Overview
Title
To protect the national security of the United States by imposing sanctions with respect to certain persons of the People’s Republic of China and prohibiting and requiring notifications with respect to certain investments by United States persons in the People’s Republic of China, and for other purposes.
ELI5 AI
H.R. 2246, called the “FIGHT China Act,” is a proposed U.S. law that wants to keep America safe by punishing certain people linked to China and by making rules about how Americans can invest money in China. The law also gives the President power to make important decisions, and it sets aside a big amount of money to help make all these rules work.
Summary AI
H.R. 2246, called the “Foreign Investment Guardrails to Help Thwart (FIGHT) China Act,” aims to protect U.S. national security by imposing sanctions on certain individuals linked to the People’s Republic of China and regulating investments by U.S. persons in China. The bill authorizes appropriations of $150 million for implementation and grants the President authority to penalize violators. It defines terms like "covered foreign person" and "prohibited technology," outlines procedures for investment notifications, and mandates annual reports to Congress regarding enforcement actions and the identification of risky technologies. Additionally, it requires a public database of entities involved in prohibited technologies and lays out multilateral strategies for international coordination.
Published
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AnalysisAI
This bill from the 119th Congress, presented as H.R. 2246, aims to safeguard the national security of the United States by imposing sanctions against particular individuals associated with the People's Republic of China (PRC). It further seeks to regulate specific investment activities by U.S. individuals in China and addresses additional national security concerns.
General Summary of the Bill
The "Foreign Investment Guardrails to Help Thwart (FIGHT) China Act" aims to protect U.S. national security through several methods: imposing sanctions, creating investment restrictions, and increasing reporting requirements connected to certain Chinese persons and entities. Among its provisions, the bill seeks to regulate investments that could be construed as national security risks due to connections with Chinese entities. It also proposes maintaining a list of Chinese military-industrial complex companies, prohibiting U.S. individuals from investing in them, and allowing for waivers of these prohibitions if national security considerations require it.
Summary of Significant Issues
One of the most substantial issues with this bill lies in its broad granting of power to the President. This includes the imposition of sanctions and the potential for waiver of prohibitions concerning Chinese companies without clearly defined oversight or guidelines. This could lead to concerns about consistency and fairness in enforcement.
Moreover, complicated definitions within the bill — such as "covered national security transaction," "prohibited technology," and "notifiable technology" — are highly technical and may open interpretations that could create compliance difficulties and cause uncertainty among businesses.
Another concern pertains to the bill's requirement for creating a public database for covered foreign persons, where establishment is optional rather than mandatory. This optionality could hamper transparency and accountability.
Additionally, the bill authorizes significant funding ($150 million yearly for two fiscal years) without clearly defined oversight measures, raising concerns about potential fiscal irresponsibility.
Impact on the Public Broadly
Broadly, the bill emphasizes national security at the potential cost of economic freedom. The complex investment limitations and significant penalties for noncompliance may deter investors and impact economic interests negatively. The vagueness associated with defining prohibited technologies may lead to hesitance among businesses unsure about compliance obligations.
The public might also be affected indirectly through diplomatic tensions arising from perceived targeting of China and its regions. Multiple sanctions and prohibitions outlined in the bill could impact bilateral relations, perhaps leading to retaliatory measures that could disrupt trade or economic systems in both countries.
Impact on Specific Stakeholders
U.S. Government Agencies: The increased regulatory responsibilities and reporting requirements could stretch agency resources. However, clarity in security-focused law could bolster enforcement and protection measures.
Business Community and Investors: These stakeholders are most at risk due to potential financial penalties and investment limitations. Ambiguity in definitions and the heavy emphasis on compliance might drive away investments, particularly in tech sectors involved with or near designated prohibited technologies.
Chinese Entities: Given the potential for harsh sanctions and investment blocks, Chinese companies could face funding challenges and a reduction in international collaborations. This could significantly impact their operations and future business strategies.
Diplomatic Relations Stakeholders: The bill may exacerbate U.S.-China relations, fostering a climate of increased scrutiny and reduced cooperation. This tension could complicate diplomatic efforts outside of national security paradigms, affecting broader international collaborations.
