On December 28, 2020, the Department of the Treasury Office of Foreign Assets Control (OFAC) published awaited guidance on the implementation of Executive Order (EO) 13959, "Executive Order on Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies", which President Trump issued on November 12, 2020. EO 13959 will prohibit, as of January 11, 2021, purchases by U.S. persons of certain securities issued by so-called Communist Chinese military companies. OFAC's guidance comes in the form of Frequently Asked Questions (FAQs) 857, 858, 859, 860, and 861. The State Department also issued a press release the same day addressing OFAC's guidance.

The new FAQs, discussed below, address some-but not all-key questions asked by industry groups regarding the EO's scope. While OFAC is working on additional guidance that it may publish prior to January 11, 2021, fund managers, broker-dealers, investment advisors, banks and many others are now making challenging compliance and commercial decisions with limited information about this novel sanctions program.


EO 13959 continues recent Trump Administration efforts to confront "the [Chinese] national strategy of Military-Civil Fusion" through which commercial Chinese companies allegedly support Chinese military and intelligence activities. While past administration efforts have focused on the risks of technology transfers to China that might support Military-Civil Fusion (MCF), both the administration and some members of Congress had been considering measures to restrict investments in blacklisted Chinese firms for at least several months prior to EO 13959's issuance.

The EO establishes January 11, 2021, as the date on which "transactions" by U.S. persons in securities of certain Chinese issuers must cease. However, it also affords a 10-month wind-down period for U.S. persons to make purchases or sales "solely to divest, in whole or in part," from securities held as of that date. President-elect Joe Biden will face a range of challenges as he and his administration assess whether this and other Trump Administration sanctions measures advance its foreign policy and national security objectives.

Under Sec. 1(a)(i) of the EO, U.S. persons are prohibited, as of January 11, 2021, from "any transaction in publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities, of any Communist Chinese military company," as defined.

That term, "Chinese Communist military company," draws from Sec. 1237 of the National Defense Authorization Act for FY 1999, pursuant to which the Department of Defense was required to publish a list of such companies in the Federal Register within 90 days. While that did not occur, the Department of Defense purported to revive the provision this summer: it published two lists- one in June, one in August-"in accordance with the statutory requirements of" Sec. 1237. Under the terms of the EO, any of those Communist Chinese military companies (CCMCs) and any CCMCs subsequently identified by the Department of Defense, in consultation with the Department of the Treasury, are CCMCs for the purposes of the EO.1 In addition, a CCMC may be a company identified by the Department of the Treasury alone based on its independent assessment of the Sec. 1237 criteria: any person that is owned or controlled by the People's Liberation Army and is engaged in providing commercial services, manufacturing, producing or exporting.2 The Treasury Department may also designate subsidiaries of previously designated CCMCs.

Sec. 1(a)(ii) of the EO addresses situations where the Treasury or Defense Departments subsequently make CCMC designations. In those cases, the prohibition on transactions in publicly traded securities of those CCMCs (or derivatives of securities designed to provide investment exposure to such securities) would be effective 60 days after the designation.

Sec. 1(b) provides for a wind-down period of 10 months-from January 11, 2021, to November 11, 2021-authorizing U.S. persons to make "purchases for value or sales . solely to divest, in whole or in part, from" securities held as of January 11, 2021, in the CCMCs that the Department of Defense has already designated. Sec. 1(c) provides a comparable wind-down period for securities of subsequently designated CCMCs.

These wind-down periods by now are a familiar feature of U.S. sanctions programs, which increasingly target certain types of securities. The U.S. sanctions targeting Venezuelan sovereign debt and other Venezuelan securities were accompanied by general licenses authorizing U.S. persons to divest their holdings that were targeted by the sanctions measures. Notably, however, EO 13959 prohibits only "transactions," which means "the purchase for value of any publicly traded security," but does not-by its terms-prohibit holding the CCMC securities or selling them.

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1. The Department of Defense has since identified additional companies. See Department of Defense, DOD Releases List of Additional Companies, In Accordance With Section 1237 of FY99 NDAA (Dec. 3, 2020), https://www.defense.gov/Newsroom/Releases/Release/Article/2434513/dod-releases-list-of-additionalcompanies-in-accordance-with-section-1237-of-fy/.

2. Sec. 1237 also authorized the President to exercise authorities under the International Emergency Economic Powers Act (IEEPA) to target the "commercial activity in the United States" of CCMCs. The EO, however, does not rely explicitly on that authority and instead relies exclusively on IEEPA (and the complementary National Emergencies Act).

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