Yesterday, OFAC published the designations made in Executive Order 13959, and subsequently by the Department of Defense in both PDF and CSV forms. They’ve named this “Non-SDN Communist Chinese Military Companies List”, and have added company aliases (also known as, or A.K.A.), the issuer name of any securities, and any securities identifiers for any issued equities. It also notes in a footnote that debt securities are also covered by E.O. 13959.
I’m kind of curious as to what authority Treasury has to provide this additional detail, since Defense issued the designations. I suspect it’s under the catch-all designation clause where Treasury is empowered to exercise any and all authorities from the International Emergency Economic Powers Act (IEEPA).
A few more notes: First, this is not in a standard form – there is no note that this is being added to the Consolidated Sanctions List, for example – which makes it, out of the box, less usable (the unique structure of each record doesn’t help either). Second, because this has been published by OFAC, all the info in these files – even the stuff added by Treasury – is part of OFAC’s regulatory expectations. Ignore it at your peril.
And OFAC published 5 Frequently Asked Questions (FAQs):
857. Do the prohibitions in E.O. 13959 apply to transactions in publicly traded securities of subsidiaries of Communist Chinese military companies?
The prohibitions in E.O. 13959 apply to any subsidiary of a Communist Chinese military company, after such subsidiary is publicly listed by Treasury pursuant to section (4)(a)(iii) of the Order. The initial prohibitions pursuant to section 1(a)(ii) of E.O. 13959 would go into effect beginning 9:30 a.m. eastern time on the date that is 60 days after such subsidiary is added to OFAC’s new list to further implement E.O. 13959.
Treasury intends to publicly list as subsidiaries any entity that issues publicly traded securities and that is (1) 50 percent or more owned by one or more Communist Chinese military company(ies) identified in or pursuant to E.O. 13959, consistent with OFAC’s 50 Percent Rule Guidance; or (2) determined to be controlled by one or more Communist Chinese military company(ies) identified in or pursuant to E.O. 13959. Additionally, as outlined in section 4(a)(ii) of E.O. 13959, the Secretary of Defense, in consultation with the Secretary of the Treasury, may determine that an entity, including a subsidiary, is a Communist Chinese military company operating directly or indirectly in the United States or in any of its territories or possessions, and therefore list it as such pursuant to section 1237 of Public Law 105–261, as amended by section 1233 of Public Law 106–398 and section 1222 of Public Law 108–375, until such time as the Secretary of Defense removes such person from such list.
858. In certain cases, the names of the entities published in the Annex to E.O. 13959 or subsequently identified pursuant to E.O. 13959 as Communist Chinese military companies do not match the names of issuers of publicly traded securities. How do I know which entity is subject to the prohibitions under E.O. 13959?
The prohibitions in E.O. 13959 apply with respect to publicly traded securities (or any publicly traded securities that are derivative of, or are designed to provide investment exposure to, such securities) of an entity with a name that exactly or closely matches the name of an entity identified in the Annex to E.O. 13959 (effectively January 11, 2021) or subsequently identified pursuant to E.O. 13959 (effective 60 days subsequent to public notice). To further implement E.O. 13959, OFAC has published a list on its website (PDF; CSV) containing the names of entities identified in or pursuant to E.O. 13959 as Communist Chinese military companies, along with additional identifying information where possible. See FAQ 857 for additional information regarding subsidiaries of identified entities.
859. How does OFAC interpret the term “publicly traded securities” for purposes of Executive Order (E.O.) 13959?
For purposes of E.O. 13959, OFAC intends to interpret the term “publicly traded securities” to include securities (as defined in section 4(d) of E.O. 13959) denominated in any currency that trade on a securities exchange or through the method of trading that is commonly referred to as “over-the-counter,” in any jurisdiction.
860. For purposes of Executive Order (E.O.) 13959, what financial instruments are covered by the provision stating the prohibitions apply to “any transaction in … any securities that are derivative of, or are designed to provide investment exposure to such” publicly traded securities?
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 E.O. 13959.
861. Does Executive Order (E.O.) 13959 prohibit U.S. persons from investing in U.S. or foreign funds, such as exchange-traded funds (ETFs) or other mutual funds, that hold publicly traded securities of a Communist Chinese military company?
Yes. Under E.O. 13959, any transaction in publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities, of any Communist Chinese military company is prohibited regardless of such securities’ share of the underlying index fund, ETF, or derivative thereof.