[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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