The U.S. House Financial Services Subcommittee on Monetary Policy and Trade considered testimony on the proposed Foreign Investment Risk Review Modernization Act ("FIRRMA"). Among other provisions, FIRRMA would expand the jurisdiction of the Committee on Foreign Investment in the United States ("CFIUS") to include certain foreign transactions involving access to technology. This was the Subcommittee's fourth hearing in the last four months regarding CFIUS's supervision of the current foreign investment and national security climate.
Giovanna M. Cinelli, Partner at Morgan Lewis & Bockius LLP, asserted that CFIUS currently has gaps in its ability to oversee cross-border transactions involving "access to technology." She said that the proposed expansion of authority would address these national security concerns while maintaining an open investment policy. Ms. Cinelli noted that CFIUS will need additional resources to maintain an understanding of the "complexity and sophistication" of cross-border transactions.
Jonathan S. Kallmer, Senior Vice President, Global Policy, Information Technology Industry Council, agreed that FIRRMA can be helpful in addressing "real and legitimate" national security concerns, but disagreed with the proposal to expand CFIUS's jurisdiction to cover outbound transfers of U.S. intellectual property to foreign persons. He claimed that the proposal was too "sweeping," potentially subjecting routine business activities to CFIUS review. He said that businesses would likely err on the side of caution in filing, which would cause CFIUS to "experience an unmanageable increase in its caseload." Mr. Kallmer urged that the language be revised so that it would not target companies and transactions that are unlikely to be national security risks. He also pressed the Committee to consider the interplay between FIRRMA, CFIUS, and the export control regime.
Honorable Clay Lowery, Managing Director, Rock Creek Global Advisors LLC, expressed reservations about "vague" language in the proposed bill that may affect investment, global competitiveness and national security. Mr. Lowery said that the current version of FIRRMA could create more cases than CFIUS is prepared to handle.
David M. Marchick, Managing Director and Global Head of External Affairs, The Carlyle Group, warned that foreign investment policies should not be unnecessarily influenced by current concerns regarding China. He argued that CFIUS's jurisdiction should not be extended to non-controlling investments in the United States. He also called for quick approval of transactions that are identified as non-threatening. He recommended that CFIUS maintain a 30-day period for first phase reviews, in line with the 30-day first phase antitrust review period under the Hart-Scott-Rodino Act. Also, Mr. Marchick contended that the current proposal casts "too wide a net" for transactions subject to review, with the likely result being a substantial increase in CFIUS's caseload. He recommended that the Committee explore whether the record number of cases moving to the investigation stage are the result of unresolved national security concerns or simply because CFIUS does not have the resources to review such a high number of cases.
Michael A. Brown, Presidential Innovation Fellow, and former CEO of Symantec, supported the expansion of CFIUS and export controls to deter foreign technology transfers. Mr. Brown asserted that export controls are currently not effective enough without the proposed CFIUS reform. He maintained that export controls should be complementary to CFIUS. Mr. Brown also insisted that FIRRMA should ensure that passive foreign investments "are truly passive."
Commentary /Keith Gerver
The latest round of testimony related to FIRRMA highlighted some cautionary voices on the proposal to expand CFIUS's jurisdiction, both from substantive and procedural perspectives. The witnesses are certainly correct to point out that 1) FIRRMA will bring a substantial number of transactions within CFIUS's reach; and 2) at current staffing levels, CFIUS would have difficulty managing this increased caseload in a timely and efficient manner, which could result in potentially material delays in the closing of transactions, assuming that they could be approved. The witnesses drive home the point that when Congress is considering expanding the jurisdiction of a regulatory body, it must be ready to appropriate additional resources to support intended increased regulation.
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