FR 2024-31486

The Department of Justice has announced a final rule inspired by Executive Order 14117, which focuses on protecting the sensitive personal and government-related data of American citizens from access by certain foreign countries and individuals. This regulation expressly targets data transactions deemed risky from a national security standpoint, identifying some transactions as prohibited, while others may be restricted based on specific criteria.

General Summary

The rule is a comprehensive framework designed to counter potential national security threats emanating from the access and misuse of sensitive data by foreign entities. It outlines mechanisms to restrict or outright prohibit data transactions that could allow countries of concern to obtain Americans' personal information or U.S. government data. The implementation involves a nuanced process where licenses may be issued to engage in otherwise restricted transactions, underscoring a dual need for security and regulatory flexibility.

Significant Issues and Concerns

Several concerns arise from the complexity of the rule. The document, filled with specific legal and government terminology, may be challenging for the general public to understand fully. The dense text, laden with references to existing regulations and executive orders, requires readers to cross-reference numerous documents to grasp the complete implications.

Furthermore, the rule relies on both classified and unclassified information to justify its provisions, raising possible transparency issues. The emphasis on legal citations and footnotes further complicates comprehension, making it less accessible to individuals without a legal background.

Another issue is the potential confusion surrounding the rule's implementation dates, considering the possibility that Congress might alter these dates. Moreover, the rule grants broad powers to the Attorney General, notably in determining actions or transactions considered risky, which could benefit from additional clarification to understand the scope and limitations of these powers.

Public Impact

This rule could significantly impact data-transaction practices in multiple sectors, emphasizing enhanced data security measures. It primarily targets entities and individuals engaging in or facilitating data transactions that involve sensitive information, compelling them to navigate a complicated legal landscape to avoid penalties.

On a broader scale, the rule aims to enhance U.S. national security by stifling foreign attempts to misuse American data. This goal, while noble, requires balance, as excessive regulation might inadvertently affect legitimate businesses and data-sharing practices that do not pose actual threats.

Impact on Stakeholders

For stakeholders such as tech firms, data brokers, and those involved in foreign investments, the rule introduces a host of compliance challenges. These businesses must rigorously vet their transactions to ensure they do not violate the new prohibitions or require restricted transaction licenses. Those dealing with countries listed as potential risks face heightened scrutiny, needing to adopt robust compliance frameworks to adhere to the rule.

Conversely, individuals and sectors focused on national security stand to benefit from increased protection measures. By potentially reducing the risk of foreign data exploitation, the rule contributes to a safer, more secure digital ecosystem.

In summary, while this rule presents an ambitious step toward safeguarding American data from certain foreign entities, its practical execution demands careful consideration. Balancing the need for national security with economic and technological innovation will necessitate transparent and communicative implementation strategies from the Department of Justice.

The Federal Register document under review contains several significant references to financial matters related to the implementation of the final rule issued by the Department of Justice. These financial aspects are crucial in understanding the potential economic impact and compliance costs associated with the new regulatory measures.

Summary of Financial Impact

The Department of Justice anticipates that the new rule will incur substantial costs. The discounted annualized cost of implementing the regulation is estimated to be approximately $459 million annually. This cost is primarily attributed to the efforts required to protect U.S. national security against unauthorized access to sensitive personal data and government-related data by foreign entities.

Proportional Economic Context

This $459 million estimated annual cost is seen as significant yet proportionally minor when compared to the larger sector it affects. Specifically, this cost represents about 0.3 percent of the $176 billion in revenues generated by the U.S. Computing, Infrastructure, Data Processing Services, and Web Hosting Services industry sector. Thus, while notable, the cost is a fractional component of the sector’s overall economic output.

Compliance Costs and Sector Impact

The rule imposes additional compliance costs on businesses, affecting both small and large entities differently:

• Small businesses, particularly those categorized under NAICS code 518210 with annual revenues under $40 million, may incur compliance costs of around $32,380 per firm per year.
• In contrast, the largest firms could face annual compliance costs of approximately $400,460.

Moreover, aggregated costs for specific procedural elements are outlined:

• Annual reports amount to costs between $821,100 and $1,642,200 for all filers.
• Applications for specific licenses could cost between $8,211 and $13,685.
• Reports on rejected prohibited transactions may cost between $1,642 and $2,737.
• Requests for advisory opinions are projected to cost between $5,474 and $10,948.

Therefore, businesses are expected to budget for these expenditures as part of their regulatory obligations.

Recordkeeping and Reporting

Recordkeeping costs are another significant financial commitment due to the rule:

• Approximately 1,400 small to medium-sized firms are expected to bear total recordkeeping costs of $1,344,000 annually.
• For 100 large firms, these costs are estimated at $22,500,000 per year.

These figures underscore the financial burden associated with maintaining compliance through documented oversight and reporting mechanisms.

Broader Financial Implications

Given these financial references, the rule's projected economic effect exceeds $100 million annually, highlighting its substantial impact on the private sector and possibly triggering considerations under mandates such as the Unfunded Mandates Reform Act.

Understanding these financial commitments is essential for stakeholders who may need to evaluate their readiness and capacity to handle the regulatory demands imposed by the rule. The document reflects a complex balance between national security interests and economic implications, offering insights into how public policy decisions directly translate into financial obligations for industry participants.