The U.S.-China trade conflict is flaring up again. After the launch of the Trump second-term administration, as the United States simultaneously strengthened tariff and export controls and the Uyghur Forced Labor Prevention Act (UFLPA), China is responding with export controls on key materials such as rare earths.
Korean corporations are closely watching the U.S. government's strengthened regulations on China. That is because Korean corporations that conduct transactions with China or are connected in various other ways could get caught in the crossfire. Companies that procure parts or materials and supplies from China or have Chinese investors holding equity face the risk of falling into the U.S. sanctions net. In such cases, there is a risk that customs clearance will be blocked under the U.S. UFLPA, or that secondary sanctions will be applied, leading to the suspension of payments or financial transactions.
Recently at the Seoul office of Kobre&Kim in Jongno-gu, Seoul, we spoke with attorney Lee Sung-hyun about how our corporations should respond to U.S. regulations. Kobre&Kim is a global law firm founded in 2003 by Korean attorney Kim Sang-yoon, the managing partner, together with attorney Steven Kobre. It has 15 offices in 10 countries around the world, including the United States, China, the United Kingdom, Brazil, and Dubai. Lee is a former U.S. federal prosecutor who primarily handled criminal cases involving public corruption, investment fraud, money laundering, and fraudulent transfer in taxation during the prosecutorial tenure.
—Please briefly introduce Kobre&Kim.
"We are headquartered in New York in the United States. We have satellite offices in certain regions, but we do not operate a model that simply covers local markets. We are a law firm specialized in handling matters with cross-border elements. In other words, the Seoul office does not handle only Seoul-based matters; we handle matters for clients in multiple countries, including the United States, Europe, and China."
—If you could, within what can be disclosed, introduce your background and representative matters you have handled so far.
"I often provide legal advice in niche areas. In the past, I worked in government, and not only at the Ministry of Justice but also at the Ministry of National Defense. At the Ministry of National Defense, I handled government contracts and defense industry contracts, and after moving to San Francisco, I handled environmental law issues as part of the Ministry of National Defense.
I did not work only as a prosecutor; I gained broad experience with government regulations overall. Based on this background, as geopolitical risk has grown, I mainly handle cases where enterprises or individuals are affected by U.S. government regulations.
Cases I have handled include litigation between the activist fund Elliott and Samsung (representing Elliott), litigation between Elliott and Hyundai Motor Group (representing Elliott), the botox dispute at the U.S. International Trade Commission (ITC) among Medytox, Daewoong Pharmaceutical, and HUGEL (representing Daewoong and HUGEL), the Terra-Luna case (representing Terra), and litigation related to Elon Musk's acquisition of Twitter (representing Twitter)."
—What changes have there been in the U.S. government's external regulations since the Ukraine-Russia war?
"Even before the war in Ukraine, U.S. government-level regulations existed through the Department of Justice and the Office of Foreign Assets Control (OFAC) under the Department of the Treasury. In the past, the main targets were terrorist groups, North Korea's nuclear programs, and hacking groups, but after the war in Ukraine, the focus shifted to pressuring Russia-related corporations and oligarchs.
When Russia-related corporations or oligarchs are added to the Specially Designated Nationals and Blocked Persons List (SDN List) managed by OFAC, they are subject to economic trade sanctions. Basically, they are blocked from using dollars and banks, which greatly disrupts their business, and U.S. corporations cannot conduct transactions with them. Even corporations outside the United States may face secondary sanctions if they conduct transactions with them, so Korean corporations could be blocked from using dollars and face account freezes or the risk of criminal penalties.
In fact, under the Biden administration, measures were taken to block icebreaker construction and other projects related to Russia's energy procurement routes. As a result, overseas companies that had already signed procurement contracts found themselves in a difficult situation. You can also get entangled in problems if you transact with corporations for which a Russian oligarch on the SDN List is the ultimate beneficiary."
—Are you saying Korean businesspeople or Koreans could end up on the SDN List? In what circumstances would that happen?
"It is possible. Most simply, if you are involved in financing Russia's war in Ukraine, directly provide weapons to Russia, bankroll the Putin government, or conduct transactions with oligarchs who work closely with Putin in defiance of sanctions and thereby confer benefits on them, you could be added to the SDN List.
It may seem questionable whether a Korean businessperson would do that, but if a Korean corporation continues to conduct transactions with corporations owned by Russian oligarchs on the SDN and thereby confers benefits on or assists them, OFAC could view that in itself as grounds to designate the Korean company as a sanctioned entity."
—Could a businessperson be added to the SDN List without knowing it?
