National Security Review Bodies (Part I): Legal Context and Comparison

National Security Review Bodies (Part I): Legal Context and Comparison

Legal Sidebari

National Security Review Bodies (Part I):
Legal Context and Comparison
Updated September 6, 2023
Federal law creates several frameworks that allow the United States to review the national security risks
posed by some private commercial transactions. These legal frameworks give the United States authority
to review, prohibit, and, in some cases, unwind a wide range of commercial dealings, but they do not
capture all commercial transactions that might present national security risks. Some organizations and
Members of Congress have proposed new or modified processes to address transactions not captured
under current legal structures. This Sidebar examines and draws contrasts among several key legal
frameworks that allow the United States to review and prohibit some private commercial transactions due
to national security risks. A companion Sidebar introduces legal issues that could arise from proposals to
expand or create new review mechanisms.
Departments of Commerce and State Export Controls
Discussed in this CRS Report, the export control system is one of the primary frameworks for evaluating
commercial transactions’ possible national security risks. The export control system governs U.S.-origin
exports to a foreign country or national, transfers from one foreign country to another (called reexports),
or transfers within a foreign country. These export restrictions apply to, among other things, defense
articles and services (e.g., items and technology for military use), nuclear equipment and material, and
dual-use items (e.g., items with both civilian and military uses). Among these categories, export controls
of dual-use items cover the broadest range of transactions. The Export Control Reform Act of 2018,
which is implemented through the Export Administration Regulations (EAR), provides legal authority for
dual-use and certain other export controls. Other statutory schemes, such as those governing nuclear-
related items and foreign military sales, create authority for non-dual-use controls programs. Several
agencies administer and enforce export controls, with the Bureau of Industry and Security (BIS) in the
Department of Commerce (Commerce) playing a leading role in dual-use exports.
The EAR create several interagency bodies responsible for establishing what exports and which end users
are permissible and for reviewing and issuing license applications for certain controlled exports. For
example, an End-User Review Committee with representatives from the Departments of Commerce,
State, Defense, Energy, and (in some cases) the Treasury decides what parties should be on the Entity
List. Exports to parties on the Entity List are either prohibited or subject to additional license
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requirements because those parties threaten U.S. national security or foreign policy or raise certain
terrorism and nonproliferation concerns. BIS and several other agencies have authority to review
applications for licenses, and the EAR create processes and timelines for reviewing such applications,
resolving inter-agency disagreements on whether to grant applications, and appealing denials. The EAR
also create a process for administrative enforcement of export controls through an administrative law
judge.
The EAR address a large portion of U.S. outbound trade flow, but the export control system does not
regulate all transactions among U.S. and foreign actors. For instance, export controls do not apply to
purely monetary transactions, such as U.S. banks’ conversion of payments in foreign currencies into U.S.
dollars (dollar-clearing). The export control system also does not govern U.S. companies’ capital
investment in foreign entities when the investment does not involve the transfer of goods, services, or
technology.
Office of Foreign Assets Control Economic Sanctions
The Office of Foreign Assets Control (OFAC) in the Department of the Treasury (Treasury) plays a key
role in national security reviews of commercial transactions as one of the primary agencies that
administers and enforces economic sanctions. OFAC administers a varied set of individual, country-
based, and issue-specific sanctions programs, discussed in this CRS In Focus. The legal authority for
many of the sanctions programs administered by OFAC derives from the President’s power to block
transactions under the International Emergency Economic Powers Act (IEEPA) after declaring an
emergency under the National Emergencies Act (NEA)—although other statutory schemes authorize or
require the President to impose sanctions in particularized settings, such as the counterterrorism context.
For economic sanctions enforcement, OFAC maintains a public list of “persons” (a term that includes
individuals and companies) subject to sanctions on its Specially Designated Nationals and Blocked
Persons List, known as the SDN List. The list includes “individuals and companies owned or controlled
by, or acting for or on behalf of, targeted countries,” as well as “individuals, groups, and entities, such as
terrorists and narcotics traffickers designated under programs that are not country-specific.” OFAC’s Non-
SDN Lists identify persons whose assets are partially blocked or with whom some transactions are
permitted. (Economic sanctions can also result in placement on the Entity List administered by BIS.)
Although OFAC publishes the SDN and Non-SDN Lists, the agency responsible for designating the
persons for those lists varies depending on the sanctions program. Regardless of the program and
designating authority, federal regulations generally allow a sanctioned person to file an administrative
petition with OFAC to be removed from an OFAC list through a process called delisting. Federal
regulations also allow OFAC to issue licenses permitting transactions that would otherwise be blocked.
Being placed on the SDN List can deny the designated person access to nearly all aspects of the U.S.
financial system, including dollar-clearing transactions. It can also deny access to any assets the designee
has that are under U.S. jurisdiction, and U.S. persons are usually prohibited from transacting with the
designee. At the same time, OFAC’s list-based sanctions derived from IEEPA/NEA authorities have
certain limits. These sanctions programs generally focus on the national risk posed by the parties involved
in transactions rather than examining whether broader classes of transactions by their nature raise national
security risks and should be reviewed regardless of the parties involved.
Committee on Foreign Investment in the United States (CFIUS) Reviews
CFIUS is an interagency committee that serves the President in reviewing for potential national security
risks that may arise from foreign investments in the United States. CFIUS reviews certain foreign
investment transactions, including some real estate investments, to determine whether they threaten to

