Overview
The Sanctions Update, compiled by attorneys from Steptoe’s award-winning International Regulatory Compliance team and the Stepwise: Risk Outlook editorial team, publishes every Monday. Guided by the knowledge of Steptoe’s industry-leading International Trade and Regulatory Compliance team, the Sanctions Update compiles and contextualizes weekly developments in international regulatory enforcement and compliance, as well as offers insights on geopolitical context, business impacts, and forthcoming risks.
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The Lede
China Imposes Export Bans on European Companies in Retaliation Against EU Sanctions
On July 24, China’s Ministry of Commerce (MOFCOM) added 14 European companies to its export control list, prohibiting the supply of dual-use items of Chinese origin. Beijing explicitly linked the bans to the EU’s 21st sanctions package approved the previous day that imposed sanctions on 14 enterprises from China and Hong Kong for allegedly supporting Russia’s war effort. These sanctions and counter-sanctions reflect the expanding risks of Ukraine war spillover onto EU-Chinese trade relations and, more broadly, risks to western strategic supply chains.
Politics Behind Sanctions Countermeasures
On July 23, EU leaders adopted the 21st package of restrictive measures against Russia in response to its war of aggression against Ukraine. The EU seeks to further undermine Russia’s economy and war machine, limiting Moscow’s ability to deliberately target civilian infrastructure, including energy, water and health facilities, cultural and religious sites, and causing severe hardship for the civilian population. Among the multi-sector sanctions, the EU imposed export restrictions on 51 new entities, including 27 third-country entities supporting Russia’s military and industrial complex and assisting Russia’s circumvention of export restrictions – among these are 14 entities from China and Hong Kong.
The following day, MOFCOM retaliated against the EU action by adding 14 European companies operating in the technology, chemical, and defense sectors to its Export Control List with immediate effect. The action was taken under the authority of the Export Control Law of the People's Republic of China and the Regulations of the People's Republic of China on Export Control of Dual-Use Items. Alongside prohibiting Chinese exporters from supplying controlled dual-use items to the 14 European companies, Beijing added an extraterritorial application by banning overseas organizations and individuals from transferring or providing them with Chinese-origin dual-use items. The restrictions apply to goods with both civilian and military uses. Beijing cited national security and the need to fulfill international obligations “such as non-proliferation” in response to what it described as “egregious actions” by the EU.
The export controls indicate Beijing’s commitment to its trading relationship with Russia by raising the cost to the EU for trying to pressure China over the issue. The speed signals Beijing’s decisiveness and intention to establish escalatory dominance. Since 2020, Beijing has been overhauling its export control framework to consolidate and modernize existing legislation, expand its ability to counter what it considers unlawful extraterritorial jurisdiction and establish a legal basis for extraterritorial applications for export control. These efforts closely mirrored the US system, providing countermeasures to expanding US trade restrictions on China. Beijing’s trade tools have proven effective, forcing some guardrails in the evolving US-China trade war.
Potential Impact on EU-Chinese Trade Relations and Strategic Supply Chains
The export control countermeasures come as the European Commission seeks to develop new trade defense tools to tackle the EU’s unsustainable trade deficit with China and Beijing’s industrial production model. Existing EU trade defense tools include anti‑dumping and anti‑subsidy measures, safeguard measures, the Foreign Subsidies Regulation, and increasingly strict foreign investment screening mechanisms. The EU is considering expanding the scope of these instruments and/or deploying them more aggressively in sectors seen as strategically important. As part of a de-risking strategy, EU leaders are implementing trade policy to help European businesses more quickly diversify the supply of critical components concentrated in one or two countries to avoid critical chokepoints that can be weaponized. These trade defense instruments may be presented as early as September in European Commission President Ursula von der Leyen’s State of the Union address.
Beijing’s measures could weaken political support within the EU for additional trade measures under discussion by imposing immediate costs on EU sanctions. Beijing does not define which dual-use items are subject to export bans for each designated entity. But the list of companies, including Germany’s Rheinmetall AG, Poland’s Vigo Photonics and France’s InPACT, operating in the defense, technology, and chemical sectors respectively, suggests that China is seeking to further leverage its dominance over critical minerals to put pressure on the EU’s strategic supply chain. Almost all of the global capacity for rare-earth-metal conversion and alloy making is in China. Rather than imposing a country-wide export ban on specific critical minerals, which could risk a trade rupture – such as the 2025 flare-up between the US and China – the current approach is more targeted and calculated to compel the EU to negotiate and walk back any additional trade measures in the works. If the EU persists, it could risk a broader set of Chinese measures that could hamper Europe’s defense modernization program. Alternatively, the EU could try to accelerate diversification by adopting more expansive industrial policies and defense trade tools, forging new strategic partnerships with resource-rich countries and allied technology partners.
