CFIUS
CFIUS, an interagency committee chaired by the US Department of the Treasury, conducts national security reviews of certain foreign investments in US businesses and real estate, as well as certain offshore investments by US companies. It sits at the center of this national security universe and includes the US Departments of Defense, Homeland Security, Commerce, Justice, State and Energy, as well as the Office of the United States Trade Representative and the White House Office of Science and Technology Policy. Congress recently added the US Department of Agriculture as a member of CFIUS on a case-by-case basis in covered transactions involving agricultural land, agricultural biotechnology or the agriculture industry. The Department of Labor and the Director of National Intelligence have non-voting roles. Additional observers include the White House Office of Management and Budget, Council of Economic Advisors, National Security Council, National Economic Council and Homeland Security Council.
CFIUS’s power primarily stems from its statutory authority to recommend that the US President block or unwind foreign acquisitions of and investments in US businesses when they pose unresolved threats to US national security, following the Committee’s assessment of the threat, vulnerabilities and consequences to national security posed by a transaction. CFIUS also has the authority to negotiate mitigation agreements to resolve identified national security threats presented by a transaction. Elements of such mitigation agreements range from prohibitions on transfers of sensitive technologies to protections for US customer data and restrictions on physical and logical access to sensitive US facilities, networks and systems.
Although presidential orders blocking or unwinding transactions are rare, they increased under the last several administrations and there have been a number of executive orders that increase scrutiny of certain transactions. The numbers alone do not tell the entire story, as parties will usually terminate a doomed transaction before CFIUS’s formal recommendation to block it gets to the president’s desk. Moreover, the president’s decision is, by statute, not subject to judicial review or other appeal. Although CFIUS is chaired by the Treasury Department, which would seem to be any administration’s champion for foreign investment, the national security agencies often co-lead CFIUS reviews, and opposition to a transaction by a single agency can send the matter to the president.
Originally conceived as a narrow check on defense-related foreign investments, the jurisdiction and scope of CFIUS has evolved significantly during the last two decades in response to ever-broadening US national security concerns, such as the 2001 terror attacks on the World Trade Center, the emergence of China as a technological competitor and the threats associated with state-sponsored cyber espionage. The 2018 congressional overhaul of CFIUS, which was codified in the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), was intended to protect the technological edge held by the United States by preventing companies from China and other perceived geopolitical adversaries from gaining access to next-generation technologies. FIRRMA also heightened CFIUS scrutiny of transactions involving foreign investments in US businesses involved with critical technologies; that own or operate covered investment critical infrastructure; or, collect and maintain large amounts of sensitive personal data of US citizens, referred to collectively as a TID US Business. Executive orders and new regulations have further sharpened the focus on certain national security risk factors, established enforcement and penalty guidelines and tightened export controls on certain technology.
