Section 889(a)(1)(B) of the 2019 NDAA: Interim Final Rule Prohibiting Contracting with Entities Using Certain Telecommunications and Video Surveillance Services or Equipment

The Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration has published an interim final rule implementing section 889(a)(1)(B) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115-232, the 2019 NDAA).¹ ²  This interim final rule is effective August 13, 2020 and interested parties may submit comments per the instructions in the Federal Register notice by September 14, 2020.

Section 889(a)(1)(B) of the 2019 NDAA prohibits executive agencies from entering into, or extending or renewing, a contract with an entity that uses any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system. The statute covers certain telecommunications equipment
and services produced or provided by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of those entities) and certain video surveillance products or telecommunications equipment and services produced or provided by Hytera Communications Corporation, Hangzhou
Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of those entities).

The statute applies to any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system. It is not limited to end products produced by the five above named companies.

The Federal Acquisition Regulations (FAR) Council is currently working to update the System for Award Management (SAM) in order to require offerors to represent whether they use covered telecommunications equipment or services, or use any equipment, system, or service that uses covered
telecommunications equipment or services.

The FAR Council explains that it is important for contractors to develop a compliance plan in order to be able to submit accurate representations to the Government. The FAR Council explains that developing a compliance plan will assist contractors to be compliant and it expects contractors to develop a compliance plan within the first year that Section 889(a)(1)(B) is in effect.

According to the FAR Council, a contractor should take the following steps to implement a comprehensive compliance plan:

  1. Regulatory Familiarization. Familiarize itself with the rule and required actions.
  2. Corporate Enterprise Tracking. Determine if it utilized covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.
  3. Education. Educate the entity’s appropriate professionals to ensure they are familiar and comfortable with the compliance plan.
  4. Cost of Removal. Once use of covered telecommunications equipment or services is identified, if the entity decides to replace these equipment or services, ensure new equipment and services are acquired.
  5. Representation. Provide representation to the Government regarding whether the entity is utilizing covered telecommunications equipment or services and alert the Government if use is discovered during contract performance.
  6. Cost to Develop a Phase-out Plan and Submit Waiver Information. As explained in the Federal Register Notice, there are limited opportunities for contractors to request waivers. Therefore, if a contractor plans to request a waiver, it should develop a phase-out plan and provide this plan along with other required waiver information to the Government.³

As explained above, even though the interim final rule is effective August 13, 2020, the FAR Council is accepting comments on or before September 14, 2020.

Please contact Karen Harbaugh and Danielle Mehta with any questions.

_____________________

1. 85 Fed. Reg. 42665 (Jul. 14, 2020), available at https://www.federalregister.gov/documents/2020/07/14/2020-15293/federal-acquisition-regulation-prohibi-tion-on-contracting-with-entities-using-certain.

2. Section 889(a)(1)(A) went into effect on August 13, 2019. See 84 Fed. Reg. 40216 (Aug. 13, 2019).

3. See 85 Fed. Reg. 42665, 42667.

Huawei Update: August 2020

Notable Developments

  • The United States House of Representatives and Senate have released text of their versions of the FY2021 National Defense Authorization Act (H.R. 6395 and S. 4049, respectively). The Huawei-related provisions are summarized below.
    • House Huawei provisions:
      • Sense of Congress affirming Section 889 of the FY19 NDAA, which concerns federal procurement of Huawei equipment, including through subcontractors; and
      • New conditions on basing prominent American weapons systems and military equipment in host countries with “at risk” 5G systems.
    • Senate Huawei provisions:
      • New reports on basing prominent American weapons systems and military equipment in host countries with “at risk” 5G systems; and
      • New conditions on basing prominent American weapons systems and military equipment in host countries with “at risk” 5G systems.
  • On August 7, China sentenced the fourth Canadian citizen to death in two years, allegedly over drug charges. Many experts and human rights observers believe the harsh sentences are in response to Canada’s arrest, and likely extradition to the United States, of Huawei CFO Meng Wanzhou.
  • Robert Strayer, who led the Trump Administration’s efforts against Huawei in his role as Deputy Assistant Secretary of State for International Communications and Information Policy, is leaving the State Department.

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Streaming Live: Trade Compliance and Emerging Policy – July 23-24, 2020

Here is your opportunity to be part of the biggest trade compliance conference of the year from the comfort and safety of wherever you might be.

Streaming live from Washington DC and London on July 23 and 24, Content Enablers has convened a select panel of high-level government and industry policy leaders – featuring Matt Borman, Deputy Assistant Secretary of Commerce for Export Administrations, Bureau of Industry and Security (BIS) of the US Department of Commerce, and including George Grammas, co-chair of our International Trade Practice – to explore the compliance trends of 2020, such as the evolving regulations and policy, developments within defense trade, compliance insights and practical observations, the USMCA, and USML Categories I-III firearms transitioned to the EAR. Continue Reading

Upcoming/New CFIUS Filing: Affiliates of Wafra Inc. and Colony Capital, Inc.

