Executive Order 14032 prohibits U.S. persons from buying or selling the publicly traded securities of any company on Treasury’s Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List). Violations expose you to civil penalties up to $368,136 per transaction (or twice the transaction value, whichever is greater) and, for willful conduct, criminal fines up to $1 million and up to 20 years in prison. The order took effect on August 2, 2021, and remains in force.
What Counts as a Prohibited Transaction
The core rule is a ban on purchases and sales. If a company appears on the NS-CMIC List, a U.S. person cannot buy or sell its publicly traded securities, whether those securities trade domestically or on a foreign exchange. The prohibition reaches any instrument representing an ownership interest or debt obligation that trades on a public market.1U.S. Department of the Treasury. Chinese Military Companies Sanctions
The reach goes well past ordinary stock:
- Derivatives tied to a listed company’s securities, including futures, options, swaps, and warrants.
- American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) that provide exposure to a listed company.
- Exchange-traded funds, index funds, and mutual funds that hold securities of a listed company, regardless of how small that position is inside the fund.1U.S. Department of the Treasury. Chinese Military Companies Sanctions
The fund-product rule is the one that trips up retail investors. A U.S. person cannot buy or sell shares of an ETF or mutual fund that holds even a fractional position in a listed company. Many index-fund providers have responded by removing CMIC-listed names from their portfolios rather than expose U.S. investors to a violation.
“U.S. person” is defined broadly. It covers citizens, lawful permanent residents, anyone physically present in the United States, entities organized under U.S. law, and foreign branches of U.S. companies.2The American Presidency Project. Executive Order 14032 – Addressing the Threat From Securities Investments That Finance Certain Companies of the People’s Republic of China A U.S. citizen living abroad is still covered. So is the overseas branch of a U.S. bank.
Dividends, Splits, and Reinvestment
If you already hold a restricted security, receiving cash dividends and stock splits is allowed, and U.S. financial institutions can continue processing those payments. Automatic dividend reinvestment is a different matter. Reinvesting a dividend back into the same restricted security counts as a purchase and is prohibited.3U.S. Department of the Treasury. Frequently Asked Questions – Newly Added Anyone holding CMIC securities in a brokerage account should confirm that DRIP settings are switched off on those positions.
Holding Is Not the Same as Selling
The order bans buying and selling. It does not require you to divest. Once the divestment window closes for a given security, you can continue holding it indefinitely, but you cannot sell without a specific OFAC license.1U.S. Department of the Treasury. Chinese Military Companies Sanctions Investors who miss the window end up with positions they can hold but cannot legally exit on their own.
Activities That Remain Permitted
OFAC has carved out several categories of conduct so that the financial system can continue to function around the ban:
- Clearing, execution, settlement, custody, transfer agency, and back-end processing services, provided they do not support a prohibited purchase or sale by a U.S. person.
- Market maker and intermediary activities needed to facilitate divestitures during the wind-down period, or activities otherwise not prohibited.
- U.S. securities exchange operations that process transactions in listed securities when those transactions are part of a permitted divestiture.1U.S. Department of the Treasury. Chinese Military Companies Sanctions
A custodian bank does not violate the order by holding CMIC securities for a non-U.S. client. A clearinghouse does not violate it by settling a lawful divestiture trade.
When the Prohibition Applies
For companies named in the original annex to the executive order, the ban on new purchases and sales began on August 2, 2021.2The American Presidency Project. Executive Order 14032 – Addressing the Threat From Securities Investments That Finance Certain Companies of the People’s Republic of China Investors who already owned those securities received a 365-day divestment window that closed on June 3, 2022. During that window, trading was allowed solely to exit the position.1U.S. Department of the Treasury. Chinese Military Companies Sanctions
For companies added later, the clock is different. The prohibition on new transactions takes effect 60 days after an entity is added to the NS-CMIC List, and the 365-day divestment window runs from the date of that specific listing.1U.S. Department of the Treasury. Chinese Military Companies Sanctions Compliance teams need to track the listing date for each entity separately. OFAC offers email alerts through its website when the list changes.4U.S. Department of the Treasury. Chinese Military Companies Sanctions
How Subsidiaries Are Treated
OFAC’s usual 50-percent ownership rule, which normally extends sanctions to any entity majority-owned by a sanctioned party, does not apply under EO 14032. A subsidiary is restricted only if it is itself named on the NS-CMIC List or in the executive order’s annex.1U.S. Department of the Treasury. Chinese Military Companies Sanctions You cannot assume that every affiliate of a listed parent is off-limits, and you cannot assume any affiliate is clean without checking the current list. Treasury can and does add subsidiaries by name when their activities in the defense or surveillance technology sectors warrant it.
Civil and Criminal Penalties
Enforcement authority sits with OFAC, and the regulatory framework is codified at 31 CFR Part 586, the Chinese Military-Industrial Complex Sanctions Regulations.5eCFR. 31 CFR Part 586 – Chinese Military-Industrial Complex Sanctions Regulations Penalties flow from the International Emergency Economic Powers Act, the statute giving the order its legal force.
Civil penalties are the greater of a statutory base figure or twice the value of the underlying transaction. The base was $250,000 when IEEPA was enacted; after inflation adjustments, the per-violation maximum reached $368,136 as of 2025.6GovInfo. 50 USC 1705 – Penalties7U.S. Department of the Treasury. Inflation Adjustment of Civil Monetary Penalties The “twice the transaction value” multiplier is where institutional exposure gets serious. A single large block trade in a restricted security can drive a civil penalty into the millions with no finding of willfulness required. OFAC can pursue civil enforcement on a strict-liability basis.
Criminal penalties apply to willful violations. A knowing and deliberate violation can result in a fine of up to $1,000,000, imprisonment for up to 20 years, or both.6GovInfo. 50 USC 1705 – Penalties
Private Investments Sit Under a Different Order
EO 14032 covers publicly traded securities only. Private equity, venture capital, joint ventures, and other non-public transactions in Chinese entities fall under a separate framework, Executive Order 14105, which created the Outbound Investment Security Program targeting semiconductors and microelectronics, quantum information technologies, and artificial intelligence.8U.S. Department of the Treasury. Outbound Investment Security Program A transaction can implicate both programs if it involves a listed CMIC company operating in one of those technology sectors, so each framework needs to be evaluated on its own terms.