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
The U.S. wants to keep itself safe by stopping certain people in China from doing things that might be dangerous, and by being careful with how money is spent in China, all while working together with friends from other countries.
Summary AI
S. 5648 aims to protect the national security of the United States by imposing sanctions on specific individuals from China, requiring notifications related to certain investments by U.S. persons in China, and other related measures. The bill outlines protocols for identifying and sanctioning foreign individuals and entities engaged in activities that threaten U.S. security, particularly those involved in advanced technology sectors. It also establishes new regulations to monitor U.S. investments in China, ensuring transparency and adherence to national security priorities. Additionally, the bill seeks to enhance coordination with allied countries to prevent China from acquiring technologies that could pose a threat to global security.
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AnalysisAI
The proposed legislation, titled the Comprehensive Outbound Investment National Security Act of 2024, aims to bolster the national security of the United States by imposing sanctions on certain individuals from the People's Republic of China. It also establishes prohibitions and notification requirements concerning specific investments made by U.S. persons in China. The bill comprises multiple facets, including financial appropriations, sanctions, investment restrictions, reports, and international coordination on prohibited technologies.
General Summary of the Bill
The COINS Act of 2024 serves as a legislative effort to protect national security by regulating and monitoring investments and financial engagements between U.S. persons and entities tied to a foreign adversary, explicitly targeting China. The bill intends to authorize significant funding to enforce these measures, enhance the ability of the U.S. government to collaborate with international allies, and provide mechanisms for identifying and responding to potential threats arising from outbound investments.
Summary of Significant Issues
Several issues arise within the bill:
Financial Oversight and Transparency: The authorization of $150 million annually for two years without clear mechanisms for oversight may cause concerns about the responsible use of taxpayer money. This lack of accountability could lead to potential misuse or inefficiencies.
Broad Delegation of Sanction Powers: The substantial powers granted to the President to impose sanctions raise potential oversight and accountability challenges. This broad authority may lead to inconsistent application and enforcement.
Complex Definitions: The legislation includes highly technical terms and definitions concerning the entities and transactions under its scope. This complexity could lead to confusion and misinterpretation among affected parties not specialized or familiar with these fields.
Targeting Specific Countries: By explicitly identifying China and its special administrative regions as a "country of concern," the bill could exacerbate diplomatic tensions.
Exemption and Waiver Processes: Procedural elements, such as the waiver process for investment divestment requirements, lack detailed guidelines, potentially opening avenues for inconsistent application or perceived favoritism.
Public Impact
Broadly, the bill could potentially influence economic and investment strategies. For the general public, this may mean increased national security measures but also possible economic repercussions due to strained relations with an economic partner like China. Citizens may see changes in the investment landscape, particularly those involved in industries relating to technology impacted by the bill's prohibitions.
Impact on Stakeholders
Positive Impacts: - National Security Advocates: The bill presents a proactive approach to safeguarding national interests by monitoring and controlling investments that may compromise national security. - Government Agencies: It enables them to access significant funding to implement required security measures and develop new regulations.
Negative Impacts: - Investors and Businesses: The increased regulatory burden, complex compliance requirements, and penalties may deter investment opportunities and complicate international business operations. - Diplomatic Entities: By classifying China as a country of concern, diplomatic relations may face increased strain, complicating collaboration on broader international issues.
The COINS Act of 2024 reflects a complex and multifaceted legislative approach to national security through the lens of financial regulation. Its implementation will require careful consideration of domestic and international implications, balancing security needs with economic and diplomatic realities.
Financial Assessment
The bill S. 5648 outlines financial components relating to the protection of U.S. national security against specific threats from China. This commentary examines these financial references and their connection to the issues identified within the legislation.
Financial Allocations
Section 4 of the bill authorizes appropriations amounting to $150,000,000 annually for two fiscal years after the enactment of the legislation. These funds are designated for the Department of the Treasury, with the provision to transfer amounts to the Department of Commerce. The aim is for these departments to jointly conduct outreach to industry and individuals affected by the Act.
Connection to Identified Issues
Significant Financial Burden: One of the primary concerns raised in the issues section is the significant financial burden presented by the annual allocation of $150 million. This may appear substantial, especially in the absence of clear oversight or accountability measures to ensure that the funds are managed efficiently. Without mechanisms to monitor and evaluate the effective use of these resources, there is potential for waste or misallocation, which is a concern for taxpayers.
Delegation of Power and Oversight Challenges: The financial allocation is intertwined with concerns about power delegation, whereby the President, along with Treasury and Commerce Secretaries, may wield significant influence over these funds. The lack of stringent checks and balances might lead to challenges in holding these officials accountable for financial decisions and expenditures related to these allocations.
