April 26, 2021

Input Sought on Licensing Mechanism for ICTS Transactions Involving "Foreign Adversaries"

Comments Due to Commerce Department by April 28, 2021
Holland & Knight Alert
Ronald A. Oleynik | Andrew K. McAllister | Dariya V. Golubkova

Highlights

  • The U.S. Department of Commerce's advanced notice of proposed rulemaking calls for public comment on key aspects of a mechanism that would license or preclear certain information and communications technology and services (ICTS) transactions involving entities with ties to "foreign adversaries."
  • The public has until April 28, 2021, to file comments.

The U.S. Department of Commerce (Commerce) recently announced its "apparent" need for public comment on key aspects of a mechanism that would license or preclear certain information and communications technology and services transactions (ICTS) transactions involving entities with ties to "foreign adversaries" (presently, China (including Hong Kong), Russia, Iran, North Korea, Cuba and Venezuela).1

To recap, and as discussed in greater detail in a companion Holland & Knight alert (see "ICTS Investigations: The Commerce Department's New Tool," April 26, 2021), Commerce's January 2021 interim rule promulgated regulations to implement former President Donald Trump's executive order on securing ICTS supply chains against "foreign adversaries" (ICTS Interim Rule).2 Under the implemented regulatory framework, which came into effect on March 22, 2021, Commerce can review ICTS transactions that involve entities with ties to "foreign adversaries." The goal of Commerce's review is to determine whether the ICTS transaction poses an unacceptable risk to U.S. national security or the safety of U.S. persons. At the end of its review, Commerce may permit, prohibit or restrict a reviewed ICTS transaction.

The ICTS Interim Rule confirmed Commerce's intent to institute a licensing or preclearance mechanism and set an internal deadline of May 19, 2021, to publish and implement a licensing rule.3 Commerce's decision to delay implementation, and instead seek public comment, is a welcome relief for many stakeholders given the hasty way that the Trump rule was promulgated.

The public has until April 28, 2021, to comment on the following key elements of a forthcoming licensing or preclearance mechanism involving qualifying ICTS transactions.

  • How useful are the Committee on Foreign Investment in the United States (CFIUS) review and Bureau of Industry and Security's voluntary disclosure models, given the differences in transaction types, as compared to ICTS transactions?
  • Weigh the pros and cons of certain preclearance or licensing formats (e.g., authorization required prior to engaging in an ICTS transaction versus authorization sought for added certainty)
  • How to balance interests of "small entities" without jeopardizing national security goals
  • Should any categories or types of ICTS transactions be prioritized? Inversely, should any categories or types of ICTS transactions be ineligible for a license or preclearance, or reviewed under its own set of procedures?
  • Should Commerce allow for a multi-transaction use of a single license, e.g., a single license to apply to multiple ICTS transactions, originating from the same entity and under the same long-term contract?
  • The categories of information that Commerce should or should not require (e.g., technical, security, operational information)
  • Timeline for resolution of license or preclearance application (seemingly reopening for comment the proposed 120-day timeline that Commerce proffered on Jan. 19, 2021)
  • What role, if any, should potential mitigating circumstances play in any licensure or preclearance process?
  • What processes should be implemented to support license continuity in the face of modifications to the terms of a previously licensed or precleared ICTS transaction?
  • Assess the benefits of a renewal process (as compared to a mandatory requirement to reapply) and propose a potential renewal scheme

Companies interested in the potential to help shape the licensing or preclearance mechanism should consider filing comments. For assistance in generating a public comment submission or, more broadly, advice on how the ICTS Interim Rule may impact your operations, please reach out to the experienced attorneys in Holland & Knight's International Trade Group.


Notes

1 Securing the Information and Communications Technology and Services Supply Chain: Licensing Procedures, 86 Fed. Reg. 16,312 (U.S. Department of Commerce, March 29, 2021).

2 Securing the Information and Communications Technology and Services Supply Chain, 86 Fed. Reg. 4913 (U.S. Department of Commerce, Jan. 19, 2021).

3 Id.


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