In conclusion, while the bill aims to protect U.S. national security, its execution includes complex regulatory frameworks and significant fiscal implications that merit careful consideration. Balancing these objectives with the potential economic and diplomatic impacts will be vital for ensuring that the law serves its intended purpose without unduly disrupting economic and international relationships.
Financial Assessment
The proposed bill, H.R. 2246, known as the “Foreign Investment Guardrails to Help Thwart (FIGHT) China Act,” includes several financial elements that are intended to support its implementation and enforcement. The bill stipulates financial appropriations and potential penalties related to the regulation of investments and sanctions associated with specific activities linked to the People’s Republic of China.
Financial Appropriations
The bill authorizes an appropriation of $150 million annually for the first two fiscal years following the bill's enactment. This appropriation is designated to the Department of the Treasury, with the possibility of transferring funds to the Department of Commerce. The primary purpose of these funds is to facilitate outreach to industries and individuals affected by the bill’s provisions and to support the bill’s execution.
However, the allocation of such significant funds raises concerns. There are no clear oversight mechanisms or accountability measures specified within the text to ensure that these funds are used efficiently and appropriately. This gap could potentially lead to fiscal irresponsibility or the waste of taxpayer dollars, as highlighted in the issues identified.
Penalties and Compliance Costs
The bill also prescribes substantial penalties for noncompliance. The Secretary of the Treasury is empowered to impose civil penalties that may not exceed the greater of $250,000 or twice the amount of the transaction involved in the violation. These penalties aim to enforce compliance with the investment restrictions and notifications required under the bill. However, the complexity and the potentially stringent enforcement of these financial penalties may deter investment due to perceived risks, possibly impacting economic interests negatively.
Additionally, the penalties associated with noncompliance could unintentionally punish entities for inadvertent violations due to the detailed and technical nature of the definitions and requirements. This might result in entities facing considerable financial risk, exacerbating compliance challenges.
Exemptions and Waivers
The bill includes provisions for the President to waive prohibitions, especially regarding the Non-SDN Chinese Military-Industrial Complex Companies List. While the bill allows for exemptions if deemed in the national interest of the United States, the lack of detailed guidelines for such exemptions creates potential for unchecked political influence, which could undermine the intended financial restrictions and bypass fiscal discipline.
Summary
Overall, while H.R. 2246 aims to safeguard national security and regulate investments through substantial financial appropriations and penalties, it brings forth challenges related to fiscal responsibility and compliance risks. The absence of clear oversight for financial allocations and the rigor of imposed penalties may present significant obstacles in achieving the intended objectives of the bill without causing undue financial strain on entities operating under its ambit.
Issues
The broad granting of power to the President to impose sanctions and the potential lack of oversight (Section 101) could lead to challenges in ensuring fair and consistent enforcement, affecting diplomatic relations and international perceptions of U.S. policies.
The definition of key terms like 'covered national security transaction', 'prohibited technology', and 'notifiable technology' within Section 201 is highly detailed and technical, which could create ambiguity and misinterpretation for entities not specialized in those fields, increasing compliance challenges.
The section allowing the President to waive prohibitions on investments related to the Non-SDN Chinese Military-Industrial Complex Companies List (Section 301) lacks clear guidelines, potentially allowing for unchecked political influence and bypassing of intended restrictions.
The requirement to establish a public database for covered foreign persons (Section 805) is not mandatory, which could lead to a lack of transparency and accountability in the monitoring and enforcement of the covered transactions.
Provisions for substantial penalties for noncompliance within Sections 801 and 802 may deter investment due to the complexity and perceived risk, potentially impacting economic interests and unfairly punishing entities for unintentional violations.
Section 804's mandate for multilateral coordination lacks clear criteria for selecting partner countries, which might result in arbitrary international partnerships and inconsistent application of technological trade prohibitions.
The authorization of large appropriations ($150,000,000 annually for two fiscal years) within Section 4 does not clearly specify oversight or accountability measures, raising potential concerns about fiscal responsibility and potential waste of taxpayer funds.
