Sanctions Top-5 for the week ending 13 November 2020

Here are five things that happened this week in the world of economic sanctions that I think you should know about.

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1. The White House issued an executive order that will prohibit US persons from purchasing securities of “Communist Chinese military companies” previously identified by the Department of Defense in June and August 2020. The prohibitions take effect on 11 January 2021. (More on this below.)
2. The State Department announced sanctions against four additional PRC and Hong Kong government officials under Executive Order 13936 for their roles in implementing the Hong Kong National Security Law. While the four individuals are now Specially Designated Nationals (SDNs), they have not (yet) been added to the State Department’s report under Section 5(a) of the Hong Kong Autonomy Act (HKAA). This means non-US financial institutions are not exposed to secondary sanctions risk under the HKAA for knowingly conducting “significant transactions” with them.
3. The US Office of Foreign Assets Control (OFAC) named four individuals and six companies in Iran, Taiwan, Hong Kong, and Brunei as SDNs under Executive Order 13382 (Weapons of Mass Destruction) for procuring items on behalf of an Iranian military firm. Separately, the US Department of Justice (DOJ) charged one of the individuals and two of the companies with conspiring to violate US sanctions on Iran. In related news, Axios reported the Trump administration is planning a “flood” of Iran-related sanctions between now and 20 January 2021.
4. OFAC named seven individuals and ten entities in Syria and Lebanon as SDNs pursuant to the Caesar Syria Civilian Protection Act and several Syria-related executive orders for “attempting to revive Syria’s deteriorating petroleum industry.” Separately, the State Department named a pro-government Syrian militia and one of its commanders as SDNs under Executive Order 13894 for obstructing a ceasefire in Syria.
5. Russia’s foreign minister told media that Russia would soon announce “mirror-like sanctions” against German and French officials in response to EU chemical-weapons sanctions on six Russian nationals and one entity in October 2020. As mentioned before, the EU sanctions followed a suspected nerve agent attack on opposition figure Alexei Navalny in August 2020.

Comments

Was the new executive order on Chinese military companies a long time coming? Section 1237(b) of the National Defense Authorization Act for Fiscal Year 1999 (!) called on the Department of Defense to identify the companies, while Section 1237(a) said the president could impose sanctions on them under the International Emergency Economic Powers Act (IEEPA). It took 20 years, but here we are. Notably, the prohibitions in the executive order are similar to those proposed in Senator Marco Rubio’s American Financial Markets Integrity and Security Act, currently pending in the Senate. In related news, Axios reported the White House is planning a series of China-related maneuvers to “make it politically untenable for the Biden administration to change course.” (It’s like The Queen’s Gambit, but with news leaks.)

According to a statement from National Security Advisor Robert O’Brien, the executive order is meant to protect individual investors in the United States “from unintentionally providing capital” to the companies “through passive institutional investment vehicles such as mutual funds and retirement plans.” To this end, a prohibited transaction is defined (very) narrowly to include “the purchase for value of any publicly traded security,” which excludes many other verbs as well as purchases of non-publicly traded securities. Securities are broadly defined and include “any securities that are derivative of, or are designed to provide investment exposure to” the companies’ publicly-traded securities.

To be clear: the companies are not SDNs, and the restrictions fall far short of the sectoral sanctions under Executive Order 13662. The 50 Percent Rule is evidently not implicated, but the Treasury Department can list subsidiaries of the companies per Section 4(a)(iii). Watch for Treasury Department guidance before 11 January 2021. (For more on the executive order, see my team’s blog post here.)

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(The views expressed are my own and do not constitute legal advice. Photo from Vladislav Reshetnyak.)