May 16, 2022

Volume XII, Number 136


May 13, 2022

Subscribe to Latest Legal News and Analysis

President Biden Issues Executive Order Amending Prohibition on Securities Investments related to Chinese Military Companies

On June 3, 2021, President Biden issued Executive Order 14032, Addressing the Threat From Securities Investments That Finance Certain Companies of the People’s Republic of China. Executive Order 14032 generally prohibits U.S. persons from purchasing or selling securities of issuers identified as Communist Chinese Military-Industrial Companies (CCMC). It applies to investments in publicly traded securities of identified CCMCs and any publicly traded securities that are derivative of, or that provide investment exposure to, those securities. The Executive Order includes an annex that lists companies identified as prohibited CCMCs and tasks the Secretary of the Treasury, in consultation with the Secretaries of State and Defense, with the responsibility to identify future additions to the annex. The Executive Order will be effective at 12:01 a.m. Eastern Time on August 2, 2021, and U.S. persons will have until 12:01 a.m. Eastern Time on June 3, 2022 to divest themselves of securities of companies identified as CCMCs on the annex. Future additions to the annex will become effective 60 days following their identification, and U.S. persons will have 365 days from the date of identification to divest themselves of the securities of any such newly identified CCMCs.

Executive Order 14032 modifies a similar order issued by the previous administration (Executive Order 13959). The key differences between the two Executive Orders are as follows:

  • The CCMCs identified in Executive Order 14032 differ from those identified in Executive Order 13959. U.S. persons will need to review current holdings against the new annex in order to ensure compliance with the new Executive Order.

  • Under Executive Order 14032, the Department of Treasury is primarily responsible for identifying CCMCs to be added to the annex. Executive Order 13959 charged the Department of Defense with identifying CCMCs.

  • Holding CCMC securities is no longer prohibited following the divestment period; however, purchases and sales of securities will be prohibited.

  • Executive Order 14032 prohibits purchases and sales of “securities” as defined in the Securities Exchange Act of 1934. Executive Order 13959 was broader in scope and included instruments such as notes, drafts, bills of exchange or banker’s acceptance with maturities at the time of issuance not exceeding nine months.

In connection with the issuance of Executive Order 14032, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) revised previously issued guidance related to Executive Order 13959. Under the new guidance, U.S. persons are not prohibited from providing investment advisory, investment management or similar services to a non-U.S. person, including a foreign entity or foreign fund, in connection with the non-U.S. person’s purchase or sale of a CCMC security, provided that the underlying purchase or sale would not otherwise violate Executive Order 14032.

Executive Order 14032 is available here; Executive Order 13959 is available here.

The OFAC FAQs relating to the Executive Orders are available here.

© 2022 Vedder PriceNational Law Review, Volume XI, Number 189

About this Author

John Marten Investment Attorney Vedder Price Law FIrm

John S. Marten, a Shareholder in the Chicago office of Vedder Price, has substantial experience representing clients in the investment management industry.

As a member of the firm’s Investment Services group, Mr. Marten counsels clients on a wide variety of matters involving the application of the federal securities laws to investment companies, investment advisers and broker-dealers. He has significant experience counseling investment company clients with respect to new products and was recently involved in the creation of two mutual funds...

(312) 609 7753
Nathaniel Segal Investment Attorney Vedder Price Law Firm

Nathaniel Segal is counsel at Vedder Price and a member of the Investment Services group. He focuses his practice on investment companies and investment advisers in connection with the organization and operation of investment products and services, including traditional mutual funds, closed-end investment companies (including interval funds and listed closed-end funds), variable insurance products and registered hedge funds, as well as mutual funds utilizing complex hedging and absolute return strategies. Mr. Segal has experience in conducting transactional due diligence...

(312) 609 7747
Jacob Tiedt,Vedder Price law firm investment services attorney

Jacob C. Tiedt is a Shareholder at Vedder Price and a member of the Investment Services group.

Mr. Tiedt’s practice includes the representation of registered mutual funds, closed-end funds and exchange-traded funds; private funds; investment advisers; and other financial institutions on a broad range of regulatory, governance and compliance matters. Mr. Tiedt regularly counsels clients on matters relating to SEC registration, disclosure and compliance; shareholder solicitation; NYSE, Nasdaq and FINRA regulation; corporate governance; and board administration. Mr....

Kelly Carr Investment Attorney Vedder Price

Kelly Pendergast Carr is an Associate at Vedder Price and a member of the firm’s Investment Services group in the Chicago office.

Ms. Carr focuses her practice on representing registered investment companies, including mutual funds, closed-end funds and exchange-traded funds (ETFs), as well as their independent directors and investment advisers. She assists these clients with regulatory, transactional and compliance matters.