Section 5 on termination creates potential ambiguity by tying the act's cessation to specific actions by the Secretary of Commerce, possibly leading to indefinite enforcement if the action is delayed or neglected.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title; table of contents Read Opens in new tab
Summary AI
The text introduces a legislative bill called the “Foreign Investment Guardrails to Help Thwart (FIGHT) China Act” and outlines its structure, mentioning sections on definitions, sanctions, and regulations concerning investments related to national security. The Act aims to regulate investments to protect national security and includes a section about sanctions and a list involving Chinese military-industrial companies.
2. Secretary defined Read Opens in new tab
Summary AI
In the defined section of the Act, the term “Secretary” refers to the Secretary of the Treasury, unless specified otherwise.
3. Severability Read Opens in new tab
Summary AI
If any part of this law is found to be invalid, it does not affect the rest of the law or how it applies to other people and situations.
4. Authorization of appropriations Read Opens in new tab
Summary AI
Funding of $150 million per year for the first two years after this Act is enacted is authorized for the Department of the Treasury, with potential transfers to the Department of Commerce for joint outreach efforts. The President and certain agency leaders are allowed to appoint individuals to specific government positions to help implement the Act without following the typical hiring rules.
Money References
- In general.—There is authorized to be appropriated $150,000,000 to the Department of the Treasury, out of which amounts may be transferred to the Department of Commerce to jointly conduct outreach to industry and persons affected by this Act, for each of the first two fiscal years beginning on or after the date of the enactment of this Act, to carry out this Act.
5. Termination Read Opens in new tab
Summary AI
The section states that the law will no longer be effective once the Secretary of Commerce updates a specific regulation to remove China from the list of foreign adversaries.
101. Imposition of sanctions Read Opens in new tab
Summary AI
The section outlines that the President can impose sanctions on specific foreign individuals identified as "covered foreign persons" by the Secretary, with input from the Secretary of State. It details the powers to block transactions involving these individuals' property in the U.S., penalties for violations, exceptions for certain government activities, and annual reporting to Congress, while also allowing the President to consider various sources of information before deciding on sanctions.
102. Definitions Read Opens in new tab
Summary AI
This section provides definitions for key terms used in the title, including what is meant by "appropriate congressional committees," "country of concern," "covered foreign person," "foreign person," "Non-SDN Chinese Military-Industrial Complex Companies List," and "United States person." It specifies which committees in the U.S. Congress are relevant, identifies China and its special administrative regions as countries of concern, outlines what constitutes a covered foreign person, and clarifies who or what is considered a foreign person compared to a United States person.
201. Prohibition and notification on investments relating to covered national security transactions Read Opens in new tab
Summary AI
The text is about new rules added to the Defense Production Act of 1950 through Title VIII, which allows the Secretary of the Treasury to prevent U.S. individuals or companies from investing in "prohibited technologies" that could threaten national security. It also includes procedures for notifying Congress and the public about these rules, providing feedback, penalties for violations, and options for international cooperation to ensure technologies aren't misused by other countries.
Money References
- “(ii) CIVIL PENALTY.—The Secretary may impose a civil penalty on any person who commits an unlawful act described in clause (i) in an amount not to exceed the greater of— “(I) $250,000; or “(II) an amount that is twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed.
- “(ii) CIVIL PENALTY.—A civil penalty may be imposed on any person who commits an unlawful act described in clause (i) in an amount not to exceed the greater of— “(I) $250,000; or “(II) an amount that is twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed.