US Developments
Sanctioning Russia Act Passes the Senate
On July 28, 2026, the Senate voted 86-12 to advance the “Lindsey O. Graham Sanctioning Russia Act of 2026,” a sweeping Russia sanctions bill. The vote clears the way for House deliberation, although the House’s August recess is expected to delay further action.
We covered the latest push for the bill in our previous Sanctions Update on July 20, 2026. The legislation was first introduced in April 2025 and garnered strong bipartisan support in the Senate. Previously, we reported that the bill regained momentum after U.S. President Donald Trump signaled support in November 2025, provided he regained flexibility over its sanctions and tariffs. In addition, we noted that the late Senator Graham had said President Trump “greenlit” the Act in January 2026, though it was not voted on at that time.
The most recent version of the legislation seeks to increase economic pressure on Russia and Iran while granting Trump new tariff authority. Under the bill’s tariff provision, Trump would be able to impose tariffs of up to 100% on the top five importers of Russian energy.
The bill’s tariff provisions remain a point of debate. On July 30, 2026, Trump said Congress should add tariffs on Iran to the Russia sanctions bill. Some House Democrats have voiced opposition to the tariff provisions, including Representative Richard Neal (D-MA) and Senator Ron Wyden (D-OR), who released a joint statement criticizing the bill for granting Trump new tariff authority.
OFAC Continues to Target Iranian Maritime, Petroleum, and Procurement Networks
On July 29, 2026, the Office of Foreign Assets Control (“OFAC”) designated two entities allegedly involved in an Iranian maritime insurance scheme that compels commercial vessels transiting the Strait of Hormuz to purchase approved insurance coverage. The action was taken pursuant to Executive Order (“E.O.”) 13902, which targets key sectors of Iran's economy, including the petroleum sector.
In the same action, OFAC designated eight vessels that OFAC said were “responsible for transporting millions of barrels of Iranian crude oil and petroleum products.” Additionally, eight entities were designated pursuant to E.O. 13902 for “operating in the petroleum sector of the Iranian economy.” The designations build on OFAC actions taken on July 14, 2026, April 15, 2026, and July 30, 2025, targeting a shadow shipping network. Collectively, those actions sanctioned more than 200 individuals, entities, and vessels alleged to facilitate Iran's illicit petroleum trade.
On July 30, 2026, OFAC designated six entities and individuals in China, India, Russia, and Iran for allegedly supporting Iranian carrier Mahan Air. According to OFAC, Mahan Air “play[s] a central role in enabling the Islamic Revolutionary Guard Corps (‘IRGC’), providing travel services for IRGC‑Qods Force personnel, facilitating military training, and supporting Iran’s procurement and transport of unmanned aerial vehicle (‘UAV’) systems and weapons.” The sanctioned parties include entities and individuals that allegedly served as sales agents for, or provided transportation-related assistance to, Mahan Air. This action is pursuant to E.O. 13224, which targets terrorist groups, their supporters, and those who aid acts of terrorism, and in furtherance of the National Security Presidential Memorandum 2, which directs the U.S. government to deny IRGC access to assets and resources.
Treasury Announces Second Round of Sanctions Removals
On July 27, 2026, OFAC removed 84 individuals and entities from the Specially Designated Nationals and Blocked Persons List (“SDN List”), including deceased individuals, defunct entities, and targets sanctioned more than 20 years ago that were no longer considered U.S. national security or foreign policy priorities.
This action builds on Secretary of the Treasury Scott Bessent’s announcement that Treasury would modernize its sanctions to ensure that U.S. sanctions remain targeted, effective, and aligned with U.S. economic, foreign policy, and national security priorities. OFAC’s first round of removals on May 28, 2026 resulted in the removal of 76 individuals and entities, including deceased individuals, scrapped or decommissioned vessels, persons designated as part of illicit financial networks that no longer exist, and individuals designated more than 10 years ago who lack sufficient identifiers for continued screening and do not appear to pose an ongoing threat.
UK Developments
HMRC Publishes Technical Note on Trade Sanctions Enforcement
HMRC has published a technical note on trade sanctions enforcement for the 2025 – 2026 period. The note states that HMRC, in collaboration with Border Force and UK prosecution authorities has undertaken a wide range of enforcement activity in the reporting period, including 58 seizures of sanctioned goods, one compound settlement for violation of the UK’s Russia trade sanctions regime, 18 HMRC warning letters issued following voluntary disclosures, and 3 positive charging decisions across two cases that are pending criminal trials. The note also highlights that HMRC received 44 enforcement referrals from OFSI during the reporting period.
The note also confirms that in 2026 / 2027 HMRC plans to seek new legal powers to strengthen its ability to publish details of companies that agree to a compound settlement for strategic export controls and sanctions offences. The purpose of this new approach is to improve transparency and increase consistency of approach between HMRC and other trade sanctions enforcement agencies across government.
