Sanctions Top-5 for the week ending 4 June 2021

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 unveiled Executive Order 14032 to amend Executive Order 13959 and impose new and improved restrictions on US persons transacting in publicly traded securities of “Chinese Military-Industrial Complex Companies” (CMICs) beginning 2 August 2021. (The old prohibitions and timelines were simply revoked.) The annex to the Executive Order includes the names of 59 so-called CMICs. Moving forward, the Treasury Department — not the Department of Defense — is responsible for identifying CMICs operating in China’s “defense and related materiel sector or the surveillance technology sector.”
2. The US Office of Foreign Assets Control (OFAC) issued a slew of FAQs explaining the amended Executive Order 13959. (See below for my favorites.) OFAC also replaced its Non-SDN Communist Chinese Military Companies (CCMC) List with a new Non-SDN CMIC List containing the 59 companies identified in the annex to the Executive Order. (The names are available here.)
3. The Department of Defense issued a new “List of Chinese Military Companies in Accordance With Section 1260H of the National Defense Authorization Act for Fiscal Year 2021” containing 47 names. It does not impose any new restrictions and largely overlaps with the Non-SDN CMIC List.
4. OFAC named a prominent Bulgarian tycoon and two former government officials and a total of 64 companies controlled by them as Specially Designated Nationals (SDNs) under Executive Order 13818 (Global Magnitsky) “for their extensive roles in corruption in Bulgaria.” According to a Treasury Department news release, it was OFAC’s largest-ever action under the Magnitsky program.
5. Meanwhile, the US State Department announced visa bans against five Bulgarian officials (including the two former officials above) and their family members pursuant to Section 7031(c) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2021 in response to their corrupt dealings in the country.

Comments

Hooray! No more “close name matches.” OFAC FAQ 899 says the amended Executive Order 13959 only applies to “entities whose names exactly match the names of the entities on the NS-CMIC List.” This might be my new favorite FAQ. Other good ones include FAQ 902 and FAQ 903 saying it’s OK for US persons to act as investment advisors and managers and work for non-US persons that transact in CMIC securities. If it wasn’t clear before, FAQ 905 reminds us that US persons can continue to do business with CMICs in other ways. The full list of new and revised FAQs is here.

What do you think? Does the amended Executive Order 13959 expand the old restrictions or soften them? There are arguments on both sides. On the one hand, the list of 59 CMICs includes fewer corporate groups than the old list of CCMCs, while drilling down on subsidiaries and affiliates of a few groups (which was already expected to happen). The amended Executive Order (like the original of November 2020) does not prohibit US persons from “possessing” CMIC securities after the relevant divestment dates (even if selling is prohibited). On the other hand, the criteria for designating new CMICs is broader and probably less open to a court challenge à la Xiaomi and Luokung.

For more on Executive Order 14032 and the amended Executive Order 13959, see my team’s blog post here.

Breaking: China’s National People’s Congress Standing Committee is close to adopting a planned law on countering foreign sanctions. More on that next time.

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