- “(B) EXCEPTIONS.—Subject to notice and comment regulations prescribed in consultation with Congress and in accordance with this title, the term ‘covered national security transaction’ does not include— “(i) any transaction the value of which the Secretary determines is de minimis; “(ii) any category of transactions that the Secretary determines is in the national interest of the United States; “(iii) an investment— “(I) in a security (as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a))) that is traded on an exchange or the over-the-counter market in any jurisdiction; “(II) in a security issued by an investment company (as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3)) that is registered with the Securities and Exchange Commission; “(III) made as a limited partner or equivalent in a venture capital fund, private equity fund, fund of funds, or other pooled investment fund (other than as described in subclause (II)) where— “(aa) the limited partner or equivalent’s committed capital is not more than $2,000,000, aggregated across any investment and co-investment vehicles of the fund; or “(bb) the limited partner or equivalent has secured a binding contractual assurance that its capital in the fund will not be used to engage in a transaction that would be a covered national security transaction if engaged in by a United States person; or “(IV) in a derivative of a security described under subclause (I), (II), or (III); “(iv) any ancillary transaction undertaken by a financial institution (as defined in section 5312 of title 31, United States Code); “(v) the acquisition by a United States person of the equity or other interest owned or held by a covered foreign person in an entity or assets located outside of a country of concern in which the United States person is acquiring the totality of the interest in the entity held by the covered foreign person; “(vi) an intracompany transfer of funds, as defined in regulations prescribed in accordance with this title, from a United States parent company to a subsidiary located in a country of concern or a transaction that, but for this clause, would be a covered national security transaction between a United States person and its controlled foreign person that supports operations that are not covered national security transactions or that maintains covered national security transactions that the controlled foreign person was engaged in prior to January 2, 2025; “(vii) a transaction secondary to a covered national security transaction, including— “(I) contractual arrangements or the procurement of material inputs for any covered national security transaction (such as raw materials); “(II) bank lending; “(III) the processing, clearing, or sending of payments by a bank; “(IV) underwriting services; “(V) debt rating services; “(VI) prime brokerage; “(VII) global custody; “(VIII) equity research or analysis; or “(IX) other similar services; “(viii) any ordinary or administrative business transaction as may be defined in such regulations; or “(ix) any transaction completed before the date of the enactment of this title.
801. Prohibition on investments Read Opens in new tab
Summary AI
The section outlines the Secretary's authority to prohibit U.S. persons from certain investments in technologies that may harm national security. It includes provisions for exemption with presidential approval, establishes penalties for violations, and requires regulations to minimize compliance burdens while ensuring public input and transparency.
Money References
- (ii) CIVIL PENALTY.—The Secretary may impose a civil penalty on any person who commits an unlawful act described in clause (i) in an amount not to exceed the greater of— (I) $250,000; or (II) an amount that is twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed.
802. Notification on investments Read Opens in new tab
Summary AI
The section requires U.S. persons who engage in certain national security transactions involving prohibited technologies to notify the Secretary within 30 days after the transaction ends. The Secretary must create rules to ensure confidentiality and impose penalties for violations, while allowing some exceptions for sharing information for national security and legal reasons.
Money References
- (ii) CIVIL PENALTY.—A civil penalty may be imposed on any person who commits an unlawful act described in clause (i) in an amount not to exceed the greater of— (I) $250,000; or (II) an amount that is twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed.
803. Report Read Opens in new tab
Summary AI
The bill requires the Secretary, in consultation with the Secretary of Commerce, to annually report to Congress about enforcement actions concerning national security transactions, assess potential risks of new technologies, and propose amendments to regulations. It also mandates testimony on threats related to U.S. investments in certain countries and allows for the inclusion of information about these technologies' threats if requested by congressional committees.
804. Multilateral engagement and coordination Read Opens in new tab
Summary AI
The section outlines a plan for the Secretary, in coordination with other agencies, to work with U.S. allies on creating and sharing methods to prevent countries of concern from acquiring prohibited technologies. It also requires developing a strategy and reporting to Congress on progress and challenges in implementing these efforts.
805. Public database of covered foreign persons Read Opens in new tab
Summary AI
The section allows the Secretary, with the Secretary of Commerce, to create a public database listing foreign individuals involved with prohibited technology. It ensures that sensitive information remains confidential, unless it is needed for legal actions, provided to Congress, required for national security, or consented for disclosure by the involved parties. The database won't be a complete list of all foreign individuals associated with prohibited technology.
806. Rule of construction Read Opens in new tab
Summary AI
This section clarifies that nothing in this specific part of the bill should be interpreted as limiting the President's existing powers under other federal laws or the Constitution.
807. Definitions Read Opens in new tab
Summary AI
The document defines key terms related to national security transactions, such as "appropriate congressional committees," "country of concern," and "covered foreign person," which involve entities linked to countries like China. It outlines what constitutes a "covered national security transaction" and provides exceptions, explains what "notifiable technology" and "prohibited technology" are, and distinguishes between "foreign person" and "United States person."
