Export Controls
There is significant overlap and interplay between CFIUS and the US export control regimes, which require that a license be issued by the relevant US government agency before certain US-origin goods or services are exported to certain foreign countries. A failure to comply with these requirements can result in severe fines and imprisonment.
The key export control regimes include the following:
Defense Articles. Through the International Traffic in Arms Regulations (ITAR), the US Department of State regulates the temporary import and the temporary or permanent export of defense articles and defense services, including hardware that is specifically designed, developed, configured, adapted or modified for a military application, as well as technical data and defense services.
Dual-Use Items. The US Commerce Department regulates what are called “dual-use” items—i.e., US-origin civilian products, materials, technology, technical data and software that have potential military applications—through the Export Administration Regulations (EAR), as codified by the Export Control Reform Act.
Re-Exports. US export controls apply to so-called “re-exports.” A “re-export” occurs when US goods or technologies originally are shipped from the United States to one country and then exported from that country to another third-party country.
Deemed Exports. US export control laws also restrict “deemed exports,” or the transfer of technology or technical data within the United States to a person who is a non-US national.
There are many components to compliance with these requirements. If US-origin goods, technologies or technical data are subject to any US export controls, the exporter (which could include the producer, the developer or the actual exporter) must determine whether an export license is required to export to a given country or end-user. The license application process involves providing the applicable agency with information relating to the product, technology or technical data desired to be exported, as well as the end-user and any intermediaries.
How the National Security Regimes Interact
Export controls are relevant to transactions involving foreign investors in a number of ways.
First, Congress, through FIRRMA, clearly links the responsibilities of CFIUS with those CFIUS member agencies that administer US export control laws, especially the Commerce Department. The “Sense of the Congress” accompanying the overhaul finds that “the national security landscape has shifted in recent years, and so has the nature of the investments that pose the greatest potential risk to national security, which warrants an appropriate modernization of the processes and authorities of [CFIUS] and of the United States export control system.”
Second, the definition of “critical technologies,” which is central to changes made by FIRRMA, is primarily based on whether products are subject to certain US export controls, and mandatory declarations of investments in US critical technologies businesses are based on whether a license is required for export to those in the foreign ownership chain.
Investments in or acquisitions of US businesses that deal in items covered by export controls will face heightened scrutiny by CFIUS as well as separate reviews in many cases. There is no guarantee that an export license for a given product, technology or end-user will be granted. The grounds for control and the identity of the destination country and the end-user will have a significant effect on the likelihood that an export license will be granted.
