Sanctions Watch

Sanctions Watch Special: China-Related Economic Provisions in the NDAA What’s In and the Potential for Future Action

December 8, 2023

Many of the most impactful provisions in the House and the Senate restricting outbound investments to China and targeting the Chinese government or affiliated entities economically were not included in the National Defense Authorization Act (NDAA) this year; they will likely resurface during the consideration of the NDAA next year if not before, as part of other moving legislation. 

The text of the final bill can be found

Sec. 523 – Prohibition on former members of the Armed Forces accepting post-service employment with certain foreign governments. The Senate contained this provision that would amend chapter 49 of title 10, United States Code, to prohibit former servicemembers from accepting employment in positions related to China, Russia, Iran, North Korea, Cuba, and Syria.” The House added a provision in conference that would impose penalties on those that fail to comply with this provision. This may be seen as part of a wider effort to curtail representation for foreign adversaries of the U.S.

Sec. 805 – Prohibition of the Department of Defense procurement related to entities identified as Chinese military companies operating in the United States. The House contained a provision that would “prohibit the Department of Defense procurement of certain goods, services, and technologies from certain entities” on the Non-SDN Chinese Military Industrial Complex Companies List, which may be found here. This follows efforts to broaden the applicability of restrictions to those companies on the list.

Sec. 812 – Preventing conflicts of interest for entities that provide certain consulting services to the Department of Defense. The House and Senate included prohibitions on DOD engaging in “consulting contracts with firms that have in the last 5 years provided consulting services to the Chinese Government, the Chinese Communist Party, the People’s Liberation Army, or other covered entities.” Ultimately, the Senate language was used in the final bill, with language updating the elements for the Conflict of Interest Mitigation Plan. As with Section 523, this may be viewed as a wider effort to curtail consulting or representational activities.

Sec. 825 – Countering adversary logistics information technologies.  Both the House and Senate bills contain provisions that would “prevent the Department of Defense or port authorities receiving Federal grant funding from using logistics software from” foreign adversaries (China, Iran, North Korea, Russia, and Venezuela). While the House contained the full list of countries, the Senate’s provisions were only relevant to China. Expect future provisions to target both informational and strategic infrastructure.

Sec. 903 – Establishment of Office of Strategic Capital. The Senate contained a provision codifying the Office of Strategic Capital (connecting companies developing critical defense technologies with necessary capital), while the House contained language mandating that the OSC “not invest in or guarantee or otherwise facilitate any investment in any entity incorporated under the laws of the People’s Republic of China or of which more than 50 percent is owned, directly or indirectly, by the following: (1) Citizens of the People’s Republic of China; (2) Entities incorporated under the laws of the People’s Republic of China; or (3) Any combination of the individuals and entities described in subparagraphs (1) and (2).” Expect the House to try to incorporate this limitation again for the FY2025 NDAA. 

Sec. 1013 – Disruption of fentanyl trafficking. Both the House and Senate contained text that would require the Secretary of Defense to develop and submit a strategy to use existing authorities to target, disrupt, or degrade fentanyl trafficking networks. Importantly, this would include targeting financial networks and banking channels. Once submitted, this report could spur additional legislation relevant to cartel money laundering and sanctions evasion networks. 

Sec. 1311 – Determination on involvement of the People’s Republic of China in the Mexican fentanyl trade This provision contained in both the House and Senate legislation, would require the Secretary of Defense “to certify whether Chinese Government officials assisted or were aware of the transportation of fentanyl precursors to Mexican drug cartels.” The final version also contained a determination as to whether information available to DOD and the intelligence community indicates “that the Government of the People’s Republic of China assisted in, or approved of, the transportation of pill presses, fentanyl products, or fentanyl precursors to one or more Mexican drug cartels.” The subsequent determination will likely spark additional movement on this issue.

Sec. 1312 – Analysis of certain biotechnology entities. The final NDAA includes a provision requiring DOD “conduct an assessment of biotechnology companies headquartered in China to determine if they should be identified as Chinese military companies operating in the United States in accordance with” the Chinese military companies List that may be found here

Sec. 5101 – Prohibition of demand for bribe. This provision was a Floor amendment in the Senate that amends existing anti-bribery statutes by criminalizing any demand for bribes by foreign officials, which is intended to protect U.S. businesses operating abroad and to address foreign corruption. This has been a longstanding effort to get this into law, and congressional supporters will now focus on implementation and enforcement.