President Biden's Executive Orders on China underscore the need for experienced counsel in U.S.-China transactions as the two countries' relations continue to impact the regulatory landscape.
On June 9, 2021, President Biden issued an Executive Order ("Order") addressing threats to the United States by "connected software applications" owned or controlled by "foreign adversar[ies]," including China. While this Order rescinds two late-stage orders from the previous administration, it continues the trend of broad U.S. government use of national security authorities to regulate perceived technology-related threats, including outside the traditional defense sector.
The Order rescinds the Trump administration's strict ban on engaging in transactions with TikTok, WeChat, and other China-based apps. In its place, the Order requires the Department of Commerce to continuously evaluate the risk stemming from "transactions involving connected software applications," and, if appropriate, to ban the transactions under the Department's recent Information and Communications Technology and Services ("ICTS") rule, which allows the Department to prohibit ICTS transactions that pose a threat to U.S. national security. In determining whether to take action, the Department of Commerce will consider several "indicators of risk," including:
- "[O]wnership, control, or management of connected software applications" by "persons subject to coercion or cooption by a foreign adversary" or "persons involved in malicious cyber activities";
- Use of the application "to conduct surveillance that enables espionage," including through a foreign adversary's access to sensitive government, business, or personal data;
- A lack of reliable "third-party auditing" of applications; and
- The "scope and sensitivity" of the data collected, as well as the number and sensitivity of the users.
This Order comes on the heels of Executive Order 14032, which reframes and refines sanctions prohibiting U.S. investors from purchasing, selling, or holding securities in designated companies operating in the Chinese defense and surveillance technologies sectors. As discussed in our associated Commentary, the refined sanctions will prohibit U.S. investors from purchasing or selling the publicly traded securities of approximately 60 Chinese companies, and any other entities designated by the Treasury Department in the future. The new ban will take effect on August 2, 2021.
Notably, shortly after these executive orders were issued, China pushed through a blocking statute—the Anti-Sanctions Law ("ASL")—designed to expand and coordinate its efforts to respond to unilateral sanctions targeting Chinese individuals and entities. While details regarding the application and mechanisms of the ASL have yet to be disclosed, the law will certainly complicate the compliance landscape for companies operating in China.
These Executive Orders are the latest in a long line of actions the federal government has taken against China and Chinese companies. As the Biden administration continues to re-shape U.S.-China relations and the Chinese response develops, companies with U.S. and Chinese interests should seek the advice of experienced counsel regarding the effects of these recent actions.
