Over the past few days, PilieroMazza received a number of inquiries related to our recent posting entitled DOD Releases New List of Section 889 Banned Entities. In that post, we discussed how DOD recently released a new list of entities determined by DOD to be deemed “Chinese Military Companies.” This release was not made under Section 889 of the 2019 NDAA but instead under Section 1260H of the 2021 National Defense Authorization Act (NDAA). This caused confusion related to the potential intersection of the two laws and whether one impacts the other. Below, we offer further clarification.
While we believe the requirement for DOD to report Chinese Military Companies under Section 1260H is separate and apart from Section 889, there is a risk that DOD could view the Section 1260H list as being tantamount to a finding that firms on that list who manufacture telecommunications and video surveillance equipment are entities “owned or controlled, or otherwise connected 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 connected to, the government of a covered foreign country [China].” This language mirrors that of Section 1260H in a number of 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 determination [as to whether a company is a Chinese Military Company].” This is similar to Section 889(D) where the Secretary of Defense is to meet with the Director of National Intelligence and the Director of the Federal Bureau of Investigation to make the determination of whether entities should be placed on the list.
Further, companies are deemed to be “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 capacity acting as an agent of or on behalf of, the People’s Liberation Army or any other organization subordinate to the Central Military Commission of the Chinese Communist Party; or (II) identified as a military-civil fusion contributor to the Chinese defense industrial base; and (ii) engaged in providing commercial services, manufacturing, producing or exporting.” This could be interpreted by DOD as being nearly identical to the direction given by Congress under Section 889 that companies should be covered by the telecommunications and video surveillance ban if they are “an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country [China].”
Thus, while the list PilieroMazza reported on in our October 10 th blog—issued by DOD pursuant to Section 1260H of the 2021 NDAA—is not directly attached to Section 889, we believe that a risk exists that the DOD could, based on the analysis above, use that list as a basis for supplementation of the firms covered by Section 889. While DOD never released any information directly related to Section 889, it does routinely issue updates to the Section 1260H list. Thus, if the entities on the 1260H list produce telecommunications or video surveillance equipment, they could be considered by DOD to be “an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country [China]” under Section 889.
While it is not guaranteed that DOD will make such a connection, PilieroMazza believes it is important for government contractors to understand the possible link and be aware of the risks if they are using telecommunications or video surveillance equipment from companies listed on the Section 1260H list published by the DOD.
If you have questions about Section 889 compliance and its impact on your business, please contact Cy Alba, the author of this blog, or another member of PilieroMazza’s Government Contracts or Cybersecurity & Data Privacy practice groups.