U.S. Announces Prohibitions on Investments in Chinese Military-Affiliated Companies

November 13, 2020

The President signed an Executive Order on November 12, 2020 prohibiting U.S. companies and individuals from investing in certain companies affiliated with the People’s Republic of China (PRC) military.

Specifically, starting January 11, 2021, any transactions in publicly-traded securities or securities that are derivative of (or designed to provide investment exposure to such securities) of certain listed PRC-affiliated entities will be prohibited. The E.O. refers to “Communist Chinese military companies,” which are defined differently in several portions of the E.O., but generally appear to refer to entities that the U.S. Department of Defense had previously added to its “Pentagon Lists” located here. There is an Annex to the E.O. that has yet to be released, but will reportedly list such entities. The Treasury Department and Department of Defense also have authority to determine that additional entities qualify as “Communist Chinese military companies” and therefore are subject to the investment restrictions.

If a PRC-affiliated entity is determined in the future to be a “Communist Chinese military company,” then U.S. companies and individuals will have 60 days following that determination before their investments are prohibited. Additionally, after a PRC-affiliated entity is determined to be a “Communist Chinese military company” in the future, U.S. investors will have one year to purchase or sell the securities for the purposes of divestment.

Neither the President, nor the Treasury Department or Department of Defense has issued guidance yet regarding the E.O., and it is unknown exactly how the new restrictions will be enforced, including after the Biden Administration takes office. We will continue to follow developments closely in this space.

If you have any questions or concerns about U.S. sanctions, please contact Bruce G. Paulsen (212-574-1533) or Andrew S. Jacobson (212-574-1477) at Seward & Kissel’s Sanctions Practice Group.