executive order Archives

On August 9, 2021, President Biden issued Executive Order 14038 (the “EO”) which expanded the scope of the national emergency previously declared in EO 13405 of June 16, 2006. The EO imposes additional sanctions in response to conduct by the Government of Belarus (“GoB”) and the President Alyaksandr Lukashenka regime which the Biden Administration described as “long-standing abuses aimed at suppressing democracy and the exercise of human rights and fundamental freedoms.” As specific examples, the EO cites the “fraudulent” August 9, 2020 election administered by the GoB, in which Lukashenka was reelected, and the GoB’s forced grounding of an international flight to arrest Belarusian journalist Raman Pratasevich and his partner Sofia Sapega.

Among other things, the EO gives the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) the discretionary authority, in consultation with the U.S. Secretary of State, to impose blocking sanctions on GoB agencies, GoB leaders and officials, and individuals and companies operating in the defense and related materiel, security, energy, potassium chloride (potash), tobacco products, construction or transportation sectors of the Belarusian economy. The EO also authorizes OFAC to sanction individuals and entities “responsible for or complicit in” activities such as “actions or policies that threaten the peace, security, stability, or territorial integrity of Belarus,” suppression of human rights and freedom of the press, electoral fraud, deceptive transactions, and public corruption.

OFAC immediately used its authority under the EO in order to add multiple persons and entities to its Specially Designated Nationals & Blocked Persons List (“SDN List”). Those added to the SDN List under the EO include:

-BelKazTrans and Closed Joint-Stock Company New Oil Company, who were sanctioned for operating in the energy sector of the Belarusian economy;

-Inter Tobacco, Energo-Oil and Grodno Tobacco Factory Neman, who were sanctioned for operating in the tobacco product sector of the Belarusian economy;

-Cyprus-based Dana Holdings Limited, who was sanctioned for operating in the construction sector of the Belarusian economy; and

-Belaruskali OAO, who was sanctioned for being owned by the GoB and for operating in the potassium chloride (potash) sector of the Belarusian economy.

The U.S. Treasury Department published a separate press release which identifies all of the SDNs designated by OFAC under the EO. As a result of these designations, all property and interests in property of these SDNs that are or come within the U.S. or the possession or control of U.S. persons are blocked, and U.S. persons are generally prohibited from engaging in transactions involving such SDNs unless authorized by OFAC. OFAC’s “50% Ownership Rule” will also extend these blocking sanctions to any entities owned 50 percent or more, individually or in the aggregate, directly or indirectly, by one or more of these newly designated SDNs. Additionally, the EO gives OFAC the authority to impose blocking sanctions on any non-U.S. persons who provide material assistance to any SDN designated pursuant to the EO.

For Belaruskali OAO, OFAC issued General License 4, which authorizes the wind down of transactions involving Belaruskali OAO, or any entity owned 50% or more by Belaruskali OAO, through 12:01 a.m. eastern standard time on December 8, 2021. OFAC issued FAQ 918 to provide additional information regarding General License 4.

OFAC also issued FAQ 917 which clarifies the scope of the EO’s sector-based sanctions as follows:

The identification of a sector pursuant to E.O. of August 9, 2021 provides notice that persons operating in the identified sector risk exposure to sanctions; however, the identification of a sector does not automatically block all persons operating in that sector of the Belarus economy. Only persons designated on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List), and entities owned 50 percent or more, individually or in the aggregate, directly or indirectly, by one or more such persons, are subject to blocking sanctions.

As a result, the EO does not automatically sanction persons operating in the identified sectors of the Belarusian economy, but it does provide OFAC with the authority to impose blocking sanctions on such persons at any time.

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell’s Washington, D.C. office.

On June 3, 2021, in one of his first major China-related actions, President Biden issued an Executive Order that amends, but keeps intact the core elements of, previous orders issued by President Trump prohibiting US Persons from investing in the publicly traded securities of certain Chinese Military Companies designated on the Department of Treasury’s Non-SDN-Communist Chinese Military Company (NS-CCMC) List (Amended Order).

While the details of the Amended Order and addition of other named Chinese companies are discussed below, one major takeaway is that the Biden Administration does not plan a wholesale pullback from this type of trading ban. In fact, reports indicate that the Biden Administration is actively considering adding more companies to the list in the future. A ccording to the White House, the Amended Order “allows the United States to prohibit—in a targeted and scoped manner—US investments in Chinese companies that undermine the security or democratic values of the United States and [its] allies.”

