The U.S. House Financial Services Subcommittee on Monetary Policy and Trade held a hearing to examine the "history, operations and any operational challenges" of the Committee on Foreign Investment in the United States ("CFIUS"), and discuss the proposed Foreign Investment Risk Review Modernization Act ("FIRRMA"). FIRRMA has been proposed to address the dual interests of CFIUS – national security and preserving the open investment policy – while broadening the range of transactions involving foreign investments in U.S. companies that are subject to review, blocking or unwinding by CFIUS. This was the Subcommittee's third hearing in the last four months evaluating CFIUS's effectiveness in the current foreign investment and national security climate.
Eric D. Chewning, Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy, urged Congress to enact protections tailored to address the evolving relationship between national security and commercial activity. He warned that foreign powers – in particular, the People's Republic of China – are increasingly seeking to acquire critical technologies to reduce the U.S. military's technological advantages. Deputy Assistant Secretary Chewning also emphasized the Department of Defense's strong support for FIRRMA, in particular its broadening of the scope of what is considered a "covered transaction" subject to CFIUS review.
Richard E. Ashooh, Assistant Secretary of Commerce for Export Administration, highlighted the importance of ensuring that the export control system and CFIUS are complementary tools, rather than duplicative efforts, specifically in the context of "emerging technologies." He called for CFIUS to modernize and keep pace with technological developments and security challenges. Assistant Secretary Ashooh also expressed support for FIRRMA, but suggested that the proposed threshold mandating a CFIUS filing for a 25% investment in a U.S. business by a foreign government-controlled entity was too high, and transactions could be structured to avoid it.
Heath P. Tarbert, Assistant Secretary of the Treasury for International Markets and Investment Policy, spoke strongly in favor of CFIUS reform in general and FIRRMA in particular. He advised Congress to expand the authority of CFIUS, noting that it has identified transactions that present a national security risk but are currently outside of CFIUS's purview. Assistant Secretary Tarbert provided the following examples: non-passive, non-controlling investments in U.S. businesses; technology transfers through joint ventures that are not subject to foreign control; and the purchase of real estate in close proximity to sensitive military installations.
Commentary / Keith Gerver
The CFIUS reform effort focuses largely on Chinese investment in U.S. businesses – particularly those involved in critical or emerging technologies – that do not rise to the level of "control" and are currently outside CFIUS's jurisdiction to review. Strong support from the Trump Administration, as well as bipartisan support in Congress, make passage of FIRRMA likely at some point this year – perhaps as early as August, according to recent comments made by the Subcommittee Chair, Andy Barr.
In anticipation, companies involved in mergers, acquisitions, takeovers, or other transactions involving Chinese investment that are currently subject to CFIUS review should expect additional scrutiny. If FIRRMA is ultimately enacted, companies should be aware that proposed or pending transactions that may come under a broader CFIUS purview would become subject to review immediately upon the date that FIRRMA becomes law.
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