China-facing business from the dollar-clearing entity.

Has China Used Its Broadest Instrument Against the United States?

The capabilities a government builds tell you what it can do, and the ones it declines to use tell you what it intends. When an adversary holding a general instrument reaches for a narrow one instead, the choice of weapon is the message, and the restraint is where the negotiation is actually happening.

Public Administration. China did not simply dust off an old blocking statute in May. Within about a week this spring the State Council issued two new decrees. Decree No. 834 covers industrial and supply-chain security, and reaches companies that decline to transact with Chinese counterparties because of foreign sanctions designations. Decree No. 835, the Regulations on Countering Foreign Improper Extraterritorial Jurisdiction, was signed by Premier Li Qiang, published in April and effective on publication.

It is a far broader instrument than the 2021 blocking rules, which bind Chinese citizens, companies and organizations. Once the Ministry of Justice identifies a foreign measure as improper, no organization or individual may implement or assist in implementing it. Article 8 establishes a Malicious Entity ListA designation list under Decree 835. Law firm analyses describe the available countermeasures as reaching asset freezes, transaction and data-transfer bans and entry and residence restrictions, extending to entities merely controlled by a listed party. . Article 14 creates a private right of action. Article 18 carries a criminal-liability provision the 2021 rules do not, though on Reed Smith's reading the regulations do not themselves create standalone offences.

Beijing has used it twice, and both times against the European Union. On May 15 the Ministry of Justice found that the European Commission's Foreign Subsidies Regulation investigation of Nuctech constituted unlawful extraterritorial jurisdiction. On August 20, four days before Washington's campaign, it made the same finding about the Commission's investigation of JD.com, and stated that "no organization or individual may comply with or assist in implementing" it. Against the United States it has used only the older rules: a single Ministry of Commerce order, on May 2, naming five companies.

There is an innocent reading, and it deserves a hearing. Decree 835 requires an identification process and a designated department, while the 2021 rules already had a working mechanism that could act in days, so the choice might be sequencing rather than strategy. The dates do not support it. The Ministry of Justice completed the 835 process against Brussels on May 15, thirteen days after MOFCOM acted against Washington. Whatever the newer instrument requires, it was completable inside a fortnight, and Beijing has now run it twice while leaving the American measures to the narrower one.

Strategy & Operations. Washington's restraint is the mirror image, and it is the half of this argument most likely to date quickly. Seventeen months of designating Chinese counterparties has reached refiners, ports, agents and vessels and stopped short of the major Chinese banks that finance the trade. Bloomberg reported this month that the approach has been to apply pressure "without hurting relations with Beijing or driving up the oil price." In April, Treasury sent warning letters to financial institutions in China, Hong Kong, Oman and the UAE. Letters, not designations.

Bessent has now put a clock on that. He told CBS he expects a major financial institution to be sanctioned by the end of this week, and framed today's forbearance as a deliberate cure period rather than a limit: "We are giving everyone the opportunity to remedy bad behavior. Why would I want to blow up the global financial system?" Read plainly, that is the administration saying the rung is sequencing, not judgment. It is also the cheapest possible test of everything above, and it resolves within days rather than months.