Further, the Amended Order also extends the trading ban to additional Chinese companies with capabilities in defense, surveillance and related areas in a new Annex that supersedes the Annex from the original order. These newly covered companies include aerospace technology and electronics companies Shaanxi Zhongtian Rocket Technology Company and China Satellite Communications Co., and telecommunications companies, including China Telecom Corporation and China Unicom (Hong Kong). Also, the Amended Order removes a handful of Chinese companies, including Chinese chemical company Sinochem Group.

The Biden Administration’s application of the securities trading ban to new Chinese companies, some of which do not appear to be state-owned, comes on the heels of recent court actions by companies who have sought and obtained their removal from the list on the grounds that their ties to the Chinese military are too tenuous. In particular, two Chinese companies, Xiaomi Corporation and Luokung Technology Corp., have since been removed from the list after filing successful suits in the US District Court for the District of Columbia. The Amended Order appears to attempt to address this issue by expressly covering entities that, in part, “operate or have operated in the defense and related materiel [sic] sector or the surveillance technology sector of the economy” of China, as detailed more fully below.

The prohibition and impacted Chinese Companies

Similar to the original, under the Amended Order US persons are prohibited from purchasing or selling any publicly traded securities, or any publicly traded securities that are derivative of such securities or are designed to provide investment exposure to such securities, of any entity listed in the Annex. The Amended Order also changes the name of the list from the NS-CCMC List to the Non-SDN Chinese Military-Industrial Complex Companies (NS-CMIC) List.

However, the Amended Order clarifies which entities will be subject to possible future designation, providing that the prohibition is extended to entities determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of Defense to: (1) operate or have operated in the defense and related material sector or the surveillance technology sector of the Chinese economy; or (2) own or control, or to be owned or controlled by, directly or indirectly, a person who operates or has operated in the defense and related material sector or surveillance technology sector.

The Amended Order establishes a new effective date of August 2, 2021 at 12:01 am for the entities listed in the Annex. Going forward, for companies not on the Annex today that are later designated by the Secretary of the Treasury, the effective date will be 60 days after the Treasury designation.

Exceptions and other provisions

The Amended Order allows the purchase or sale of such securities solely for purposes of divestment by US persons, which must occur by June 3, 2022 for entities listed in yesterday’s Annex, or within one year from the date an entity is subsequently designated by the Secretary of the Treasury.

The Amended Order keeps some provisions and language the same, including those that prohibit transactions that evade or avoid, or are meant to evade or avoid, causes a violation of, or attempt to violate the prohibitions of the Amended Order. Similarly, the Amended Order remains broadly applicable not only to direct purchases of publicly traded securities, but also purchases by US persons of shares in investment funds that hold public securities in such companies. Like the original Order, the Amended Order applies to transactions by US persons involving public securities traded on foreign as well as US exchanges.

However, as alluded to by the White House in its statement, the Amended Order is more targeted than the original order issued by President Trump, specifically referencing certain sectors of concern, such as the surveillance technology sector. The specific addition of surveillance in the Amended Order demonstrates a more targeted approach while also signaling that this is an area where the Biden Administration would like to expand the coverage of the securities-trading prohibitions in light of the recent focus on potential human rights abuses in China.

Indeed, the newly-issued Office of Foreign Assets Control (OFAC) FAQ 900 states that OFAC expects to use its discretion to target those whose operations include or support, or have included or supported: (1) surveillance of persons by Chinese technology companies that occurs outside of China; or (2) the development, marketing, sale, or export of Chinese surveillance technology that is, was, or can be used for surveillance of religious or ethnic minorities or to otherwise facilitate repression or serious human rights abuse.

Other new notable OFAC FAQs

OFAC published a handful of other new FAQs that help further clarify some of the Amended Order’s provisions. For instance, FAQ 902 provides that US persons are not prohibited from providing investment advisory, investment management, or similar services to a non-US person, including a foreign entity or foreign fund, in connection with the non-US person’s purchase or sale of a covered security, provided that the underlying purchase or sale would not otherwise violate the Amended Order.

Similarly, FAQ 903 makes clear that US persons employed by non-US entities are not prohibited from being involved in, or otherwise facilitating, purchases or sales related to a covered security on behalf of their non-US employer, provided that such activity is in the ordinary course of their employment and the underlying purchase or sale would not otherwise violate the Amended Order.

Lastly, FAQ 905 expressly provides that the Amended Order does not prohibit activity with entities designated on the list that is unrelated to the purchase and sale of publicly traded securities, such as the purchase or sale of goods or services.

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By Jeffrey P. Bialos, Ginger T. Faulk, Mark D. Herlach, Sarah E. Paul, and Nicholas T. Hillman at Eversheds Sutherland (US) LLP

New Executive Order Authorizes Imposition of Additional Sanctions on the Government of Belarus and Certain Sectors of the Belarusian Economy

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