Chinese Military Companies Sanctions

Chinese Military Companies Sanctions

898

Answer

E.O. of June 3, 2021 amends E.O. 13959 by replacing Sections 1 through 5 of E.O. 13959, as amended, and revokes E.O. 13974.  In particular, E.O. of June 3, 2021 amends E.O. 13959 to prohibit the purchase or sale by U.S. persons of any publicly traded securities, or any publicly traded securities that are derivative of such securities or are designed to provide investment exposure to such securities, of any person listed in the Annex to E.O. 13959, as amended by E.O. of June 3, 2021, or of any person determined by the Secretary of the Treasury, in consultation with the Secretary of State, and, as appropriate, the Secretary of Defense:

  • (i) to operate or have operated in the defense and related materiel sector or the surveillance technology sector of the economy of the People’s Republic of China; or
  • (ii) to own or control, or to be owned or controlled by, directly or indirectly, a person who operates or has operated in any sector described in clause (i) above, or a person who is listed in the Annex to E.O. 13959, as amended by E.O. of June 3, 2021, or who has otherwise been determined to be subject to the prohibitions in Section 1(a) of E.O. 13959, as amended by E.O. of June 3, 2021.

To implement E.O. of June 3, 2021, OFAC has published a list on its website containing the names of entities identified in or pursuant to E.O. 13959, as amended by E.O. of June 3, 2021, titled the Non-SDN Chinese Military-Industrial Complex Companies List (the “NS-CMIC List”).  In addition, OFAC is removing and replacing all previously issued Frequently Asked Questions (FAQs) related to E.O. 13959, as amended.  OFAC will refer to E.O. 13959 as amended by E.O. of June 3, 2021 as “E.O. 13959, as amended.”
 

Date Released
June 3, 2021

871

Answer

Consistent with FAQ 865, which clarifies that market intermediaries and other participants may engage in ancillary or intermediary activities that are necessary to effect divestiture during the relevant wind-down periods or that are not otherwise prohibited under E.O. 13959, as amended, transactions and activities by securities exchanges operated by U.S. persons involving the purchase or sale of publicly traded securities (or any publicly traded securities that are derivative of such securities or are designed to provide investment exposure to such securities) of any entity listed on the Non-SDN Chinese Military-Industrial Complex Companies List (the “NS-CMIC List”) are not prohibited. 

Date Released
June 3, 2021

865

Answer

Yes.  Market intermediaries, including market makers, and other participants may engage in ancillary or intermediary activities that are necessary to effect divestiture during the relevant wind-down periods or that are not otherwise prohibited under E.O. 13959, as amended.  Purchases or sales by U.S. persons (including investors and intermediaries) involving investment funds that are seeking to divest during the relevant wind-down periods are permitted.  See FAQ 901 with respect to the due diligence expectations associated with determining whether a particular purchase or sale is permissible. 

 

Date Released
June 3, 2021

863

Answer

For purposes of E.O. 13959, as amended, activity by U.S. persons related to the following services are considered permissible, to the extent that such support services are not provided to U.S. persons in connection with prohibited purchases or sales: clearing, execution, settlement, custody, transfer agency, back-end services, as well as other such support services. 

Date Released
June 3, 2021

861

Answer

Yes.  Under E.O. 13959, as amended, any purchase or sale of publicly traded securities, or any publicly traded securities that are derivative of such securities or are designed to provide investment exposure to such securities, of any CMIC listed on the NS-CMIC List is prohibited, regardless of such securities' share of the underlying index fund, ETF, or derivative thereof.

Date Released
June 3, 2021

860

Answer

Examples of financial instruments covered by this provision include, but are not limited to, derivatives (e.g., futures, options, swaps), warrants, American depositary receipts (ADRs), global depositary receipts (GDRs), exchange-traded funds (ETFs), index funds, and mutual funds, to the extent such instruments also meet the definition of "publicly traded security" as defined in section 3(c) of E.O. 13959, as amended.

Date Released
June 3, 2021

859

Answer

For purposes of E.O. 13959, as amended, the term “publicly traded securities” includes any “security,” as defined in section 3(a)(10) of the Securities Exchange Act of 1934, Public Law 73–291 (as codified as amended at 15 U.S.C. 78c(a)(10)), denominated in any currency that trades on a securities exchange or through the method of trading that is commonly referred to as “over-the-counter,” in any jurisdiction.

Date Released
June 3, 2021

857

Answer

The prohibitions in E.O. 13959, as amended, apply to a subsidiary of a Chinese Military-Industrial Complex Company (CMIC) listed on the NS-CMIC List only if such subsidiary itself is publicly listed on the NS-CMIC List by Treasury pursuant to E.O. 13959, as amended, or identified in the Annex of E.O. 13959, as amended.  OFAC’s 50 percent rule does not apply to entities listed solely pursuant to E.O. 13959, as amended.  Accordingly, the prohibitions on any subsidiaries listed on the NS-CMIC List would go into effect beginning 12:01 a.m. eastern time on the date that is 60 days after such subsidiary is added to the NS-CMIC List.  

 

Date Released
June 3, 2021