[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 4589 Introduced in Senate (IS)]
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118th CONGRESS
2d Session
S. 4589
To prohibit index funds and registered investment companies from
investing in Chinese companies, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
June 18, 2024
Mr. Scott of Florida introduced the following bill; which was read
twice and referred to the Committee on Banking, Housing, and Urban
Affairs
_______________________________________________________________________
A BILL
To prohibit index funds and registered investment companies from
investing in Chinese companies, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Safeguarding U.S. Financial
Leadership Against Communist China Act''.
SEC. 2. FINDINGS.
Congress finds the following:
(1) A 2024 report by the Select Committee on the Chinese
Communist Party of the House of Representatives found that
index providers and asset managers, on an industry-wide basis,
have facilitated the investment of more than $6,500,000,000 in
companies that are based in the People's Republic of China and
that the Federal Government has red-flagged or blacklisted for
advancing the military capabilities, or supporting the human
rights abuses, of the People's Republic of China.
(2) A 2023 report by the Coalition for a Prosperous America
documented the astounding level by which financial institutions
and investment firms that are based in the United States fund
companies in the People's Republic of China, including such
companies that have been sanctioned by the Federal Government
and prohibited from doing business in the United States.
(3) A 2021 report by the U.S.-China Economic and Security
Review Commission stated that the Government of the People's
Republic of China permits the participation of foreign firms
and investors in the Chinese market only when that
participation suits the national interest of the People's
Republic of China, and, as a result, a nominal financial
opening in the People's Republic of China is, in reality, a
carefully managed process designed to reinforce state control
over capital markets and channel foreign funding toward
fulfilling the national development objectives of that
Government.
(4) Every dollar invested and spent in the People's
Republic of China funds the atrocities of the Government of the
People's Republic of China, such as the genocide of the
Uyghurs, and the campaign of that Government to destroy the
United States.
(5) To protect the freedom to invest, and the integrity of
the capital markets of the United States, Congress must ensure
that those capital markets are not being polluted and distorted
by nefarious, non-market economy actors, such as the Government
of the People's Republic of China.
(6) Congress must address--
(A) the threats that the Government of the People's
Republic of China poses to investors in the United
States; and
(B) the consequences of massive investment by the
United States in the military-civil fusion apparatus of
a regime that wishes to destroy the way of life in the
United States.
SEC. 3. PROHIBITION.
(a) Definitions.--In this section:
(1) Chinese company.--The term ``Chinese company'' means a
company--
(A) that is incorporated in, or otherwise organized
under the laws of, the People's Republic of China;
(B) the majority of the assets or employees of
which are located in the People's Republic of China;
(C) that is majority-owned by, controlled by, or
subject to the jurisdiction or direction of the
Government of the People's Republic of China;
(D) the majority of the value of which depends on
the revenues, profits, market capitalization, assets,
or value of a security (including options to purchase
or sell) of a company described in subparagraph (A),
(B), or (C); or
(E) with respect to which a company described in
subparagraph (A), (B), or (C) has control (as defined
in section 230.405 of title 17, Code of Federal
Regulations, or any successor regulation).
(2) Commission.--The term ``Commission'' means the
Securities and Exchange Commission.
(3) Hedge fund.--The term ``hedge fund'' means an issuer
that would be an investment company but for paragraph (1) or
(7) of section 3(c) of the Investment Company Act of 1940 (15
U.S.C. 80a-3(c)).
(4) Index fund.--The term ``index fund'' means an
investment company or hedge fund that is designed to track an
index of securities or a portion of such an index.
(5) Investment company.--The term ``investment company''
has the meaning given the term in section 3 of the Investment
Company Act of 1940 (15 U.S.C. 80a-3).
(6) Registered investment company.--The term ``registered
investment company'' means an investment company that is
registered with the Commission pursuant to the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.).
(b) Prohibition on Investment.--
(1) General prohibition.--
(A) In general.--Neither an index fund nor a
registered investment company may invest in a Chinese
company.
(B) Divestment period safe harbor.--With respect to
an index fund or registered investment company with an
investment in a Chinese company on the date of
enactment of this Act, subparagraph (A) shall not apply
to that investment during the 1-year period beginning
on that date of enactment.
(2) Divestment plan.--Not later than 180 days after the
date of enactment of this Act, each index fund and registered
investment company with an investment in a Chinese company
shall develop, and share with the shareholders of and investors
in the applicable entity, a written plan on how the entity will
divest from each such investment to come into compliance with
this subsection.
(c) Civil Penalty.--
(1) In general.--Any person that violates this section
shall be subject to a civil penalty of the following amount:
(A) With respect to a violation of subsection
(b)(1), an amount not to exceed the greater of--
(i) $500,000; or
(ii) an amount that is twice the amount of
the transaction that is the basis of the
violation with respect to which the penalty is
imposed.
(B) With respect to a violation of subsection
(b)(2), $500,000 for each day the person is in
violation of subsection (b)(2).
(2) Amount of a transaction defined.--For purposes of
paragraph (1)(A)(ii), the term ``amount of a transaction''
means--
(A) with respect to a purchase that is the basis of
the applicable violation, the purchase price; and
(B) with respect to the holding of an investment
that is the basis of the applicable violation, the fair
market value of the investment at the time of the
violation.
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