On September 15, 2022, US President Joe Biden signed an Executive Order (EO) aimed at increasing the federal government's review of foreign investment in US businesses deemed critical to US national security interests.1 For the first time since the Committee on Foreign Investment in the United States (CFIUS) began reviewing foreign acquisitions of US businesses in 1988, under its authority to review and block such transactions if they threaten to impair US national security, the President has provided formal instruction on a number of risk areas that CFIUS should consider when reviewing transactions within its jurisdiction (covered transactions).2
Specifically, recognizing that some countries use foreign investment to obtain access to sensitive data and technologies for purposes that are detrimental to US national security, the EO directs CFIUS to consider the impact of covered transactions on the following:
- Critical US supply chains that may have national security implications: The EO directs CFIUS to consider a covered transaction's effect on supply chain resilience and security, both within and outside of the defense industrial base. In its evaluation, CFIUS is directed to consider the degree of diversification through alternative suppliers across the supply chain, supply relationships with the US government and the concentration of ownership or control by the foreign person in each supply chain.
- US technologies in areas affecting national security: The EO specifically identifies sectors that are fundamental to US technological leadership and therefore national security, including (but not limited to) microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, climate adaptation technologies and elements of the agricultural industrial base that have implications for food security. The EO instructs CFIUS to consider whether a covered transaction involves manufacturing capabilities, services, critical mineral resources or technologies in such fields.
- Investment trends in the aggregate: The EO instructs CFIUS to consider prior investments by foreign persons in a single sector or related technologies.
- Cybersecurity risks that threaten to impair national security: This directive demonstrates the Biden administration's concern for future malicious cyber-enabled activity. The EO instructs CFIUS to consider whether a covered transaction may provide foreign persons, or their relevant third-party ties, with access to systems or technology that would enable them to conduct malicious cyber intrusions or other malicious cyber activities.
- The personal sensitive data of US citizens: The EO directs CFIUS to consider whether a covered transaction involves a US business with access to US persons' sensitive data and whether the foreign investor or its related parties have sought or could exploit such information.
The EO builds on existing statutory and regulatory factors3 ; it emphasizes certain acute concerns in the current environment, but it does not change CFIUS's current jurisdiction or alter the way it conducts its investigations.4 One can expect, however, that the five areas highlighted by the EO will receive even greater scrutiny in the CFIUS review process. Accordingly, parties to transactions that involve any of these five areas should factor this into their analysis of whether to notify CFIUS of a transaction and how they might address concerns that CFIUS may raise in the review process.
1. Executive Order on Ensuring Robust Consideration of Evolving National Security Risks by the Committee on Foreign Investment in the United States, (Sept. 15, 2022) available at https://www.whitehouse.gov/briefing-room/presidential-actions/2022/09/15/executive-order-on-ensuring-robust-consideration-of-evolving-national-security-risks-by-the-committee-on-foreign-investment-in-the-united-states/ .
2. The Committee on Foreign Investment (CFIUS) was first established by Executive Order in 1975. In 1988, however, Congress passed the Exon–Florio Amendment, which empowered CFIUS to block foreign investments if they threatened national security. See FACT SHEET: President Biden Signs Executive Order to Ensure Robust Reviews of Evolving National Security Risks by the Committee on Foreign Investment in the United States, (Sept. 15, 2022) available at https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/15/fact-sheet-president-biden-signs-executive-order-to-ensure-robust-reviews-of-evolving-national-security-risks-by-the-committee-on-foreign-investment-in-the-united-states/; see also 50 U.S.C App 2170.
3. See generally 50 U.S. Code § 4565(f); 31 C.F.R. Parts 800 and 802.
4. Background Press call in President Biden's Executive Order on Screening Inbound Foreign Investments, (Sept. 15, 2022) available at https://www.whitehouse.gov/briefing-room/press-briefings/2022/09/15/background-press-call-on-president-bidens-executive-order-on-screening-inbound-foreign-investments.
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