Executive Order Targets Securities Transactions Seen to Benefit China
President Trump issued an Executive Order on November 12, 2020 that will prohibit U.S. persons from investing in publicly traded securities of certain companies determined to be affiliated with China’s military. The executive order takes effect January 11, 2021. Lawyers from Dechert write that U.S. persons in the financial services industry, however, should start assessing potential risks now. The executive order provides that as of January 11, 2021, U.S. persons generally are prohibited from transacting in “publicly traded securities” (or related derivatives) of any “Communist Chinese military company. U.S. persons can, however, engage in transactions until November 11, 2021 to divest any publicly traded securities of these companies that they held as of January 11, 2021. The Dechert lawyers write that the executive order initially affects publicly traded securities of 31 companies identified on lists issued by the Department of Defense and can be found by clicking here and here. Additional companies could be added to the list. The lawyers point to several ambiguities in the executive order and note that additional guidance may be forthcoming from the Treasury Department. For instance, they note that the executive order lacks important definitions of terms, such as what constitutes a publicly traded security; the order lacks guidance on the effect on U.S. persons seeking to invest in ETFs or other funds or to track indices that include the sanctioned securities; and the order does not specify whether receiving dividend, interest, or principal payments linked to a sanctioned security would be prohibited. The order is scheduled to take effect before President-elect Joe Biden takes office, and he may choose to modify or revoke the order. The Dechert lawyers write, however, that it is unlikely that Mr. Biden will take any such action immediately upon assuming office.