National Security Review Bodies (Part II): Creating New Review Systems

National Security Review Bodies (Part II): Creating New Review Systems

Legal Sidebari

National Security Review Bodies (Part II):
Creating New Review Systems
September 6, 2023
Some observers and Members of Congress have advocated for new or expanded national security review
frameworks to examine transactions that may not be subject to existing procedures. Proposals in the 118th
Congress include legislation that would require additional notification of outbound investment and
expand the government’s authority to review certain foreign investments in agricultural land and in
agriculture-related U.S. businesses. In addition to policy debates about the merits of individual programs,
creating or expanding national security systems can raise legal issues about the programs’ structure and
operations. This Legal Sidebar is the second installment in a two-part series examining legal frameworks
authorizing the United States to regulate private commercial transactions to address national security
risks. The first installment analyzes the legal frameworks governing export controls, sanctions
administered by the Office of Foreign Asset Control (OFAC), the Committee on Foreign Investment in
the United States (CFIUS), and sector-specific review bodies. This installment discusses legal issues that
could arise from proposals to expand or create new review mechanisms.
Procedural Due Process
The Due Process Clause of the Constitution’s Fifth Amendment requires, among other things, that the
government provide a person deprived of a property right with notice of the government action and a
meaningful opportunity to contest it. This requirement—known as procedural due process—can be
relevant in legal challenges to national security reviews. For example, the U.S. Court of Appeals for the
District of Columbia Circuit held that, before the President can order a company to divest an acquisition
under the CFIUS process, due process requires the government to provide the affected company with the
unclassified information on which it based its decision and an opportunity to respond. In challenges to
designations on OFAC lists, by contrast, courts have concluded that the government’s interest in national
security outweighed litigants’ needs for a pre-deprivation hearing and access to classified information
supporting the designation.
Judicial Review
An issue related to due process is the extent to which those affected by national security review bodies’
actions can seek judicial review. Some review bodies’ decisions, such as OFAC licensing decisions, are
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considered final agency actions subject to judicial review under the Administrative Procedure Act (APA).
The APA requires courts to give deference to agencies’ decisionmaking while allowing courts to overturn
agency actions that are arbitrary, capricious, or outside an agency’s legal authority. Other statutes seek to
limit judicial review of certain national security review bodies’ decisions by exempting some decisions
from the APA, requiring litigation to be brought in a specified court, or prohibiting judicial review
altogether. Even the most restrictive of these provisions, however, have not completely foreclosed judicial
review. In cases involving restrictive statutes, courts have adjudicated certain issues, such as whether the
national security review bodies exceeded statutory authority (called ultra vires review) and whether they
complied with judicially enforceable constitutional requirements, including procedural due process
standards.
Extraterritoriality
Another consideration tied to the Due Process Clause is the extraterritorial scope of the review system.
Statutes underlying national security review frameworks generally require some nexus between the
transaction under review and a U.S. person or property interest. IEEPA-based sanctions, for example,
apply to transactions involving U.S. persons or property subject to U.S. jurisdiction, and export controls
apply to U.S.-origin goods, services, and technology or the direct product of those items. Apart from these
statutory requirements, some courts have stated that the Due Process Clause imposes an overarching
constitutional requirement for a link between the United States and the prohibited action. Not all courts,
however, agree that this territorial constitutional constraint applies in every case.
Confidentiality
Government reviews of private commercial transactions can require a balance between the transacting
parties’ desire for confidentiality and the public interest in the process. Several national security review
frameworks include confidentiality mandates, which differ depending on the legal paradigm. Some
frameworks prohibit the government from disclosing parties’ private information gathered during the
review process unless an exception applies. CFIUS’s legal authorities provide even stricter confidentiality
by stating that materials submitted during its review process are exempt from the Freedom of Information
Act absent an exception. To keep Congress informed, confidentiality requirements may allow disclosure
to Congress and require periodic briefing and reports to relevant congressional committees.
Classified Information
The United States must often rely on classified information when making national-security-driven
decisions, and some transaction review frameworks provide specialized processes for handling that
information. For instance, 2018 amendments to CFIUS’s statutory authorities added provisions governing
the use of classified and other protected information deemed necessary to resolve the judicial
proceedings.
Trade Agreements
Creating or expanding national security review programs could potentially implicate U.S. obligations
under its trade agreements. Many bilateral and multilateral trade agreements state that they do not prevent
parties from actions needed to protect “essential security interests,” but the scope of this national security
exception is the subject of significant debate, discussed in this CRS Legal Sidebar.

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First Amendment
National security review systems can implicate the First Amendment’s protections for freedom of speech
and association—although the Supreme Court has frequently suggested that courts may give greater
deference to the government in order to address national security issues. Some entities have made First
Amendment claims under the theory that they were sanctioned for expressing a particular viewpoint or
supporting certain causes. Most First Amendment challenges of this type have failed, but at least one
federal appellate court held that an OFAC regulation that barred “coordinated advocacy” with an
organization on a Specially Designated Nationals and Blocked Persons List violated the First
Amendment’s guarantee of freedom of speech. In 2021, the communications app WeChat obtained a
preliminary injunction on First Amendment grounds that barred the Department of Commerce from
implementing a Trump Administration executive order that would have largely prevented U.S. users from
using WeChat. That executive order, which President Biden revoked, likely violated the First Amendment,
according to the court, by closing a medium of public expression that was one of the only viable means
for communication in some communities.
IEEPA Exceptions
When national security systems rely on the NEA and IEEPA, statutory exceptions to the President’s
transaction-blocking authority may be a point of consideration. Under IEEPA’s exceptions, the President
does not have authority to regulate or prohibit personal communications, medicine and humanitarian
assistance, informational materials, and travel-related transactions. As discussed in this Legal Sidebar,
during the Trump Administration, two federal district courts concluded that IEEPA did not provide
authority to restrict access to the TikTok video-sharing app because TikTok’s services could be considered
personal communications or informational material. President Biden revoked the executive order on
which those TikTok restrictions were based, but media outlets report that the Biden Administration
continues to negotiate with TikTok on measures to address the government’s national security concerns
using the CFIUS process.

Author Information

Stephen P. Mulligan

Legislative Attorney

Disclaimer
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