April 24, 2023 RESTRICTing Free Speech and Free Trade

The RESTRICT Act gives the Commerce Department power over technologies connected to foreign adversaries that pose a security threat.

On March 7, Sens. Mark R. Warner and John Thune introduced the RESTRICT Act (Restricting the Emergence of Security Threats that Risk Information and Communications Technology Act of 2023) (the Act) in the U.S. Senate. The Act proposes to give the U.S. Department of Commerce the power to take appropriate measures to identify and mitigate the risks associated with communications technologies products or services (ICTS) when they are connected to a “foreign adversary” and pose an “undue and unacceptable risk” to the national security of the United States. The Biden administration has expressed support for the Act.

The Act requires the Secretary of Commerce to prioritize evaluation of ICTS products used in critical infrastructure, integral to telecommunications products, or pertaining to a range of defined emerging, foundational, and disruptive technologies with serious national security implications. The Commerce Department must also educate the public and business community about the threat by coordinating with the Director of National Intelligence to provide declassified information on how transactions denied or otherwise mitigated posed undue or unacceptable risk.

Undue and unacceptable risks to the national security of the United States include but are not limited to:

• Impact on the country’s critical infrastructure and digital economy
• “Sabotage or subversion” of ICTS in the United States
• Interference with and manipulation of federal elections
• Undermining of the democratic process to “steer policy and regulatory decisions in favor of the strategic objectives of a foreign adversary to the detriment of the national security of the United States”

The Act defines current foreign adversaries as China (including Hong Kong and Macau), Cuba, Iran, Russia, and the Maduro regime of Venezuela. The Act would apply to activities by ICTS entities that are held in whole or in part by, or otherwise fall under the jurisdiction of, any of these countries and have more than 1 million active users or units sold in the United States.

What would this mean in practice? The Commerce Department would develop a streamlined process for identifying and mitigating threats from foreign adversaries. While the Act requires Commerce to provide declassified information to the American public about the review process, the Act contains no specific guidelines for the process.

Why introduce this Act? Although the Act does not so specify, many see it as an effort to resolve the concerns over the national security risks of TikTok. A federal judge quashed a prior attempt to address those concerns because it relied on legal authority that protects free speech rights. Thus, this new authority may be a way around those issues. However, the American Civil Liberties Union has argued that the blocking of entire communications services violates the First Amendment rights of citizens, regardless of the authority used.

What are data users saying? The RESTRICT Act focuses on national security threats posed by foreign adversaries. Many in the data industry believe that the focus instead should be on comprehensive consumer data privacy legislation that would also limit the availability of data to foreign adversaries. Also, many of the past significant breaches of U.S. data security have involved U.S. businesses that do not involve foreign adversaries, and the Act does not address these concerns.

How does the Act impact economic sanctions and foreign direct investment regulations? The Act significantly overlaps current economic sanctions and foreign direct investment authorities. Some opponents argue that the Commerce Department’s review process would effectively run parallel to the U.S. Treasury Department’s Office of Foreign Assets Control prohibitions, thus creating two agencies in the executive branch that can independently ban technologies. National security experts also see overlapping jurisdiction between the foreign direct investment reviews conducted by the Committee on Foreign Investment in the United States (CFIUS) and those that would occur under the Act. One way to resolve this potential overlapping jurisdiction would be for CFIUS to review incoming investment by foreign adversaries and the Commerce Department to have jurisdiction over products rather than transactions.

Is the Act likely to become law? While the bill has bipartisan support and has been endorsed by the White House, various senators and representatives from both sides of the aisle oppose the bill, claiming that it is overbroad and does not provide appropriate guidelines for the review process or judicial appeals of determinations by the Commerce Department. Digital currency platforms have indicated concern about the Act’s sweeping nature, claiming the bill’s language is so broad that it could be used to prevent Americans from conducting cryptocurrency transactions or engaging with networks like Bitcoin entirely.

Hearings on the bill likely will involve lively discussions on these topics and could result in significant changes to the Act before passage. As of April 19, a bill-tracking internet website suggests that the Act has a 5 percent chance of passing (https://www.govtrack.us/congress/bills/118/s686). Of course, that chance could change, depending on potential revisions to the Act to address some of the expressed concerns.

Laura Fraedrich, senior counsel in Lowenstein Sandler’s Global Trade & National Security practice, has nearly 25 years of experience counseling clients on complex international trade matters across a range of industries, including technology, financial services, energy, and telecommunications. Her practice focuses on helping companies achieve their business goals while complying with U.S. regulatory regimes enforced by the Committee on Foreign Investment in the United States (CFIUS) and U.S. Customs and Border Protection (CBP).

Subscribe to Industry Today