Biden Expands Trump-Era Investment Ban on Chinese Military Companies

President Joe Biden issued a new executive order expanding a Trump-era policy that banned investments in Chinese military companies (see 2105190009). The order, issued June 3, includes an initial list of 59 entities and expands the scope of the restrictions to cover companies operating in China’s surveillance technology sector, which the White House said produces technologies to commit human rights violations against Muslim minorities.

The order adds a range of entities to the Office of Foreign Assets Control’s new Non-Specially Designated National Chinese Military-Industrial Complex Companies List, including companies that own or control entities operating in China’s military or surveillance technology sectors. The restrictions, which take effect at 12:01 a.m. Aug. 2, will block U.S. people or companies from “engaging in the purchase or sale of any publicly traded securities” of any entity on the list, or any entity added by the Treasury, State and Defense departments in the future, according to a fact sheet.

The order gives Treasury final say on which companies are added, a shift from previous procedures that featured a regularly updated list issued by the Defense Department (see 2101150006). Although Treasury is expected to provide more guidance and expertise on which companies are subject to the restrictions, the agency issued eight new frequently asked questions and revised seven others to describe how it will impose the restrictions. The FAQs provide information on the criteria OFAC will use to add companies to the list, clarify that the restrictions don't apply to certain investment management or advisory services and explain how the prohibitions apply to U.S. employees of foreign entities. The guidance comes after two companies challenged the Trump ban earlier this year and successfully received exemptions from the restrictions (see 2105280006 and 2105070015).

The measures expand on Trump’s November order (see 2011130026) by addressing the spread of Chinese surveillance technology outside China, which helps “facilitate repression or serious human rights abuse,” Biden said in a letter to Congress. The White House said Biden’s order also creates a more “sustainable and strengthened framework” for imposing the investment bans.

Companies may divest themselves from the firms before 12:01 a.m. EDT June 3, 2022, and will be granted a one-year divestment period for all entities added to Treasury's list in the future. The order also authorizes the Treasury and State departments to create regulations to implement the new restrictions, and allows Treasury to remove the investment ban from entities if “circumstances no longer warrant” those restrictions.