"It can happen without their knowledge. And not knowing does not automatically confer immunity. Unlike basic administrative measures, the SDN List targets individuals or corporations deemed to undermine U.S. national security. The problem is that these sanctions are largely a response to geopolitical risk, so they are not easy to overturn or appeal through existing legal frameworks. Put simply, this is an area where the U.S. government's discretion is very broad. From the corporation's perspective, it can feel unfair."
—What changes do you expect in such regulations under the Trump second-term administration?
"Rather than the regulations themselves changing, the focus could shift. The intensity of regulations on Russia is in fact decreasing. By contrast, regulations on China are rising.
From the perspective of Korean corporations, while adjusting existing work with Russia, they could face another set of difficulties in transactions with China. In the case of China, other types of sanctions in addition to OFAC sanctions are increasing."
—What new regulations are increasing with respect to China?
"Under the U.S. Department of Homeland Security (DHS), there is a unit called the Forced Labor Enforcement Task Force. Through it, they block the import of products, services, and minerals made with forced labor.
In particular, through the Uyghur Forced Labor Prevention Act (UFLPA), they block the import of goods originating from the Uyghur region. The scope of application of this "forced labor" is quite broad, and corporations that fall under it can face the significant disadvantage of having imports blocked altogether.
The U.S. government basically takes the stance that "products or technologies produced through unlawful means cannot be brought into the United States." In other words, only those that are lawful and meet U.S. standards will be allowed. However, politically speaking, some view it as a tool to pressure Chinese corporations or individuals. In reality, given the prevalence of production through forced labor in China, it can be seen as effectively targeting China. During the Trump era, many such China-targeted actions are likely to occur."
—How are sanctions related to technology exports implemented?
"The Bureau of Industry and Security (BIS) under the U.S. Department of Commerce enforces sanctions through the Export Administration Regulations (EAR). These sanctions restrict the export of technologies classified as "dual-use items," which the U.S. government defines as having both military and commercial purposes, or restrict foreign person access to them.
Violations can be punished at a serious level, both civilly and criminally. In fact, there was a case in which a Korean engineer who had worked at a major U.S. defense contractor left the job, started an enterprise in Korea, and then, on charges of using dual-use technology not authorized for export from the U.S., went through extradition proceedings and resolved the case in the United States. Recently, such sanctions have increasingly been applied to Chinese individuals and Chinese companies."
—It seems Korean businesspeople are still not very sensitive to U.S. sanctions.
"It seems that is because not many Korean corporations are on the SDN List. But they should not be complacent. I am actually handling a case involving a Korean corporation experiencing difficulties related to Russia sanctions.
The reason Korean corporations get entangled is that legal professionals are unfamiliar with U.S. government regulations and sometimes miss things. For example, while a parent company and subsidiary are legally separate entities, government regulation does not parse legal meanings. It focuses on who benefits and who is affected. Therefore, even if a company is legally independent, if an examination of actual business relationships or ownership leads to the conclusion that they are effectively the same organization, pressure can be applied."
—If a businessperson ends up on the SDN and faces a crisis, how should it be resolved?
"Once you are on the SDN, it is very difficult to get your name removed, so you must resolve it before you get on it. The best approach is to identify signs in advance that you may be added to the SDN and respond. Foreign companies have developed compliance functions and check sanctions risk through deep-dive analyses of counterparties to transactions. But in Korea, many corporations still have not developed that sufficiently.
If you are added to a sanctions list, we can proactively conduct fact-finding to prove we are entirely unrelated and, based on the results, apply for delisting.
In addition, we need to carry out projects together that can instill confidence that "we do not harm the United States" at all. This could take the form of investment or exchanges such as signing a memorandum of understanding (MOU)."
—Are there cases where competitors exploit sanctions risk to attack weaknesses?
"Yes. In the case of the engineer who worked at a U.S. defense contractor and then started a business in Korea, a person who had worked with the engineer reported the matter to the U.S. government. Someone who worked inside and had grievances, or who moved to another company in a competitive relationship and knew internal vulnerabilities, can raise issues through that knowledge."
—What is the key to resolving international sanctions disputes?
"When such issues erupt, investor relations (IR), government relations (GR), and public relations (PR) become just as important as the legal issues. It is a comprehensive craft that requires looking beyond simple legal resolution to the entire business. The moment sanctions risk erupts, investor relations and government procurement can suffer heavy blows.
We proceed not only by looking at the legal aspects, but also like a head coach overseeing the sequence and timing of IR, GR, and PR.
Moreover, when such issues surface, we can also handle the personal criminal matters that often arise. That is because, during my time as a federal prosecutor, I directly investigated and experienced parallel proceedings such as Interpol red notices, extradition requests, and joint investigation requests with Korean prosecutors."