On November 27, 2019, the Department of Commerce issued a proposed rule to implement the May 15, 2019 Executive Order entitled “Securing the Information and Communications Technology and Services Supply Chain.”  Once finalized and effective, the regulations will govern the process and procedures that the Secretary of Commerce will use to determine whether certain transactions involving information and communications technology or services (“ICTS”) should be prohibited or otherwise restricted.  As currently drafted, the proposed rule goes further than many other legal authorities, in that it allows the government to prohibit or otherwise restrict a broad range of wholly commercial transactions that the Secretary determines present national security risks.

Details on key aspects of the proposed rule are in a Client Alert that we published on November 27, available here.  The public comment period remains open until December 27.  Given the breadth of the proposed rule and the significant number of open questions, thoughtful comments will be critically important in scoping a final rule.

Under the proposed rule, the Secretary may review and mitigate, prohibit, or unwind transactions that: (1) are conducted by any person subject to the jurisdiction of the United States or involve property subject to the jurisdiction of the United States; (2) involve any property in which any foreign country or a national thereof has an interest (including through an interest in a contract for the provision of the technology or service); and (3) were initiated, pending, or completed after May 15, 2019, regardless of when agreements relating to those transactions were entered into, dated, or signed or when any license, permit, or authorization applicable to the transaction was granted.  The Secretary would also have the ability to review, and potentially prohibit, mitigate, or unwind transactions involving “ongoing” activities, even if a contract was entered into prior to May 15, 2019.

The review of a covered transaction could be commenced by the Secretary (or a designee): (1) at the Secretary’s own discretion; (2) upon request from a department head, agency, governmental body, or the Federal Acquisition Security Council, as appropriate; or (3) based on information submitted by private parties to the Secretary that the Secretary deems credible.  This third prong could allow business competitors to submit information triggering a review.  In all cases, the Secretary would have broad discretion under the proposed rule to initiate, conduct, and resolve an investigation.

The proposed rule leaves significant uncertainty for companies in the ICTS sector (and companies that procure ICTS) as to the types of transactions that may undergo review and be prohibited or otherwise restricted.  Companies in the ICTS sector must take account of the proposed rule in considering potential transactions, especially those involving countries that the U.S. Government considers to present national security concerns, such as China and Russia.  Our firm’s national security team stands ready to help businesses analyze the potential impacts of the proposed rule on their operations and consider how best to engage with the government, particularly during this month’s public comment phase.

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This post is being published concurrently on Covington’s Inside Government Contracts and Global Policy Watch blogs.