Within the past two weeks, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has added nine additional companies to its Non-SDN Chinese Military-Industrial Complex List (Non-SDN CMIC List) under the Chinese Military Company Sanctions Program.
Specifically, on December 10, 2021, OFAC added SenseTime Group Limited to the Non-SDN CMIC List under Executive Order 13959, as amended by E.O. 14032. On December 16, 2021, OFAC added eight companies to the Non-SDN CMIC List, including Cloudwalk Technology Co., Ltd, Dawning Information Industry Co., Ltd., Leon Technology Company Limited, and Megvii Technology Limited. These two actions represent the first instances since June 2021 that the Biden Administration has added new entities to the Non-SDN CMIC List under the Chinese Military Companies Sanctions. Identifying information for the entities recently designated can be found here and here, and the updated Non-SDN CMIC List is located here.
OFAC’s Chinese Military Company Sanctions prohibit U.S. persons from purchasing or selling 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 entity that has been added to the Non-SDN CMIC List, which reflects entities that OFAC has determined operate or have operated in the defense and related material sector or the surveillance technology sector of the People’s Republic of China (PRC) economy, or otherwise own or control, or are owned or controlled by, directly or indirectly, an entity that operates or has operated in such sectors. As a reminder, OFAC’s 50% Rule does not apply to those entities on the Non-SDN CMIC List – thus, unless a listed entity’s subsidiary or affiliate is itself specifically listed, then that subsidiary or affiliate will not necessarily be subject to the restrictions contained in E.O. 13959, as amended by E.O. 14032. See OFAC FAQ 857.
In summary, OFAC’s latest actions are a clear focus on entities operating in the surveillance technology sector of the PRC economy, which served as the designation basis for most of the entities added to the Non-SDN CMIC List above. The U.S. Commerce Department’s Bureau of Industry and Security also issued a final rule adding 37 new foreign entities to the Entity List for engaging in activities contrary to the U.S.’s foreign policy or national security interests.
We will continue to closely monitor developments in this space. If you have any questions regarding U.S. economic sanctions, please contact Bruce Paulsen (212-574-1533) or Andrew Jacobson (212-574-1477) of the Sanctions Practice Group.