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Blacklisted China AI Firm Says One Unit Subject to Sanction

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(Bloomberg) -- SenseTime Group Inc., China’s largest artificial intelligence company, said in its filing for an initial public offering in Hong Kong that just one of its subsidiaries is subject to U.S. sanctions, a narrow interpretation of the blacklisting that could bolster its business.

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In its IPO prospectus, the company said that one of its subsidiaries, Beijing SenseTime, is covered under the Commerce Department’s entity list. The restrictions on that unit do not apply to other SenseTime entities, based on a legal opinion from the law firm Hughes Hubbard & Reed, the company said.

That would be a more limited blacklisting of SenseTime than generally understood. The company, which makes AI technology for facial recognition, was put on the entity list by former President Donald Trump’s administration for alleged human-rights violations against the minority Uyghur population, along with more than 20 other entities.

The firm was simply identified as “Sense Time” in the original 2019 announcement from the Commerce Department’s Bureau of Industry and Security, or BIS. The list was revised in 2020, though the agency’s language appeared to include more company units without lifting the overall blacklisting.

“BIS is modifying the existing entry for Sensetime by adding an additional name ‘Beijing Sensetime Technology Development Co., Ltd’, an additional alias ‘Beijing Shangtang Technology Development Co., Ltd.’ and identifying ‘SenseTime’ as an alias in the revised entry,” the agency said at the time.

It’s not clear whether the Commerce Department intended to allow SenseTime’s interpretation of the blacklisting.

“The Department of Commerce, with its interagency partners continually reviews available information, including whether parties are receiving items subject to the EAR, to assess whether parties should be added to the Entity List,” a spokesperson for the agency said. “Beijing SenseTime’s placement on the Entity List was the result of information available to the Department of Commerce and the End User Review Committee.”

A spokesperson for SenseTime didn’t immediately provide comment.

The SoftBank Group Corp.-backed company has thrived during the Covid-19 pandemic as the need to enforce lockdown measures increased demand for its facial-recognition software in China. SenseTime’s cameras have been used by the government to tell whether people are wearing masks, to read their temperatures and to determine their identities when their faces are covered.

“The Covid-19 pandemic is expected, in the long run, to accelerate the digital transformation of enterprises and city management, indicating more opportunities for the AI industry,” SenseTime wrote in the filing.

Read More: AI Firm SenseTime Said to Tap HSBC For $2 Billion Hong Kong IPO

In the filing, the company said its 2020 revenue rose 14% to 3.45 billion yuan ($533 million), while its operating loss widened to 1.81 billion yuan.

The company isn’t using U.S. banks in the IPO. China International Capital Corp., Haitong Securities and HSBC Holdings Plc are joint sponsors on the proposed offering, according to the filing. The IPO could raise at least $2 billion, depending on the valuation the company is seeking, people familiar with the matter have said.

(Adds Commerce Department comment.)

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