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impair U.S. national security. In contrast to OFAC sanctions, CFIUS is not a list-based program, and the
committee can review any foreign investment transaction that falls within its statutory ambit (detailed in
this CRS Report). When CFIUS determines that a transaction presents a sufficient national security risk, it
can impose mitigation measures and make recommendations to the President on whether to prohibit or
suspend the transaction. The President has the ultimate authority to prohibit or suspend a covered
transaction if he or she finds there is credible evidence that the transaction would threaten to impair
national security and that other laws do not provide adequate and appropriate authority to protect the
United States. Presidents have used this authority to prohibit planned transactions and to require parties to
divest or “unwind” completed transactions.
CFIUS’s statutory authority derives from Section 721 of the Defense Production Act, as amended and
codified in 50 U.S.C. § 4565. CFIUS is chaired by the Secretary of the Treasury and is made up of 11
regular members, two of whom are ex officio.
CFIUS traditionally reviews mergers, acquisitions, and takeovers that could result in a foreign entity
taking control of a U.S. business. Amendments to CFIUS’s statutory authorities enacted in 2018 allow the
committee’s review of some non-controlling investments in U.S. businesses involving critical
technologies, critical infrastructure, or U.S. citizens’ sensitive personal data. The 2018 amendments also
authorized CFIUS to review transactions involving U.S. real estate near military installations, airports,
and military ports. Overall, the President has prohibited seven transactions since CFIUS’s formation. The
seven transactions involved foreign acquisitions of MAMCO Manufacturing (1990), four U.S. wind farm
project companies (2012), Aixtron SE (2016), Lattice Semiconductor Corporation (2017), Qualcomm
Incorporated (2018), StayNTouch (2020), and Musical.ly (2020). CFIUS generally does not review
outgoing U.S. investments (e.g., a U.S. company’s investment in a foreign corporation), nor does it
review purchases or sales of individual commercial items or services.
Sector-Specific Review Processes
In some areas, the executive branch has used existing legal authorities to create national security review
structures that are specific to certain sectors.
Outbound Investment in Sensitive Technologies
In August 2023, President Biden issued Executive Order (E.O.) 14105, which addresses national security
risks arising from outbound capital investment from the United States to foreign companies involved in
certain sensitive technologies. The order cites concerns that outbound capital flows can be exploited to
accelerate development of technologies used to support foreign countries’ military, intelligence,
surveillance, and cyber capabilities. Invoking the NEA and IEEPA, President Biden declared that foreign
development of these capabilities constitutes an unusual and extraordinary threat to the United States.
While the order cites a threat from countries of concern, an annex to the order identifies only the People’s
Republic of China (PRC), including Hong Kong and Macau, as a country of concern.
E.O. 14105 directs the Secretary of the Treasury, in consultation with Commerce and other executive
branch agencies, to issue implementing regulations. On August 14, 2023, Treasury solicited public
comment on its implementation plans in an advance notice of proposed rulemaking.
E.O. 14105 addresses investment in three categories of covered national security technologies and
products: semiconductors and microelectronics, quantum information technologies, and artificial
intelligence (AI) systems. The order creates a two-tiered system for addressing national security risk from
investment in these technologies:
• Prohibited transactions: Outbound investments in covered national security
technologies and products that pose a particularly acute threat to national security are

