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Tech Companies: Expect DOJ to be Aggressive on Supply Chain and Tech under AG Barr

Tech Companies: Expect DOJ to be Aggressive on Supply Chain and Tech under AG Barr

January 16, 2019

This article is co-authored by Matt Gardner, Megan Brown, Mike Diakiwski, and Boyd Garriott*.

Attorney General Nominee William Barr weighed in on supply chain risks in his testimony yesterday, previewing a possible extension of the hard line the Administration has taken against what it sees as cyber and economic threats from Chinese companies and the government.  Barr testified that China—not Russia—is “the primary rival of the United States,” and specifically called out Chinese telecommunications companies Huawei and ZTE.

Barr is hardly new to these issues.  After many years of senior government service, he was general counsel of Verizon from 2000 to 2008, so he is no stranger to complex legal, security and geopolitical issues.  He can certainly appreciate the practical challenges that shifting government policy poses to the private sector, as many current DOJ officials do.  But if tech firms were hoping Barr’s telecom experience might make him more sympathetic to the challenges of monitoring and securing a global supply chain, they may be disappointed.  With respect to Huawei and ZTE, Barr testified that, "Even in my old Verizon days, we understood the danger and would not use that kind of equipment, even though it would be economically attractive.”  Barr’s statement is consistent with recent actions and statements by the Trump administration.  In April 2018, the administration imposed significant export restrictions on ZTE and pushed forward with plans to limit Huawei and ZTE’s ability to sell products in the American market.  In August 2018, the Defense Authorization Act effectively banned the use of Huawei and ZTE technology by government contractors.   Several efforts are underway across the government and in partnership with the private sector, to address diverse supply chain issues.  Myriad efforts in the trade and export control area percolating as well, with a focus on concerns about Chinese aggression and tactics.

The administration’s recent actions build upon the National Cyber Strategy, which confirms a trend that we have observed in recent years: the government is putting more responsibility on the private sector.  While the Strategy outlines rising expectations for government and non-government actors overall, supply chain concerns are featured prominently. Among its first objectives is securing federal networks. “[T]he Administration will centralize some authorities within the Federal Government, enable greater cross-agency visibility, improve management of our Federal supply chain, and strengthen the security of United States Government contractor systems.”  The Strategy outlines that supply chain risk will be integrated into agency procurement and risk management processes, “in accordance with federal requirements that are consistent with industry best practices[.]”  Better information sharing related to supply chain threats will be a priority and a “supply chain risk assessment shared service” will be created.  And the government will also provide streamlined authorities to “exclude risky vendors, products, and services, when justified.”

Barr did not signal any retreat from these issues.  He praised his successor, former Attorney General Jeff Sessions’ China Initiative, which was launched in November 2018 and promised aggressive action against Chinese efforts to steal U.S. technology.  In launching the China Initiative, Sessions called out Chinese economic espionage against the United States and vowed to prioritize Chinese trade secret theft cases, increase enforcement of FARA and FCPA cases against Chinese agents, and to “[i]dentify opportunities to better address supply chain threats, especially ones impacting the telecommunications sector, prior to the transition to 5G networks.”  Even before the creation of the China Initiative, the DOJ has been concerned with Chinese technology supply chain issues.  In particular, the DOJ created a Cyber-Digital Task Force in February 2018 to assess “the many ways that the Department is combatting the global cyber threat.”  That Task Force subsequently released a report that found that “[t]echnology supply chains are especially vulnerable, because the hardware components and software code that go into technology products often come from foreign sources, including developers in Russia and China.”

If confirmed, technology companies and others should expect Attorney General Barr to knowledgably and aggressively review supply chain issues, in close consultation with the heads of the Criminal Division, Brian Benczkowski, and the National Security Division, John Demers.

*Wiley Rein Law Clerk Boyd Garriott contributed to this article.

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