United States: Center For Financial Stability Report Highlights Expanded Authority Of CFIUS

In "CFIUS and Silicon Valley: We're Still Trying to Find a Cure!," Charles G. Schott, a Senior Fellow at the Center for Financial Stability, highlighted various changes the Foreign Investment Risk Review Modernization Act ("FIRRMA") made to the authority of the Committee on Foreign Investment in the United States ("CFIUS").

Mr. Schott explained that FIRRMA expanded CFIUS's powers in two primary ways: (i) CFIUS now has investigatory and intervention abilities over non-controlling interests if a deal results in the acquisition of influence involving "critical technologies"; and (ii) CFIUS oversight now covers real estate transactions in close proximity to "sensitive" U.S. government facilities. Mr. Schott emphasized that certain filings under CFIUS are now mandatory, whereas in the past most CFIUS filings were voluntary.

Mr. Schott stated that the U.S. Treasury Department was tasked with proposing rules governing the CFIUS process, citing the temporary regulations to implement FIRRMA that were issued last year. These temporary regulations included a pilot program, effective November 10, 2018, to expand the scope of transactions subject to CFIUS review to include certain non-controlling investments made by foreign nationals in U.S. businesses.

Mr. Schott concluded by noting that the latest CFIUS developments are highly relevant for "high tech" and associated venture capital communities of Silicon Valley. He predicted an increase in the number of joint ventures, acquisitions and other transactions likely to be picked up by CFIUS's new wider portfolio.

Commentary / Joseph V. Moreno

Mr. Schott's report is an excellent overview of FIRRMA and how the newly energized CFIUS is likely to impact the technology sector. In 2019 we will begin to witness the impact of last year's long-awaited reforms to the CFIUS process. While FIRRMA was passed largely to protect U.S. interests from predatory practices by China, the new rules and requirements could have a significant impact on the technology sector's ability to obtain overseas investment. Watch for developments in the coming months on the trade war battle between China and the Trump Administration. That will help inform how aggressively CFIUS may assert itself into various forms of capital raising and M&A transactions going forward.

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