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prohibited. Treasury is considering prohibiting certain investments in technologies that
enable advanced integrated circuits and supercomputers; advanced quantum information
technologies; and AI systems incorporated into software designed to be exclusively for
military, intelligence, or mass-surveillance uses.
• Notifiable transactions: Some outbound investments in covered national security
technologies and products that may contribute to national security threats are permitted,
but the U.S. investor must notify Treasury and provide information about the transaction.
Treasury is considering a notification requirement for design, fabrication, and packaging
of integrated circuits that are not otherwise prohibited transactions. Treasury is also
considering mandatory notification for investments involving AI systems designed for
cybersecurity, digital forensics, penetration testing, robotics, surreptitious listening
devices, non-cooperative location-tracking, and facial recognition.
In the advance notice of proposed rulemaking, Treasury noted that covered transactions would likely
include acquisitions of equity interests (e.g., mergers and acquisitions, private equity, and venture capital),
greenfield investments, joint ventures, and certain debt financing transactions. Treasury expects to exempt
certain transactions from the prohibition and notification requirements, such as investments by a limited
partner into funds that are solely passive and below a de minimis threshold. In contrast to the CFIUS
process, Treasury does not anticipate that its outbound investment review regulations will require the
executive branch to evaluate transactions’ national security risks on a case-by-case basis. Instead,
Treasury expects that the parties to transactions covered by E.O. 14105 will independently assess whether
their planned investments are prohibited, notifiable, or permissible.
Information and Telecommunications Technology and Services
Under a January 2021 rule discussed in this CRS In Focus, Commerce created a process to review
whether transactions involving the supply chain of information and telecommunications technology and
services (ICTS) present certain national security and economic risks. When a transaction in ICTS
involves designated foreign adversaries and presents undue or unacceptable risks as outlined in the 2019
Executive Order 13873, the January 2021 rule (Supply Chain Rule) allows Commerce to either prohibit
the transaction or negotiate risk-mitigation measures. Upon issuing the Supply Chain Rule, Commerce
designated the PRC, Cuba, Iran, North Korea, Russia, and the Nicolás Maduro regime in Venezuela as
foreign adversaries. The rule regulates individual ICTS transactions—broadly defined as “any acquisition,
importation, transfer, installation, dealing in, or use of any [ICTS].” The rule’s legal authority stems from
IEEPA, which former President Trump invoked in 2019 after declaring a national emergency arising from
foreign adversaries’ ability to create and exploit vulnerabilities in ICTS systems.
The Supply Chain Rule’s framework could allow Commerce to prohibit imports of items from entities
upon which it imposes export and procurement restrictions and to regulate a broad range of commercial
transactions that fall outside existing legal regimes. Despite its potential breadth, Commerce has not
prohibited a transaction under the Supply Chain Rule’s review process as of August 2023, but it has used
the rule to issue subpoenas to multiple PRC-based companies that provide ICTS in the United States.
Telecommunications Licenses
The Committee for the Assessment of Foreign Participation in the United States Telecommunications
Services Sector (Telecom Committee) is an interagency body that reviews certain applications by foreign
parties for U.S. telecommunications licenses and makes recommendations to the Federal Communications
Commission (FCC) on whether to approve the licenses. The Attorney General chairs the Telecom
Committee, and the Secretaries of Defense and Homeland Security serve as members, along with any
other agency heads or assistants to the President that the President may appoint. Several other executive

