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Biden administration plans to change China’s securities ban amid lawsuits

“The government is considering its options,” Borson told Judge Rudolph Contreras in response to a question of whether the Defense Department is working to resolve legal issues resulting from the actions of the Trump administration. “We are considering how to respond in light of the issues raised by the decisions of this court.”

Case details: Borson’s comments came during oral argument in a case brought by Nasdaq-listed Luokung Technology Corp., which the DOD said was subject to the transaction ban on January 14, six days before President Donald Trump left. Trump was under enormous pressure from Congress to implement the ban at the time. Lawyers for the company argued that federal officials implemented the ban in violation of administrative procedural law, and the DOJ could not prove that the company was linked to the Chinese military.

Luokung’s lawyers argued for an emergency exemption, citing a similar judicial stay obtained in March by the first company to sue, Xiaomi Corp. The DOJ has decided it will no longer appeal the company’s exemption.

Luokung’s lawyers have warned of imminent financial damage unless the exemption is granted, noting that popular index provider FTSE Russell plans to remove the company from two of its indexes on Saturday, which could trigger a sharp drop in its share price.

Background: Legal battles over the ban are boiling this spring, but the issue stems from a decades-old fight between Congress and the executive branch over how to crack down on China. Congress is expected to maintain pressure on the Biden administration over the ban amid continued tension over trade.

Congress first gave the executive the power to ban securities transactions more than two decades ago as part of an annual defense licensing bill enacted in 1998, but the DOD only produced a list of companies subject to the law last June. Lawmakers immersed in language expanding the administration’s use of the ban under the National Defense Authorization Act HR 6395 (116) FY2021, passed in December.

The case is closely watched by a bipartisan coalition of senators who support China’s crackdown, including Chris Van Hollen (D-Md.), Tom Cotton (R-Ark.) And Marco Rubio (R-Fla.), Between other.

Rubio reintroduced a bill in March S. 570 (117) that would support Trump’s executive action in November and expand it, his office said. Rubio’s staff said the senator was following the trial and the administration’s response while pushing for the legislation.

“The US financial markets cannot be the preferred location for Communist Chinese military companies to raise capital,” Rubio said on Monday when asked about the court’s arguments. “Although the administration has wide latitude to protect our national security by preventing Wall Street from investing American savings in Chinese military companies, it is clear that we urgently need legislation to fight fully against the exploitation of the US financial markets by the Chinese Communist Party. “

Rubio said his legislation “would prohibit these CCP-backed companies from operating in the US financial markets, whether through direct listing on our stock exchanges, inclusion in investment funds, or various other means. We need to clarify. that the Chinese Communist Party will no longer be able to take advantage of our financial system. “

What awaits us: Roger Robinson, chairman and CEO of RWR Advisory Group, a Washington-based consultancy specializing in China’s involvement in US financial markets, said Biden could limit any impact of the lawsuits by taking his own. executive measures.

Otherwise, “these cases could be seen by some as setting a precedent,” he said, “although that could be drastically changed” if Biden acted to clarify how the ban works. In particular, Robinson said, Biden could take action that builds on the expanded authority Congress gave him in December.

FTSE Russell, the DOD and the Treasury Department did not respond to requests for comment on the case.

A decision is expected within a few days. Judge Contreras said he would take into consideration that the company was hoping for a decision by the end of the day on Wednesday given that FTSE Russell’s index action is expected to take effect on Saturday.

Gavin Bade contributed to this report.



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