U.S. Removes Xiaomi from List of Banned Chinese Companies

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Highlights

  • The U.S. government has officially removed Chinese smartphone maker Xiaomi Corp. from its blacklist, ending the Trump-era ban prohibiting Americans from investing in the company.
  • In their joint filing that was approved by the U.S. District Court for the District of Columbia, the U.S. Department of Defense (DoD) and Xiaomi provided the final order to end the litigation and formally remove the Chinese firm from the list of Communist Chinese military companies (CCMC).
  • FTSE Russell said it will add back to its global indexes Xiaomi and another CCMC-listed firm that sued, Luokung Technology.

The U.S. government officially removed Chinese smartphone maker Xiaomi Corp. from its blacklist, ending the Trump-era ban prohibiting Americans from investing in the company.

In their joint filing in the U.S. District Court for the District of Columbia, the U.S. Department of Defense (DoD) and Xiaomi submitted the final proposed order to end the litigation and formally remove the Chinese company from the list of Communist Chinese military companies (CCMC). U.S. District Judge Rudolph Contreras accepted and signed the order on May 25, 2021.

Pursuant to Executive Order (EO) 13959 of Nov. 12, 2020, and the amending EO 13974 of Jan. 13, 2021, U.S. persons are prohibited from trading in securities, both in the United States and abroad, of companies that are designated as CCMCs. CCMCs are companies that DoD has determined are owned or controlled by the Chinese People's Liberation Army (PLA) and support the modernization goals of the PLA by ensuring its access to advanced technologies and expertise acquired and developed by companies, universities and research programs that appear to be civilian entities. (See previous Holland & Knight alert, "U.S. Persons Barred from Trading in Securities That Finance Communist Chinese Military Companies," Nov. 17, 2020.)

Xiaomi was one of nine companies designated as a CCMC on Jan. 14, 2021. Xiaomi filed a lawsuit over its inclusion on Jan. 29, 2021, against DoD and its Secretary, the U.S. Department of the Treasury and its Secretary, and the U.S. president in the District Court (Xiaomi Corporation v. U.S. Department Of Defense et. al., Complaint; Civil Docket No. 21-cv-00280). On March 12, 2021, Judge Contreras issued an order preliminarily enjoining the implementation and enforcement of the prohibitions against Xiaomi, which the U.S. government decided not to appeal. Instead, the DoD indicated that it would settle the lawsuit and remove Xiaomi from the CCMC list.

Meanwhile, Luokung Technology Corp., another Chinese company that was designated as a CCMC, also was granted its motion for a preliminary injunction enjoining the DoD from enforcing the ban. Luokung is a leading interactive location-based services and big data processing technology company based in China.

Because no action is being pursued against either company, FTSE Russell announced on May 24, 2021, that it will add Xiaomi and Luokung back to its global indexes. Xiaomi will return to FTSE GEIS in two tranches, with 50 percent added effective from the open on June 7 and 50 percent added from the open on June 21, 2021. Luokung will be added to FTSE GEIS in conjunction with its review on June 21, 2021.

Since June 2020, DoD has published five lists and identified 44 CCMCs under Section 1237(b) of the Strom Thurmond National Defense Authorization Act for FY 1999. The prohibited actions mainly refer to the buying or holding of publicly traded stocks or other securities of CCMCs or any financial instruments that expose the investor to the securities of a CCMC. The U.S. Treasury's Office of Foreign Assets Control (OFAC) has created a sanctions program on CCMCs and specified that they are not Specially Designated Nationals (SDN). Transactions in the securities of any CCMC subsidiary are prohibited if the subsidiary is publicly listed by OFAC under OFAC's 50 Percent Rule or otherwise because it is under control by a CCMC. Transactions in the securities of any CCMC subsidiary (whether expressly listed or not) are also prohibited if the subsidiary's name exactly or closely matches the name of a CCMC.

 

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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