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branch officials act as advisors to the committee. The Telecom Committee operated for many years
informally as “Team Telecom” until President Trump issued a 2020 executive order formalizing the
committee. The FCC has also adopted its own rules on the process by which it seeks the Telecom
Committee’s input.
The FCC refers three types of licenses or authorizations to the Telecom Committee: (1) international
Section 214 authorizations allowing telecommunications carriers to provide telephone service between
the United States and foreign points; (2) submarine cable licenses allowing persons to operate submarine
cables that connect the United States with a foreign country or with another portion of the United States;
and (3) common carrier, broadcast, or aeronautical radio station licenses when the applicant is a
corporation with foreign ownership over certain thresholds.
The Telecom Committee reviews these applications to determine whether there is “credible evidence” that
the license would pose a risk to the national security or law enforcement interests of the United States. If
it determines that there is a credible risk, then it must recommend that the application either be denied or
granted contingent on the applicant’s compliance with mitigation measures. Once the FCC grants a
license, the Telecom Committee continues to monitor the licensee’s compliance with any mitigation
measures and may recommend that the FCC modify or revoke the license.
In recent years, the FCC has revoked or denied several international Section 214 authorizations for PRC-
based companies on the advice of the Telecom Committee or Team Telecom. For instance, the FCC
denied China Mobile’s application for an international Section 214 authorization in 2019 and revoked
China Telecom’s, China Unicom’s, Pacific Networks’, and ComNet’s international Section 214
authorizations in 2021 and 2022. All of these denials or revocations were based on national security
concerns related to PRC control and influence over these companies. Appeals have resulted in
affirmations of the FCC determinations in this category of actions because in each instance, the court
upheld the challenged FCC order.
FCC Equipment Authorizations
As discussed in this CRS Legal Sidebar, the FCC has adopted new rules restricting certain equipment that
poses national security risks from being imported or sold in the United States. Under the FCC’s
regulations all electronic equipment capable of emitting radio frequency energy must be authorized by the
FCC before being imported or marketed in the United States. Additionally, under the new rules, the FCC
will not issue any new authorizations for telecommunications equipment produced by Huawei
Technologies company and ZTE Corporation, the two largest PRC telecommunications equipment
manufacturers. It will also not issue new authorizations for equipment produced by three PRC-based
surveillance camera manufacturers—Hytera Communications, Hangzhou Hikvision Digital Technology,
and Dahua Technology—until the FCC approves these entities’ plans to ensure that their equipment is not
marketed or sold for public safety purposes, government facilities, critical infrastructure, or other national
security purposes.
Bulk Power System
In 2020, President Trump issued the Bulk Power Executive Order, which invoked the NEA and IEEPA
and directed the Secretary of Energy to prohibit certain transactions involving electric equipment in the
U.S. bulk power system that presented undue and unacceptable risks due to foreign adversaries’
involvement. The Department of Energy implemented the executive order by issuing a 2020 Prohibition
Order that barred certain utilities from acquiring or installing some bulk power system electrical
equipment that serviced critical defense facilities and was sourced from companies owned, controlled by,
or subject to the jurisdiction or direction of the PRC. As rationale for the restriction, the 2020 Prohibition
Order cited PRC plans and technological capability to undermine the United States’ electric grid.

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The Biden Administration has sought to reformulate U.S. policy toward protecting the supply chain for
the bulk power system. In 2021, the Biden Administration revoked the Department of Energy’s 2020
Prohibition Order and allowed the national emergency declared in the Bulk Power Executive Order to
expire. (National emergency declarations automatically terminate after one year unless renewed by the
President.) The Department of Energy under the Biden Administration still describes essential electric
system equipment sourced from the PRC as a national security risk, but it has not renewed the Bulk
Power Executive Order. (For more detail on U.S. policy on the electric grid, see this CRS Report.)

Author Information

Stephen P. Mulligan
Chris D. Linebaugh
Legislative Attorney
Legislative Attorney

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