September 22, 2021

Volume XI, Number 265

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September 21, 2021

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September 20, 2021

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Division of Examinations Issues Risk Alert on Securities Investment that Finance Communist Chinese Military Companies

On January 6, 2021, the Division of Examinations (“Division”) issued a Risk Alert to notify investment advisers, broker-dealers, and other market participants of a recent action relating to investments in securities associated with Communist Chinese military companies, as well as investors transacting in such securities.

Why We are Sending this Alert:  Investment advisers, broker-dealers, and other market participants should know that effective as of January 11, 2021 at 9:30 a.m. EST, U.S. persons, which includes both individuals and entities, are prohibited from transacting in certain securities and derivatives of Communist China military companies (“CCMCs”), unless such transactions are for purposes of divestment and occur through November 11, 2021.

Details of Division’s Risk Alert:  On November 12, 2020, President Trump signed Executive Order 13959, “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies” (the “EO”).1  The EO states that beginning on January 11, 2021 at 9:30 a.m. EST, U.S. persons, which includes both individuals and entities, will be prohibited from transacting in certain securities and derivatives of CCMCs, unless such transactions are for purposes of divestment and occur through November 11, 2021.  Examples of financial instruments covered by this provision include, but are not limited to, derivatives (e.g., futures, options, swaps), warrants, American depositary receipts (ADRs), global depositary receipts (GDRs), exchange-traded funds (ETFs), index funds, and mutual funds, to the extent such instruments also meet the definition of “security” as defined in section 4(d) of EO 13959.2

The Treasury Department’s Office Foreign Asset Control (“OFAC”) has published guidance concerning the EO on several occasions, available here.

Practice Considerations:  Investment advisers, broker-dealers, and other market participants should:

  • Review and assess the impact of the EO for their own investments as well as on behalf of investors and clients.

  • Review and assess the impact of the EO on their processes related to investments on their own behalf and on behalf of investors and clients.

  • Continue to review OFAC’s website for additional guidance.


1 https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-securities-investmentsfinance-communist-chinese-military-companies; 85 Fed. Reg. 73185 (Nov. 17, 2020).

2 Office of Foreign Assets Control of the U.S. Department of Treasury, Frequently Asked Question 860 (Dec. 28, 2020); https://home.treasury.gov/policyissues/financial-sanctions/faqs/860.

© 2021 Foley & Lardner LLPNational Law Review, Volume XI, Number 8
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About this Author

Peter D. Fetzer, Securities Lawyer, Foley Lardner, Mergers Attorney
Partner

Peter Fetzer is a partner and business lawyer with Foley & Lardner LLP. His practice focuses primarily in the areas of securities regulation, mergers and acquisitions, corporate governance and general corporate counseling to mutual funds, exchange traded funds, publicly traded investment advisers and public companies.

414.297.5596
Stuart E. Fross, Foley Lardner, Securities lawyer, Finance Attorney
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Stuart Fross is a partner and business lawyer with Foley & Lardner LLP where he concentrates his practice on securities laws and regulations, as part of the Private Equity & Venture Capital, Transactional & Securities and International Practices.

Mr. Fross’ main focus is investment managers and pooled investment vehicles, including U.S. registered open-end, closed end and exchange traded funds, bank collective investment funds (with an emphasis a stable value funds), UCITS funds, as well as private funds, organized in the US and...

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Stephen M. Meli Business Attorney Foley & Lardner Boston, MA
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Stephen M. Meli is a partner and business lawyer with Foley & Lardner LLP. Steve is based in the firm’s Boston office where he is a member of the Transactions Practice and focuses on fund formation, emerging and spin-out fund sponsors and institutional investor representation.

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Steve focuses his practice on lower and middle market buyout, venture capital, growth equity, credit and similar private funds, including funds-of-funds and secondary funds.

With an emphasis on commercial sense and practicality, Steve advises sponsors on every...

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Margaret Nelson Financial Attorney Foley & Lardner
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Margaret Gembala Nelson is of counsel with Foley & Lardner LLP, where she represents accounting firms, financial service entities, corporations and their professionals in auditor liability matters, government enforcement investigations and examinations, and complex securities and business litigation. She also conducts internal investigations on behalf of clients and advises on regulatory compliance and risk management issues.

Margaret has more than 15 years of experience as a regulatory and litigation lawyer focusing on complex securities, accounting, compliance, and commercial...

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Thomas J. Krysa Litigation Attorney Foley & Lardner Denver, CO
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Thomas J. Krysa is a partner and litigation lawyer with Foley & Lardner LLP. Tom is based in the firm’s Denver office where he is a member of the Securities Enforcement & Litigation Practice. His practice focuses on advising clients in securities enforcement and litigation matters, government investigations, and complex commercial disputes. Tom, a former SEC senior officer and federal prosecutor, brings extensive government experience to the forefront to solve his clients’ problems short of government action, while at the same time preserving their interests should litigation and...

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