Overview of the D.C. Circuit Filing
On July 1, 2022, the Federal Communications Commission (FCC) and the United States Department of Justice filed their joint Brief for Respondents in the U.S. Court of Appeals for the District of Columbia Circuit (No. 22-1054). The filing defends the Commission's Order on Revocation and Termination (FCC 22-22), released on March 23, 2022, which revoked and terminated the domestic and international Section 214 authorizations held by Pacific Networks Corp. and its subsidiary ComNet (USA) LLC.
The D.C. Circuit had previously denied the carriers' motion to stay the revocation order pending judicial review and ordered oral argument scheduled for September 20, 2022.
- Case: Pacific Networks Corp. and ComNet (USA) LLC v. FCC and USA, No. 22-1054 (D.C. Cir.)
- Challenged Ruling: FCC Order on Revocation and Termination, In re Pacific Networks Corp., FCC 22-22 (rel. Mar. 23, 2022)
- Preceding Agency Actions: Order to Show Cause (35 FCC Rcd. 3733) and Order Instituting Proceedings on Revocation and Termination (36 FCC Rcd. 6368)
National Security and Ownership Findings
In their brief, the respondents argued that substantial record evidence supports the Commission's finding that the carriers are subject to exploitation, influence, and control by the Chinese government. Pacific Networks and ComNet are indirectly wholly owned by CITIC Telecom International Holdings Limited (CITIC Tel), which is ultimately majority-owned by CITIC Group Corporation—a Chinese conglomerate funded and controlled by China's Ministry of Finance with a 100 percent equity interest.
The brief details how the carriers' services—including ComNet's retail calling card and international calling services (Wholesale International Direct Dial) and Pacific Networks' business networking services (MPLS VPN)—provided opportunities to access, monitor, store, and potentially disrupt U.S. customer communications and Customer Proprietary Network Information (CPNI). Under Chinese statutory mandates such as the 2017 National Intelligence Law and 2017 Cybersecurity Law, Chinese entities can be compelled to assist state intelligence and security organs.
- Direct and indirect access to sensitive U.S. customer records, call logs, personal identifying information, and corporate data
- Statutory compliance mandates under China's 2017 National Intelligence Law and 2017 Cybersecurity Law without legal mechanisms to resist state demands
- Executive Branch agency warnings regarding economic espionage, intelligence collection, and potential communications interception
Misrepresentations and Letter of Assurances Violations
The FCC and DOJ highlighted two additional independent grounds supporting revocation. First, the Companies engaged in a pattern of incomplete and inaccurate statements to the Commission and Congress. These included failing to timely report changes in majority ownership to the Ministry of Finance under Section 63.24(f) of the Commission's rules, failing to identify officers and Chinese Communist Party affiliations across parent entities, misstating data storage locations during a Senate subcommittee investigation, and misrepresenting foreign parent CITIC Tel's management role in U.S. technical operations.
Second, the brief asserted that the Companies violated the binding commitments of their 2009 Letter of Assurances with the Department of Justice and the Department of Homeland Security. Under this agreement, the carriers were required to take all practicable measures to protect U.S. records, but instead relied on foreign parent policies and permitted overseas personnel to manage and access customer data without adequate safeguards.
- Failure to file required pro forma transfer-of-control notifications within 30 days of ownership transfer to China's Ministry of Finance
- Storage of U.S. customer records overseas despite representations that all back-up data resided in the United States
- Determination that existing mitigation agreements or additional mitigation measures would not suffice due to an absence of trustworthiness
Defense of Agency Administrative Procedures
The brief rejected the Companies' procedural arguments under the Administrative Procedure Act (APA) and the Due Process Clause. The respondents stated that the FCC acted within its broad procedural discretion under Section 4(j) of the Communications Act (47 U.S.C. § 154(j)) by conducting the revocation via full written evidentiary proceedings before the Commission itself.
The respondents argued that formal evidentiary hearings or the appointment of an administrative law judge were neither statutorily mandated for Section 214 informal adjudications under the APA nor warranted given the lack of genuine issues of material fact requiring live witness credibility assessments.
- No statutory requirement under the APA (5 U.S.C. § 556(b)) or FCC rules requiring Section 214 revocations to be heard before an Administrative Law Judge
- Commission authority to determine procedural formats and modify past administrative hearing practices when justified by public interest and national security considerations
- Sufficient notice and multiple submission rounds afforded to the Companies to dispute findings in the administrative record