Executive Order Prohibits U.S. Persons From Investing In “Communist Chinese Military Companies”

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President Trump issued an Executive Order (“E.O.”) on November 12, 2020 titled “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies.” The E.O., which will be published in the Federal Register on November 17, 2020 and will take effect on January 11, 2021 at 9:30 eastern standard time, designates thirty one (31) Chinese companies as “Communist Chinese military companies” and prohibits U.S. persons, including U.S. citizens, permanent resident aliens, entities organized under U.S. law or any persons in the United States, from conducting “transactions” in publicly traded securities issued by those Communist Chinese military companies. The E.O. defines a “transaction” as “the purchase for value of any publicly traded security” and also applies to securities that are derivatives of or are designed to provide investment exposure to publicly traded securities issued by the Communist Chinese military companies.

The E.O.’s list of entities identified as Communist Chinese military companies is identical to those Communist Chinese military companies previously identified by the Department of Defense (“DOD”) under the 1999 National Defense Authorization Act in an initial list issued June 12, 2020 and a subsequent list issued later in August 2020. The identified companies are part of China’s military-industrial complex and include the aerospace, shipbuilding and telecommunications industries. Many of the listed companies are publicly traded on U.S. exchanges, such as China Telecom and China Mobile, while others, like Huawei, are privately held. The E.O. does provide investors with a one-year grace period until November 11, 2021 to entirely divest from these 31 Chinese companies.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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