New Foreign Ownership and Foreign Adversary Control Rules Adopted for FCC Authorization Holders

The Federal Communications Commission has adopted two orders that materially update regulatory obligations for FCC authorization holders relating to foreign ownership, foreign adversary control, and national security review.

One order formally incorporates the FCC’s existing practices for reviewing foreign ownership into its rules, providing clearer regulatory standards for how the Commission evaluates ownership structures under federal law when companies apply for or hold FCC licenses.  The other order establishes a formal framework for identifying communications licensees and authorization holders that are controlled by foreign adversaries.

As a result, companies holding FCC licenses or other FCC authorizations should expect new and expanded compliance obligations, including enhanced ownership disclosures, participation in a new FCC information collection focused on foreign adversary control, and, in certain circumstances, new certification or attestation requirements.  Companies should carefully assess these changes to understand their potential impact on existing licenses, future applications, and ongoing regulatory compliance.

Foreign Ownership R&O    

In implementing Section 310(b) of the FCC’s rules, which imposes certain restrictions on who may hold various types of radio licenses and requires the FCC to review foreign investment in licensees, the Commission has adopted numerous policies that it has never codified in its rules. The FCC determined that to encourage investment in the United States while preserving the Commission’s ability to comprehensively review foreign investment in licensees, a more predictable framework (i.e., codified rules) will better protect the United States from new and evolving threats.  

Specifically, the Commission has adopted relevant definitions and concepts, clarified the information required in initial and remedial filings, minimized the need for additional filings, and promoted efficient and shorter processing of Section 310(b) petitions for declaratory ruling.

Definition of Controlling U.S. Parent

In 2016, in adopting foreign ownership rules, the FCC adopted definitions for several terms, but it did not adopt a definition for “controlling U.S. parent.”  As a result, applicants have interpreted the term in different ways resulting in additional processing time for such applications.  Thus, the Commission has adopted the definition of “controlling U.S. parent” as the first U.S.-organized controlling entity directly above the licensee, in the vertical chain of control, that does not itself hold a license subject to Section 310(b).

Deemed Voting Interests

Deemed voting interests refer to a situation where an individual or entity is considered to have a voting interest in a licensee or parent company, even if they do not hold direct voting rights. The FCC has clarified that deemed voting interests of 50 percent or more by limited partners or limited liability company (LLC) members do not automatically confer control.  

Additionally, the FCC clarified that if a foreign individual or entity has a deemed voting interest of 50 percent or more in the controlling U.S. parent, but does not have de jure or de facto control of such parent, then such individual or entity may request advance approval to increase its interests, at some future time, up to any non-controlling amount not to exceed 49.99 percent equity and/or voting interest. This alleviates the need to request additional FCC permission at the time a foreign investment increases their interests.

Trusts and Trustees

The Commission amended its rules governing Section 310(b) petitions to require disclosure of the name(s) of the trustee(s) that are disclosable interest holders in the controlling U.S. parent under Sections 1.5001(e), (f), and (i), as applicable.  The rules previously required disclosure only of interests held in trust.  

Extension of Public Company Methodology to Private Entities

To address the increasingly complex ownership structures of privately held companies, the FCC amended its rules to allow privately held companies to use the same compliance and remedial frameworks currently available to public companies. Previously, certain calculation methods and safe harbors were only available to U.S. public companies in determining foreign ownership and conducting remedial process for inadvertent non-compliance with Section 310(b)(4).

Remedial Petitions

The FCC amended the information requirements for a remedial petition for declaratory ruling seeking to remedy non-compliance with the existing requirements for foreign ownership benchmarks. Under a remedial petition, a petitioner seeks FCC approval of foreign ownership interests where the foreign ownership interests have already exceeded the statutory limits without prior FCC approval.  Whereas a petition for declaratory ruling seeks advance FCC approval for foreign ownership in a licensee or its parent company that exceeds the statutory benchmarks.

Specifically, the Commission now requires that remedial petitions include all ownership information included in the initial petition for declaratory ruling, not just the non-compliant elements, to streamline review and reduce delays.