Money References
- (4) COVERED NATIONAL SECURITY TRANSACTION.— (A) IN GENERAL.—Subject to such regulations as may be issued in accordance with this title, the term “covered national security transaction” means any activity engaged in by a United States person that involves— (i) the acquisition of an equity interest or contingent equity interest in a covered foreign person; (ii) the provision of a loan or similar debt financing arrangement to a covered foreign person, where such debt financing— (I) is convertible to an equity interest; or (II) affords or will afford the United States person the right to make management decisions with respect to or on behalf of a covered foreign person or the right to appoint members of the board of directors (or equivalent) of the covered foreign person; (iii) the entrance by such United States person into a joint venture with a covered foreign person; (iv) the conversion of a contingent equity interest (or interest equivalent to a contingent equity interest) or conversion of debt to an equity interest in a covered foreign person; (v) the acquisition, leasing, or other development of operations, land, property, or other assets in a country of concern that will result in, or that the United States person intends to result in— (I) the establishment of a covered foreign person; or (II) the engagement of a person of a country of concern in a prohibited technology where it was not previously engaged in such prohibited technology; (vi) knowingly directing transactions by foreign persons that the United States person has knowledge at the time of the transaction would constitute an activity described in clause (i), (ii), (iii), (iv), or (v), if engaged in by a United States person; or (vii) the acquisition of a limited partner or equivalent interest in a venture capital fund, private equity fund, fund of funds, or other pooled investment fund that the United States person has knowledge at the time of the acquisition, intends to engage in an activity described in clause (i), (ii), (iii), (iv), (v), or (vi). (B) EXCEPTIONS.—Subject to notice and comment regulations prescribed in consultation with Congress and in accordance with this title, the term “covered national security transaction” does not include— (i) any transaction the value of which the Secretary determines is de minimis; (ii) any category of transactions that the Secretary determines is in the national interest of the United States; (iii) an investment— (I) in a security (as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a))) that is traded on an exchange or the over-the-counter market in any jurisdiction; (II) in a security issued by an investment company (as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3)) that is registered with the Securities and Exchange Commission; (III) made as a limited partner or equivalent in a venture capital fund, private equity fund, fund of funds, or other pooled investment fund (other than as described in subclause (II)) where— (aa) the limited partner or equivalent’s committed capital is not more than $2,000,000, aggregated across any investment and co-investment vehicles of the fund; or (bb) the limited partner or equivalent has secured a binding contractual assurance that its capital in the fund will not be used to engage in a transaction that would be a covered national security transaction if engaged in by a United States person; or (IV) in a derivative of a security described under subclause (I), (II), or (III); (iv) any ancillary transaction undertaken by a financial institution (as defined in section 5312 of title 31, United States Code); (v) the acquisition by a United States person of the equity or other interest owned or held by a covered foreign person in an entity or assets located outside of a country of concern in which the United States person is acquiring the totality of the interest in the entity held by the covered foreign person; (vi) an intracompany transfer of funds, as defined in regulations prescribed in accordance with this title, from a United States parent company to a subsidiary located in a country of concern or a transaction that, but for this clause, would be a covered national security transaction between a United States person and its controlled foreign person that supports operations that are not covered national security transactions or that maintains covered national security transactions that the controlled foreign person was engaged in prior to January 2, 2025; (vii) a transaction secondary to a covered national security transaction, including— (I) contractual arrangements or the procurement of material inputs for any covered national security transaction (such as raw materials); (II) bank lending; (III) the processing, clearing, or sending of payments by a bank; (IV) underwriting services; (V) debt rating services; (VI) prime brokerage; (VII) global custody; (VIII) equity research or analysis; or (IX) other similar services; (viii) any ordinary or administrative business transaction as may be defined in such regulations; or (ix) any transaction completed before the date of the enactment of this title.
301. Requirements relating to the Non-SDN Chinese Military-Industrial Complex Companies List Read Opens in new tab
Summary AI
The section outlines the requirements for creating and maintaining the Non-SDN Chinese Military-Industrial Complex Companies List. It mandates reports that identify foreign entities tied to Chinese military interests, prohibits U.S. persons from holding securities in these entities, and provides for waivers in cases where national security is a concern.