Status:  Upcoming/New Filing


Acquirer:            Affiliates of Wafra Inc. (US)

Acquired:            Colony Capital, Inc. (US)

Value:                   US$213 million

Industry:             Network and Data Solutions Continue Reading

National Oceanic and Atmospheric Administration (NOAA) Amends Licensing of Private Remote Sensing Space Systems

SpacecraftOn May 20, 2020, the US Department of Commerce’s (Commerce) National Oceanic and Atmospheric Administration (NOAA) published in the Federal Register a Final Rule and request for comments on new regulations on the licensing policy of private remote sensing space systems. The new Final Rule follows a proposed rule that Commerce published in the Federal Register on May 14, 2019 (84 FR 21282).  The new regulations overhaul the existing licensing regime (15 CFR part 960) and seek to increase transparency with respect to the licensing process for private remote sensing systems.  This Final Rule takes effect on July 20, 2020, unless, if at the end of congressional review the effective date has been changed, then Commerce will publish in the Federal Register a document establishing the actual effective date.  Additionally, Commerce will accept comments on the Final Rule until June 19, 2020. Continue Reading

Upcoming/New CFIUS Filing: Empower Retirement, Great-West Lifeco, Power Corp. of Canada and Personal Capital Corporation

Status:  Upcoming/New Filing


Acquirer:  Empower Retirement, LLC (US); Great-West Lifeco Inc. (Canada); Power Corporation of Canada (Canada)

Acquired:  Personal Capital Corporation (US)

Value:  US$825 million

Industry:  Financial Services


fintech icon on abstract financial technology background .Empower Retirement, LLC, a US subsidiary of Great-West Lifeco Inc., a publicly traded Canadian financial services holding company (TSX:GWO) that is majority owned by the publicly traded diversified holding company Power Corporation of Canada (TSX:POW), entered into an agreement to acquire Personal Capital Corporation, an online based financial advisor headquartered in California, for a purchase price of US$825 million, plus the potential for an additional US$175 million subject to achievement of target growth objectives.  (See Press Release, Great-West Lifeco subsidiary Empower Retirement announces agreement to acquire Personal Capital, June 29, 2020; see also Our companies web page, Great-West LifeCo website, last visited June 29, 2020.)  “The transaction is expected to close in the second half of 2020, subject to required regulatory approvals, including CFIUS review, and other customary closing conditions.” (Id.)

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Considerations for Post-COVID-19 Trade in the World of New Normal

The corona pandemic, the ongoing Brexit and the emerging dominance of China in global markets are among the issues that pose multifaceted challenges for international trade relations. At a time when new Free Trade Agreements are being negotiated, we would like to examine how international trade can be shaped in the “World of New Normal” and what goals individual players, especially the US, EU, UK and China, are pursuing in their trade talks. Continue Reading

EU Seeks Public Comments on Policies for Anti-money Laundering and Counter Financing Terrorism

Macro photo of tooth wheel mechanism with MONEY LAUNDERING letters imprinted on metal surfaceOn May 5, 2020, the European Commission published (i) the Communication of the Action Plan (AP) for a comprehensive EU policy on the prevention of money laundering and financing terrorism (AML/CFT); (ii) the Delegated Regulation updating the countries identified as high risk countries for AML/CFT; and (iii) the methodology for the identification of high risk third countries for AML/CFT.

The EU is strengthening its AML/CFT policies by tightening and adapting existing policies to the dangers, risks and weaknesses faced by the community, setting in the AP the objective of implementing a comprehensive policy to improve the financial system and protect EU entities and interests.

Along with the adoption of this document, the commission published a public consultation to involve citizens, businesses, public and private institutions, universities, service providers and any operator interested in participating in the development of comprehensive policies on AML/CFT in the EU. The consultation will be open until July 29 and can be accessed electronically here.

For a Spanish language version of this newsletter, see here.

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US Needs to Participate and Lead 5G Standards-setting; Huawei Gets a Pass

5G on digital screenOn June 18, 2020, the US Department of Commerce, Bureau of Industry and Security (BIS) published in the Federal Register, a new interim final rule that amends the Export Administration Regulations (EAR) (15 CFR Parts 730-774) by excluding from the additional licensing requirements imposed by the designations of Huawei organization on the Entity List releases of technology related to establishing standards for 5G applications. BIS states that it is revising the Entity List with this rule because of the importance of US participation and leadership in standards organizations. The new rule is effective as of publication in the Federal Register on June 18, 2020. Continue Reading

Accounting for CFIUS Regulatory Risk in Transactions Involving Property Rights at Airports and Maritime Ports

New rules went into effect on February 13, 2020, that implemented the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), expanding the authority of the Committee on Foreign Investment in the United States (CFIUS), the US agency that reviews foreign investments in the US for potential national security concerns.

The new rules include CFIUS authority over certain transactions that involve property rights in airports or maritime ports. In this blog post, we summarize these new authorities relating to airports and maritime ports and provides insight into how investors and operators impacted by these authorities can account for CFIUS regulatory risks going forward. Continue Reading

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