Filing Amendments

The Commission adopted rules requiring that amendments to pending petitions with significant changes be submitted as complete restatements of the initial petition to avoid confusion.  Before the rules were adopted, the FCC did not specify the procedure for filing an amendment to a petition for declaratory ruling. For ministerial changes, the FCC expects petitioners to submit a new version of the relevant exhibit or attachment with the necessary corrections and a brief explanation of the change.

Broadcast Application Processing During Remedial Review

The FCC’s Media Bureau will issue guidance for how to process broadcast applications filed while a remedial petition is pending.

Residency Clarification

Based on questions FCC staff have received regarding whether foreign investors in companies seeking a declaratory ruling must maintain U.S. residency, the Commission has confirmed that foreign investors are not required to reside in the U.S., aligning policy with current practice.

Foreign Ownership in NCE and LPFM Stations

To clarify the approach in determining foreign ownership levels of noncommercial educational (NCE) and Low Power FM (LPFM) stations, the Commission notes that it will assess the foreign ownership of such stations by considering the composition of the governing board or other governing entity, and whether it is directly or indirectly under the control of another entity for purposes of assessing compliance with the foreign ownership limits.

For example, many of these stations are governed by a board of directors or an unincorporated association without traditional voting or equity shares in the entity.  The FCC has routinely concluded that these governing bodies, and by extension the individual board members, direct the operations of these stations. Accordingly, if an NCE station licensee is governed by a board with five members, each member would be deemed to have a 20 percent voting interest in the licensee absent an agreement setting different voting shares.  

Foreign Adversary Control R&O

For purposes of better protecting U.S. communications networks, the FCC has categorized licenses, authorizations, and other FCC approvals into groups each with different attestation and disclosure requirements based on the risks to national security.   

Schedule System

The FCC has adopted a three-tier “schedule” system to distinguish and categorize FCC authorizations based on the national security risk of the entity’s category:

1. Schedule A: High-risk authorizations (e.g., broadband wireless, satellite, submarine cable, large broadcasters, Section 310(b) declaratory rulings, domestic and international section 214 authority, eligible telecommunications carriers, VoIP direct access to numbering resources, equipment authorization certifications, and Telecommunications Relay Services)
2. Schedule B: Moderate-risk authorizations (e.g., antenna structure registrations)
3. Schedule C: Low-risk or individually licensed services (e.g., amateur radio, GMRS, ship/aircraft)

Schedule A authorizations require an affirmative yes/no attestation, schedule B authorizations require attestation only if the entity is in fact under review for foreign adversary control, and schedule C authorizations are exempt for initial attestation.

There are also additional disclosures required for an affirmative “yes” response, including: (1) detailed ownership diagram; (2) all direct/indirect interest holders with 5 percent or greater direct or indirect and/or voting interests held in the entity; and (3) explanation of the nature of the foreign adversary control.

Definition of Foreign Adversary Control

For purposes of the attestation and disclosure requirements, entities that are owned or controlled by a foreign adversary with 10 percent or greater equity/voting interest or possessing influence/control (even without majority ownership) fall within the definition of foreign adversary control.  The Commission has designated the following as foreign adversaries: China (including Hong Kong/Macau), Cuba, Iran, North Korea, Russia, and Nicolas Maduro (Venezuela).

Filing Deadline

The Commission will require entities holding covered authorization(s) to file foreign adversary control information within 60 days after publication of the public notice announcing the launch of Foreign Adversary Control System (FACS), a consolidated reporting system.  Small entities, as defined by the Small Business Administration, will have 120 days to file the required information.

Enforcement

If entities required to report fail to do so, the Commission may take enforcement action including issuing citations, imposing monetary penalties, or initiating license or authorization revocations. The FCC has also adopted a streamlined revocation or reclamation procedure similar to its procedures for TCBs and test labs.

If you have questions about the issues raised in this alert, including compliance obligations, please contact the alert’s authors or the Womble Bond Dickinson attorneys with whom you normally work.