The Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List) is a sanctions list targeting entities associated with the Chinese military-industrial complex. It identifies companies believed to be involved in activities that undermine U.S. national security or foreign policy interests, particularly those contributing to the modernization of the People’s Republic of China’s military capabilities. The list is managed by the Office of Foreign Assets Control (OFAC), an agency of the Department of the Treasury.
The list’s purpose is to prohibit U.S. individuals and organizations from engaging in transactions involving publicly traded securities of the listed entities and derivatives of those securities. The sanctions aim to disrupt capital flows to sectors critical to the Chinese government’s military advancement and those that facilitate repression or are responsible for serious human rights abuse.
Legal Framework
The legal basis for the NS-CMIC List is rooted in two executive orders:
- Executive Order 13959: Issued by President Trump in November 2020, this order established the initial framework for the sanctions targeting Chinese military-industrial complex companies. It prohibited U.S. persons from purchasing or investing in securities of companies designated as Communist Chinese military companies (CCMCs).
- Executive Order 14032: Issued by President Biden in June 2021, this order amended and expanded the scope of E.O. 13959. It replaced the CCMC designation with the NS-CMIC List, broadening the criteria for inclusion to entities operating in the Chinese surveillance technology sector. The order also shifted the authority for designations from the Department of Defense to the Department of the Treasury.
Relevant statutes, such as the International Emergency Economic Powers Act (IEEPA) and the National Emergencies Act, support these executive orders, which grant the President broad authority to regulate financial transactions in response to national security threats.
Types of Sanctions Imposed on NS-CMIC-Listed Companies
The primary sanction prohibits U.S. persons from purchasing or selling publicly traded securities of the designated entities. It also includes any securities that derive from or provide investment exposure to such securities.
The sanctions take effect 60 days after an entity is added to the NS-CMIC List, beginning at 12:01 a.m. Eastern time. U.S. persons are given 365 days to divest their holdings in the affected securities. After this wind-down period, any transactions involving these securities are prohibited unless specifically authorized by OFAC.
Criteria for Inclusion
Entities are added to the NS-CMIC List based on their involvement in the Chinese military-industrial complex or the surveillance technology sector. The specific criteria for inclusion are:
- Identified Chinese military companies, including those owned or affiliated with the People’s Liberation Army of the People’s Republic of China or that are part of the country’s defense industrial base.
- Companies that operate in the surveillance technology sector and are engaged in activities harmful to the national security or foreign policy interests of the United States.
The Department of the Treasury, in consultation with the Departments of State and Defense, determines whether a company meets these criteria. The decision-making process involves assessing the entity’s activities, ownership structure, and relationships with the Chinese government and military.
Who is Listed on the NS-CMIC List?
Examples of companies on the list (at the time of writing) include:
- Aviation Industry Corporation of China
- China Electronics Corporation
- China National Nuclear Corporation
- Semiconductor Manufacturing International Corporation
- China Railway Construction Corporation
- China Mobile Communications Group
Compliance Guidelines
U.S. persons, including individuals and organizations, must comply with the prohibitions outlined in the executive orders governing the NS-CMIC List. To ensure compliance, it is essential to:
- Regularly monitor the NS-CMIC List and updates from OFAC to identify any changes or additions.
- Conduct due diligence on investments and transactions to avoid prohibited activities involving listed entities.
- Implement internal controls and compliance programs to detect and prevent potential violations of the sanctions.
- Seek guidance from legal counsel or OFAC when uncertain about the permissibility of a specific transaction or activity.
Companies that fail to comply risk significant civil and criminal penalties, underscoring the importance of robust compliance measures.
Divestment Procedures and Requirements
U.S. citizens must divest their holdings in securities of NS-CMIC-listed companies within 365 days of the entity’s designation. During this wind-down period, certain transactions, such as the execution of trades necessary to divest the securities, are permitted.
Market intermediaries, such as brokers and fund managers, play a crucial role in divestment. They are permitted to engage in transactions necessary to effect divestiture during the wind-down period.
After the 365-day divestment period, any purchase or sale of securities related to NS-CMIC-listed companies is prohibited unless specifically authorized by OFAC. U.S. persons must ensure they do not engage in unauthorized transactions beyond the wind-down period to avoid potential penalties.
Conclusion
The NS-CMIC List is a significant component of the U.S. sanctions regime targeting the Chinese military-industrial complex and surveillance technology sector.
Compliance professionals and relevant stakeholders must stay informed about the NS-CMIC List, its legal framework, and the compliance obligations it imposes. Regular monitoring, due diligence, and robust internal controls are essential to avoiding potential violations.
The NS-CMIC List will likely remain a critical tool in the U.S. government’s efforts to address national security concerns related to China. Staying attuned to updates and guidance from OFAC will ensure ongoing compliance with the sanctions.
Sanctions Screening for NS-CMIC
Businesses that engage in restricted transactions risk severe penalties and reputational damage. Banks, money service businesses, and other financial businesses should screen new and existing customers against the CMIC and other OFAC sanctions lists.
Alessa’s Watchlist and Sanctions Screening Software helps businesses meet OFAC sanctions screening requirements. Our sanctions compliance solution provides:
- Global PEP and sanctions screening, including comprehensive OFAC list screening
- Real-time, periodic, and event-based screening
- Machine learning and rules-based analytics
- Configurable workflow management
- A proprietary PEP Scoring Model
- Cost-effective sanctions data, where you only pay for the lists you use
Contact our AML and sanctions compliance experts today to learn how Alessa can streamline and optimize your sanctions compliance program.
