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Contractor charged for selling Chinese technology
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A major theme in U.S. procurement policy in recent years has been widespread skepticism, and sometimes outright hostility, toward incorporating companies and technology from the People’s Republic of China into the U.S. defense industrial base.
One manifestation of this theme is the prohibition on federal government contractors from providing or using certain covered telecommunications equipment and services, a provision established under Section 889 of the Fiscal Year 2019 National Defense Authorization Act.
While Section 889 has been the focus of contractor contract compliance efforts, a recent announcement from the U.S. Attorney’s Office for the District of New Jersey suggests the government may be willing to use federal criminal statutes to enforce such prohibitions.
The statutory language and implementing procurement regulations of Section 889 contain two related prohibitions on these covered telecommunications equipment and services, which include all equipment or services manufactured and provided by Huawei Technologies Co., Ltd. or ZTE Corporation, as well as the production of video surveillance and Telecommunications equipment or services. Provided by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Co., Ltd., or Dahua Technology Co., Ltd., or any subsidiaries or affiliates of these five entities.
The first prohibition, which took effect on August 13, 2019, states that “the head of an executive agency shall not… procure or obtain, extend or renew a contract to procure or obtain any equipment, systems or services for the use of covered telecommunications equipment or services”. As a substantial or important component of any system, or as a key technology of any system. ”
The ban, effective August 13, 2020, extends to federal loan and grant funds and prohibits agencies from using any such funds for covered telecommunications equipment or services. Because state and local governments regularly receive federal loans and grants, they are generally prohibited from using any of these funds to purchase covered telecommunications equipment or services. Prohibiting the supply of covered equipment and services to the government is considered the easier implementation of these two statutory requirements.
這是因為該規則的第二部分於2020 年8 月13 日生效,禁止政府機構與任何「使用」這些「涵蓋的電信設備或服務作為任何系統的實質性或重要組成部分」的「實體」簽訂contract. Or as a key technology of any system. ”
The prohibition applies even if the use of the equipment or services is completely unrelated to the delivery of products or services to government customers, prompting the defense industrial base to conduct a comprehensive review of its information technology systems to ensure equipment is protected from these impacts. Chinese companies were identified and removed.
This prohibited use creates particular challenges in parts of the world where Chinese telecommunications technology may be ubiquitous and/or built into local communications infrastructure.
Compliance with Clause 889 is generally regarded as a matter of compliance with contractual requirements and may be a matter of contractor liability. Notably, Section 889, the portion of the NDAA that sets forth federal procurement policies, was drafted without any specific criminal penalties for violations.
Therefore, it is important to note that on January 4, the U.S. Attorney’s Office announced that it had filed criminal wire fraud and misrepresentation charges against the CEO of a company that allegedly knowingly sold certain surveillance products to the U.S. Attorney’s Office, the Sheriff and security cameras for New Jersey offices and police departments.
The government’s complaint alleges that the CEO knew that state and local customers would be subject to the Section 889 prohibition when they spent certain funds to purchase cameras manufactured by Hangzhou Hikvision Digital Technology Co., Ltd., and falsely represented to these customers that the cameras he was selling Compliance with Section 889 Compliance with the requirements of Section 889.
The complaint specifically alleges that the CEO helped certain customers obtain federal funds to purchase the products he was selling, and that approximately $15 million of the $35 million in cameras and equipment purchased by state and local government customers from the CEO’s company was federally funded. funded.
The complaint also alleges that the CEO’s company sent wire transactions to an unnamed entity identified as one of five entities or their affiliates as defined in Section 889 as a covered telecommunications equipment provider. When cameras were purchased from banned companies, the CEO’s company allegedly took steps to hide the camera’s origin, including requiring the camera’s brand to be removed. The executive allegedly told state and local customers that his company had previously sold the cameras to federal agencies and that he had not done so.
The alleged facts paint a picture of particularly extreme and deliberate circumvention of the requirements of Section 889, which may prompt U.S. prosecutors to pursue criminal charges against this individual.
However, the charges also reflect the U.S. government’s growing focus on supply chain security, particularly as it relates to China, and the government’s possible willingness to use criminal statutes to pursue egregious incidents of noncompliance with supply chain security requirements. . ND
Ryan Burnette is special counsel, Susan B. Cassidy is a partner, and Darby Rourick is of attorney in the Washington, D.C., office of Covington and Burling LLP.
theme: global defense market
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