On June 3, 2021, President Biden issued Executive Order 14032, Addressing the Threat From Securities Investments That Finance Certain Companies of the People’s Republic of China. Executive Order 14032 generally prohibits U.S. persons from purchasing or selling securities of issuers identified as Communist Chinese Military-Industrial Companies (CCMC). It applies to investments in publicly traded securities of identified CCMCs and any publicly traded securities that are derivative of, or that provide investment exposure to, those securities. The Executive Order includes an annex that lists companies identified as prohibited CCMCs and tasks the Secretary of the Treasury, in consultation with the Secretaries of State and Defense, with the responsibility to identify future additions to the annex. The Executive Order will be effective at 12:01 a.m. Eastern Time on August 2, 2021, and U.S. persons will have until 12:01 a.m. Eastern Time on June 3, 2022 to divest themselves of securities of companies identified as CCMCs on the annex. Future additions to the annex will become effective 60 days following their identification, and U.S. persons will have 365 days from the date of identification to divest themselves of the securities of any such newly identified CCMCs.

Executive Order 14032 modifies a similar order issued by the previous administration (Executive Order 13959). The key differences between the two Executive Orders are as follows:

• The CCMCs identified in Executive Order 14032 differ from those identified in Executive Order 13959. U.S. persons will need to review current holdings against the new annex in order to ensure compliance with the new Executive Order.

• Under Executive Order 14032, the Department of Treasury is primarily responsible for identifying CCMCs to be added to the annex. Executive Order 13959 charged the Department of Defense with identifying CCMCs.

• Holding CCMC securities is no longer prohibited following the divestment period; however, purchases and sales of securities will be prohibited.

• Executive Order 14032 prohibits purchases and sales of “securities” as defined in the Securities Exchange Act of 1934. Executive Order 13959 was broader in scope and included instruments such as notes, drafts, bills of exchange or banker’s acceptance with maturities at the time of issuance not exceeding nine months.

In connection with the issuance of Executive Order 14032, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) revised previously issued guidance related to Executive Order 13959. Under the new guidance, U.S. persons are not prohibited from providing investment advisory, investment management or similar services to a non-U.S. person, including a foreign entity or foreign fund, in connection with the non-U.S. person’s purchase or sale of a CCMC security, provided that the underlying purchase or sale would not otherwise violate Executive Order 14032.

Executive Order 14032 is available here; Executive Order 13959 is available here.

The OFAC FAQs relating to the Executive Orders are available here.