Two more Frequently Asked Questions about Communist Chinese Military Companies (note that neither the program, nor the FAQ section includes the word “Communist”, but the OFAC Notice does):
863. Can U.S. persons custody, offer for sale, serve as a transfer agent, and trade in covered securities?
For purposes of E.O. 13959, activity by U.S. persons related to the following services are considered permissible, to the extent that such support services are not provided to U.S. persons in connection with prohibited transactions: clearing, execution, settlement, custody, transfer agency, back-end services, as well as other such support services.
864. Does the prohibition in E.O. 13959 apply to transactions in securities of a Communist Chinese military company subsidiary with a name that exactly or closely matches the name of an entity identified in the Annex to E.O. 13959?
Yes. As stated in FAQ 858, the prohibitions of 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).” OFAC has published and will continue to update a list on its website to aid in the implementation of E.O. 13959, including the names of certain entities that closely match the name of entities identified in the Annex to E.O. 13959. Among other names, OFAC’s current list includes (1) China Telecommunications Corp. / China Telecommunications; (2) China Mobile Communications Group / China Mobile Communications / China Mobile Communications Group Co Ltd; and (3) China United Network Communications Group Co Ltd / China United Network Communications Ltd. These names closely match the names of China Telecom Corporation Limited (NYSE: CHA), China Mobile Limited (NYSE: CHL), and China Unicom (Hong Kong) Limited (NYSE: CHU). Transactions in the securities of any Communist Chinese military company subsidiary (whether expressly listed or not) are prohibited if the subsidiary’s name exactly or closely matches the name of these or any other entities identified in the Annex to E.O. 13959 or the name of any Communist Chinese military company listed by the Departments of the Treasury or Defense.
In addition, as OFAC stated in FAQ 860, the prohibitions in section 1(a)(i) of E.O. 13959 expressly apply to “any securities that are derivative of, or are designed to provide investment exposure to” the publicly traded securities of any Communist Chinese military company, including American depository receipts (ADRs).
The prohibition in section 1(a)(i) of E.O. 13959 takes effect at 9:30 a.m. eastern time on January 11, 2021. Compliance with this prohibition is measured by trade date, rather than settlement date.
OK… I have a problem with this one… it could be construed as just a poor wording choice, but the fact is that, not only is the E.O. explicit that only companies explicitly designated are covered by the E.O.’s restrictions. It also directly contradicts FAQ 857, which says:
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.
Now, let’s assume it was a poor wording choice. Yes, if the name on the securities corresponds to the same entity that is listed by either Defense or Treasury, yes, those securities are off-limits. But, if the parent is designated and the subsidiary is not, and has a similar name, the securities of the subsidiary are OK to deal in.