Prohibition of Use or Delivery of Chinese Telecommunications and CCTV Products and Services: The Potential Link Between Section 889 of the 2019 NDAA and Section 1260H of the 2021 NDAA | PilieroMazza SARL

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Over the past few days, PilieroMazza has received a number of inquiries related to our recent publication titled DOD Releases New List of Prohibited Entities Under Section 889. In this post, we discussed how the DOD recently released a new list of entities determined by the DOD to be considered “Chinese military companies”. This posting has not been made pursuant to Section 889 of the 2019 NDAA, but rather pursuant to Section 1260H of the National Defense Authorization Act (NDAA) 2021. This has caused confusion about the potential intersection of the two laws and whether one impacts the other. Below we offer further clarification.

Although we believe that the DOD’s requirement to report Chinese military companies under Section 1260H is separate and distinct from Section 889, there is a risk that the DOD may view the Section 1260H list as tantamount to a conclusion that companies on this list that manufacture telecommunications and video surveillance equipment are entities “owned or controlled by, or otherwise related to, the government of a covered foreign country [China]under section 889.

Specifically, Section 889(D) states that it applies to “telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of National Intelligence or the director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise related to the government of a covered foreign country [China].” This wording mirrors that of section 1260H in several ways.

First, as with Section 889, Section 1260H(c) states that the “[S]secretary [of Defense] may consult with the head of any appropriate federal department or agency in making the decision [as to whether a company is a Chinese Military Company].” This is similar to Section 889(D) where the Secretary of Defense must meet with the Director of National Intelligence and the Director of the Federal Bureau of Investigation to determine if entities should be placed on the list.

Additionally, companies are considered “Chinese military companies” under Section 1260H(B) if they are an entity that is “(i)(I) directly or indirectly owned, controlled, or beneficially owned by, or in an official or unofficial setting”. ability to act as an agent or on behalf of the People’s Liberation Army or any other organization subordinate to the Central Military Commission of the Communist Party of China; or (II) identified as a contributor to the military-civilian fusion of China’s defense industrial base; and (ii) engaged in the provision of business services, manufacture, production or export. This could be interpreted by the DOD to be almost identical to the directive given by Congress under Section 889 that companies should be covered by the telecommunications and CCTV ban if they are “an entity owned or controlled by, or otherwise related to the government of a covered foreign country [China].”

So, while the list reported by PilieroMazza in our October 10 blog — published by the DOD pursuant to Section 1260H of the 2021 NDAA — is not directly related to Section 889, we believe there is a risk that the DOD may, based on the above analysis, use this list as a basis for supplementing companies covered by Section 889. Although DOD has never published information directly related to Section 889, it does publish regular updates of the list of section 1260H. Thus, if entities on List 1260H produce telecommunications or video surveillance equipment, they could be considered by the DOD to be “an entity owned or controlled by, or otherwise related to the government of a covered foreign country.” [China]under section 889.

While it is not guaranteed that the DOD will establish such a connection, PilieroMazza believes it is important that government contractors understand the possible connection and be aware of the risks if using telecommunications or corporate video surveillance equipment. listed on the published section 1260H list. by the DOD.

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