HMRC Issues Two Compound Penalties for Unlicensed Exports of Military Items
HMRC has published anonymised details of two recently concluded compound settlements with two UK exporters. In June 2026, two UK exporters paid compound settlements of £216,530.30 and £20,889.15 to HMRC, in each case relating to unlicensed exports of military-listed goods and related activity prohibited by the Export Control Order 2008 and contrary to the Customs and Excise Management Act 1979. These enforcement actions underscore a continued focus on enforcement by HMRC.
EU Developments
EU Council Updates Sanctions Listing under EU Global Human Rights Regime
The EU Council recently designated seven individuals and three entities under the EU Global Human Rights Sanctions Regime for their involvement in serious human rights violations connected to the operation of scam centers in Southeast Asia. The new listings target Cambodia-based conglomerates Prince Holding Group and Jin Bei Group, together with their respective chairmen, Chen Zhi and Zhu Zhongbiao, as well as the Democratic Karen Benevolent Army (DKBA) and five senior DKBA officials. According to the Council, the designated entities and individuals were involved in, or facilitated, large-scale scam-center operations in Cambodia and Myanmar/Burma, where victims were allegedly trafficked or lured under false pretenses, held against their will, forced to participate in online fraud schemes, and subjected to abuse, torture, kidnapping, and illegal detention.
Newly designated individuals and entities are subject to asset freezes, a prohibition on making funds or economic resources available, and, in the case of the listed individuals, an EU travel ban.
EU Council Revises Sanctions Regimes Targeting Iran
The EU Council introduced a series of updates to the restrictive measures against Iran established under Decision 2010/413/CFSP and Regulation (EU) 267/2012. Following a review of the sanctions list, the Council delisted three senior Islamic Revolutionary Guard Corps (IRGC) and updated the statement of reasons for the designation of the Research Centre for Explosion and Impact (METFAZ). The Council also designated Iranian businessman Ali Ansari and the MAPNA Group, citing their support for the Government of Iran, with MAPNA additionally designated for supporting Iran's proliferation-sensitive nuclear activities.
In addition, the EU Council introduced new derogations under Regulation (EU) 267/2012 and Regulation (EU) 2023/1529, to facilitate humanitarian activities and the functioning of EU and Member State diplomatic representations in Iran. Under the new provisions, Member State competent authorities may authorize the sale, supply, transfer, transit or export of goods and technology referred to in Article 2(1) of Regulation (EU) 2023/1529 and Articles 2(1) and 5(1) of Regulation (EU) 267/2012, as well as related technical and financial assistance, where necessary for medical, pharmaceutical or humanitarian purposes, or for the official purposes of diplomatic representations of the EU and Member States, including delegations, embassies and missions, in Iran.
The newly introduced derogations are intended to facilitate the official functions of EU and Member State diplomatic representations in Iran by allowing the use of goods and software needed for the processing of visa applications. In the case of the derogation under Regulation (EU) 267/2012, authorizations remain subject to applicable export control requirements under the EU Dual-Use Regulation and, for items controlled under the Nuclear Suppliers Group and Missile Technology Control Regime lists, to additional non-proliferation safeguards and prior case-by-case review.
EU Council Renews Restrictive Measures Addressing Iran's Military Support to Russia, Armed Groups and Entities in the Middle East and the Red Sea Region, and Actions Undermining Freedom of Navigation in the Middle East
On July 24, the EU Council renewed the sanctions regime in view of Iran’s military support to Russia’s war of aggression against Ukraine and to armed groups and entities in the Middle East and the Red Sea region, as well as Iran’s actions undermining freedom of navigation in the Middle East under Council Decision (CFSP) 2023/1532 for another year, until July 27, 2027. Alongside the renewal, four individuals were removed from the sanctions list.
Asia-Pacific Developments
China Warns of Retaliation Against Potential US AI Sanctions
China said it would take “all necessary measures” to protect its interests if the US imposes sanctions on Chinese AI companies over accusations that they used American AI models to train their own systems through a technique known as model distillation. China’s Ministry of Commerce rejected the allegations as unfounded and politically motivated, calling them an example of “AI hegemony” and criticizing what it described as a US smear campaign. The dispute intensified after US Treasury Secretary Scott Bessent said Washington would examine Chinese AI models for evidence of intellectual property theft, reflecting concerns previously raised by various US companies. China defended distillation as a widely used industry practice, argued that some Chinese models have achieved leading capabilities on their own merits, and also claimed that US firms have used Chinese models in similar ways. Despite the sharp rhetoric, Beijing urged greater US-China dialogue and cooperation on AI governance and development.
China Urges US to End Threats and Sanctions Against Cuba
Chinese Foreign Ministry spokesperson Mao Ning said that the US should immediately stop threatening Cuba with force and end its unilateral blockade and sanctions against the country. Responding to reports that Washington has been considering various options for possible military action against Cuba, Mao stated that China has consistently expressed its position on the issue and reaffirmed Beijing’s firm support for Cuba’s efforts to safeguard its national sovereignty and resist foreign interference. She added that China will continue working with the international community to uphold fairness, justice, and the principles of international law.
