Last Wednesday, the White House issued an executive order (the “Order“) under the International Emergency Economic Powers Act, 50 U.S.C. 1701, the National Emergencies Act, 50 U.S.C. 1601, and §301 of Title 3 of the United States Code, prohibiting transactions of hardware, software or other products or services that enable information processing, data processing, data storage, data retrieval or electronic communications to foreign adversaries.
Who does it apply to?
The Order applies to all US citizens and residents, as well as US companies and companies resident in the US, or companies with US shareholders above the threshold.
The Order prohibits transactions and under correspondent banking law, the Order applies to any entity, any bank, and any person who avails itself of a US correspondent bank for a prohibited transaction involving Prohibited Tech with a foreign adversary.
What and who does it target?
The Order targets financial and contractual transactions and specifically those involving communications and data technology associated with foreign adversaries, which means a foreign government engaged in serious conduct (or long-term patterned conduct) adverse to the national security of the US or to the security or safety of a US person (a natural and legal person).
It also targets a foreign person (legal or natural person) who is not part of a foreign government who engages in serious conduct adverse to the national security of the US or to the security or safety of a US person.
A foreign adversary can be any person or any company from any country that is not the US – what is targeted is the conduct by any non-US person or company from any country, as well as known foreign adversaries to the US (e.g., Iran, Korea) whose contractual dealings or transactions pose an undue risk to US security or tech resiliency.
What is prohibited?
It is prohibited to acquire, import, transfer, install or deal in hardware, software or other products or services that enable information processing, data processing, data storage, data retrieval or electronic communications (the “Protected Tech“), or with respect to property subject to US jurisdiction (e.g., US laws, which includes correspondent banking laws) where the transaction involves property where a foreign country or foreign legal or natural person has an interest (including an interest in a contract for tech) and where:
- the transaction involves Protected Tech designed, developed, made or supplied by a legal or natural person owned or controlled by a foreign adversary or under the direction or jurisdiction of a foreign adversary; and
- the transaction:
- poses an undue risk of sabotage to or subversion of the design, integrity, manufacturing, production, distribution, installation, operation or maintenance of Protected Tech in the US;
- poses an undue risk of catastrophic effects on the resiliency or security of critical infrastructure in the US;
- poses an undue risk of catastrophic effects on the resiliency or security of US digital economy; or
- poses an unacceptable risk to the national security of the US or to the security or safety of a US legal or natural person.
The Secretary of Commerce will determine which transactions pose national security threats, risks of subversion or sabotage of US technology, undue risks of catastrophic effects on the resiliency of US digital economy, or its critical infrastructure.
When is it effective?
The Order applies on the date of the Order and overrides existing contracts, licences or permits previously issued or in effect or in force. Legal and natural persons can apply for a licence under the Order for an exemption. The Secretary of Commerce will operationalize the timing of the cessation of transactions now prohibited for the Protected Tech.
On May 16, 2019, the Secretary listed the entities subject the Order here, which appear to be Huawei only. On May 20, 2019, the Secretary approved a 90-day temporary licence under the Order for 69 entities here, which are all Huawei entities located in China, the US, Germany, Canada and several other countries in the world.