OFAC Extends Chinese Military Company Ban to Subsidiaries

In a set of FAQs, OFAC has clarified that Executive Order 13959 also applies to subsidiaries, derivatives, ETFs, index funds and mutual funds.

OFAC (Office of Foreign Assets Control) has issued guidance extending the ban on US persons investing in so-called Communist Chinese military companies to include the subsidiaries of those companies.

The guidance was released on 29 December in the form of five FAQs clarifying Executive Order 13959, which prohibits US persons from purchasing securities of companies identified to be supplying or otherwise supporting the Chinese military.

The latest guidance extends the prohibitions, which apply from 11 January 2021, to the publicly traded securities of the subsidiaries of the identified companies, as well as entities with a name that “exactly or closely matches” one of the identified entities.

In separate FAQs, OFAC also clarifies that the prohibitions apply to securities traded either on an exchange or OTC in any jurisdiction, and include any associated derivatives, warrants, depositary receipts, ETFs, index funds and mutual funds – regardless of the securities’ share of an underlying fund.

OFAC has published the names of entities identified as Communist Chinese military companies, along with their identifying information. OFAC says it intends to add to the list any company that issues publicly traded securities and is “50 percent or more owned” or “determined to be controlled” by one or more Communist Chinese military companies.

In recent weeks, index compilers MSCI, Nasdaq, S&P Dow Jones Indices and FTSE Russell have all announced the removal of Chinese companies from their indexes to comply with Executive Order 13959. More Chinese companies are expected to be removed from global benchmarks in light of the new guidance.


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