OFAC publishes FAQs on the recent US Executive Order...

on investments in companies linked to the Chinese military


On 28 December 2020, the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) published five FAQs (the “FAQs”). The FAQs relate to the Executive Order titled “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies” (the “Executive Order”) issued on 12 November 2020.  

Under the Executive Order, U.S. persons will, from 11 January 2021, be prohibited from engaging in any transactions in publicly traded securities of Communist Chinese military companies (“CCMCs”), or securities that are derivative of, or are designed to provide investment exposure to, such securities (each a “restricted security”). A ‘transaction’ refers to any purchase for value of a publicly traded security, whether through the initial primary distribution or any secondary market trading.

The FAQs indicate that the Executive Order is intended to be broadly interpreted.  

For more information on the Executive Order, please click here for our earlier client alert on the topic and please click here for our earlier client alert on the key takeaways and considerations for debt capital markets.

Below is a summary of the FAQs:

How do I know which entity is subject to the prohibitions under the Executive Order? 1

  • The prohibitions in the Executive Order apply to restricted securities of an entity with a name that exactly or closely matches the name of an entity identified in the Annex to the Executive Order (effective 11 January 2021) or subsequently identified pursuant to the Executive Order (effective 60 days subsequent to a public notice).
  • OFAC has published a list containing the names of entities identified in or pursuant to the Executive Order as CCMCs, along with additional identifying information where possible.
  • See OFAC FAQ 858.

Are subsidiaries of CCMCs caught by the Executive Order?

  • Yes, after such subsidiary is publicly listed as such by the Secretary of the Treasury (the “Treasury”) pursuant to the Executive Order.
  • The Treasury intends to publicly list as subsidiaries any entity that issues publicly traded securities and that is (1) 50% or more owned by one or more CCMCs; or (2) determined to be controlled by one or more CCMCs.
  • For these subsidiaries, the prohibitions in the Executive Order would go into effect from 9:30 a.m. (eastern time) 60 days subsequent to any such public notice.
  • See OFAC FAQ 857.

How does OFAC interpret the term “publicly traded securities” for purposes of the Executive Order?  

  • The term “publicly traded securities” is intended to include equity and debt securities that trade on a securities exchange or “over-the-counter” in any jurisdiction and denominated in any currency.
  • Accordingly, any OTC traded securities can be caught irrespective of whether they are listed on any stock exchange.
  • In the list published under FAQ 858, OFAC also confirms that in addition to equity securities, the term “publicly traded securities” includes other securities including debt securities.
  • See OFAC FAQ 859 and footnote 2 to the list published under OFAC FAQ 858.

What other financial instruments would constitute restricted securities (i.e. covered by the provision stating the prohibition apply to “any transaction in…any securities that are derivative of, or are designed to provide investment exposures to such” publicly traded securities)?

  • Examples include, but are not limited to, derivatives (e.g. futures, options, swaps), warrants, American depositary receipts (ADRs), global depositary receipts (GDRs), exchange-traded funds (“ETFs”), index funds and mutual funds to the extend such instruments also meet the definition of “security” as defined in the Executive Order.
  • See OFAC FAQ 860.

Does the Executive Order prohibit U.S. persons from investing in U.S. or foreign funds, such as ETFs or other mutual funds, that hold publicly traded securities of a CCMC?

  • Yes, regardless of such securities’ share of the underlying index fund, ETF or derivative thereof.
  • See OFAC FAQ 861.


We understand that many of our clients would be interested in the FAQs and have therefore published this alert in the interest of time. We will follow-up with our further thoughts shortly. In the meantime, please speak to your usual Linklaters’ contacts or any of the contacts listed on this page if you have any questions or would like to discuss.


1.In certain cases, the names of the entities published in the Annex to the Executive Order or subsequently identified pursuant to the Executive Order as CCMCs do not match the names of issuers of publicly traded securities.