Potential for Favoritism in Staffing: Section 4 also permits appointments to competitive service positions without standard hiring processes, which connects to the financial theme as it involves the potential for creating positions funded by the appropriated money. The bypassing of usual protocols raises concerns about favoritism, which could affect the transparency and fair use of the funds allocated under this bill.
In summary, while S. 5648 dedicates significant financial resources to safeguarding national security interests, particularly with regard to specific threats posed by China, the issues highlighted suggest a need for clear accountability and oversight to ensure that the appropriated funds are used effectively and judiciously. Implementing strong monitoring mechanisms and clarifying processes related to these funds could address public concerns about financial management and governmental transparency.
Issues
The potential for significant financial burden due to the authorization of $150,000,000 annually for two years without clear accountability or oversight measures. (Section 4)
The broad delegation of power to the President to impose sanctions may lead to oversight challenges and concerns about accountability in enforcing such measures. (Section 101)
Complex and highly technical definitions, such as 'covered foreign person', 'covered national security transaction', 'notifiable technology', and 'prohibited technology', might lead to ambiguity and misinterpretation by entities not specialized in those fields. (Section 102 & Section 807)
The use of classified annexes in reports to Congress could limit transparency and oversight regarding the entities and transactions affected by this Act. (Section 101)
The potential for diplomatic tensions related to the explicit targeting of the People's Republic of China, including Hong Kong and Macau, as a 'country of concern'. (Section 102 & Section 807)
The provision allowing appointment of individuals by the President and Secretaries to competitive service positions without adhering to usual hiring processes may bypass standard protocols and raise concerns about favoritism. (Section 4)
The complexity and broad language around 'prohibited technology' and 'notifiable technology' could lead to arbitrary interpretation and enforcement, impacting entities inadvertently. (Sections 801, 802, and 807)
The waiver process for divestment requirements lacks clear guidelines, leading to potential inconsistencies and accusations of unfair exemptions. (Section 301)
Questions about the scope and definition of terms like 'United States person', which are used but not explicitly defined in critical sections dealing with compliance and regulations. (Section 801)
There is a lack of specified criteria and transparency for adding or removing entities from sensitive lists like the Non-SDN Chinese Military-Industrial Complex Companies List, possibly causing confusion and contested inclusion/exclusion. (Section 301)
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 the "Comprehensive Outbound Investment National Security Act of 2024", also known as the "COINS Act of 2024". It includes details like the act's sections on sanctions, definitions, prohibitions and notifications regarding national security investments, and matters related to securities.
2. Secretary defined Read Opens in new tab
Summary AI
In the defined section of the Act, the term âSecretaryâ 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.âThere 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
- â(ii) CIVIL PENALTY.âThe 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 ofâ â(I) $250,000; or â(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.
- â(ii) CIVIL PENALTY.âA 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 ofâ â(I) $250,000; or â(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.
- â(B) EXCEPTIONS.âSubject to notice and comment regulations prescribed in consultation with Congress and in accordance with this title, the term âcovered national security transactionâ does not includeâ â(i) any transaction the value of which the Secretary determines is de minimis; â(ii) any category of transactions that the Secretary determines is in the national interest of the United States; â(iii) an investmentâ â(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; â(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. 80aâ3)) that is registered with the Securities and Exchange Commission; â(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)) whereâ â(aa) the limited partner or equivalentâs committed capital is not more than $2,000,000, aggregated across any investment and co-investment vehicles of the fund; or â(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 â(IV) in a derivative of a security described under subclause (I), (II), or (III); â(iv) any ancillary transaction undertaken by a financial institution (as defined in section 5312 of title 31, United States Code); â(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; â(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; â(vii) a transaction secondary to a covered national security transaction, includingâ â(I) contractual arrangements or the procurement of material inputs for any covered national security transaction (such as raw materials); â(II) bank lending; â(III) the processing, clearing, or sending of payments by a bank; â(IV) underwriting services; â(V) debt rating services; â(VI) prime brokerage; â(VII) global custody; â(VIII) equity research or analysis; or â(IX) other similar services; â(viii) any ordinary or administrative business transaction as may be defined in such regulations; or â(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.âThe 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 ofâ (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.âA 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 ofâ (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.â (A) IN GENERAL.âSubject to such regulations as may be issued in accordance with this title, the term âcovered national security transactionâ means any activity engaged in by a United States person that involvesâ (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 financingâ (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 inâ (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.âSubject to notice and comment regulations prescribed in consultation with Congress and in accordance with this title, the term âcovered national security transactionâ does not includeâ (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 investmentâ (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. 80aâ3)) 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)) whereâ (aa) the limited partner or equivalentâs 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, includingâ (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.