U.S. Foreign Direct Investment and the New CFIUS Rules
The Committee on Foreign Investment in the United States (CFIUS) is the front line of America's national security defense in an era of volatile geopolitics. For many technology companies, understanding CFIUS is essential to raising capital, structuring deals, and ensuring long-term viability.
Established in 1975, CFIUS has evolved from a relatively obscure interagency committee into a central force in global investment policy. That evolution accelerated with the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which expanded CFIUS's authority beyond reviewing foreign "control" of U.S. businesses to include certain non-controlling investments and real estate transactions.
For tech companies, FIRRMA created a new category of scrutiny: TID (Technology, Infrastructure, and Data) U.S. businesses—those involved in:
- Critical Technology: Sensitive, export-controlled technologies such as artificial intelligence (AI), microelectronics, quantum computing, and biotechnology. If your product requires an export license for foreign buyers, it's likely classified as critical.
- Critical Infrastructure: Communications systems, energy networks, financial infrastructure, and increasingly, the U.S. data center industry.
- Sensitive Personal Data: Geolocation, biometrics, health, financial, and other personally identifiable data. If your company maintains data on more than one million U.S. persons—or targets government personnel—you likely fall within scope. Genetic data is always considered highly sensitive.
Most material foreign investments in the U.S. tech sector now fall under CFIUS jurisdiction.
From Voluntary to Mandatory: The Filing Shift
FIRRMA introduced mandatory filing requirements for certain high-risk transactions, especially where:
- A foreign government acquires a substantial interest in a TID U.S. business; or
- The transaction involves critical technologies subject to export controls.
Failure to file where required can lead to civil penalties up to the full value of the deal.
Even where filing is optional, CFIUS retains "evergreen" authority to review and potentially unwind transactions post-closing if no safe harbor was obtained. In other words, voluntary filings are often the only route to true deal certainty.
Foreign Investment Trends in 2025: A Changing Landscape
U.S. foreign direct investment (FDI) inflows dropped by 27% in 2023, totaling approximately $149 billion. Early 2024 data reflects continued softness, driven by global instability and strategic reshoring. Still, the picture isn't uniform—some sectors continue to attract significant capital.
Sectors Drawing Strong Investment:
- Data Centers: Supercharged by AI adoption, the U.S. data center sector is projected to see over $1 trillion in cumulative investment over the next five years.
- Clean Energy and Electrification: Particularly in battery, EV, and semiconductor supply chains.
- Advanced Manufacturing: Including robotics, automation, and next-generation fabrication technologies.
CFIUS Activity: Fewer Deals, More Scrutiny
In 2023 (the most recent year with complete data), CFIUS received 342 filings, a combination of short-form declarations and formal notices—down from 440 in 2022. Of those, 233 were formal notices, a 19% drop from the previous year.
But the reduced volume doesn't signal lax enforcement. Quite the opposite: 55% of notices proceeded to full investigation, reflecting CFIUS's increasingly aggressive posture. More deals are being preemptively restructured, delayed, or abandoned to reduce exposure.
The Geopolitical Realignment Behind the Numbers
- Chinese Investment Falls Further: Chinese FDI in the U.S. has collapsed from a high of $46 billion in 2016 to under $4 billion in 2024, driven by capital controls in China and U.S. laws like FIRRMA and the CHIPS Act. Despite this decline, China still accounted for a notable portion of 2023 filings. That number will likely be even lower in 2024—and significantly lower again in 2025.
- Rise of Allied Capital: Canada was the largest source of inbound FDI in 2023, contributing over $53 billion. Investors from Australia, Canada, New Zealand, and the UK—designated "Excepted Foreign States"—now benefit from fewer filing requirements and a more predictable CFIUS process.
Regulatory Innovation: Fast Tracks and Red Lines
In February 2025, the White House unveiled the "America First Investment Policy," a comprehensive retooling of the CFIUS review process:
In February 2025, the White House unveiled the "America First Investment Policy," a comprehensive retooling of the CFIUS review process:
- Streamlined reviews for investors from trusted allies that demonstrate "verifiable distance" from adversarial actors.
- Heightened scrutiny for countries designated as foreign adversaries (China, Cuba, Iran, North Korea, Russia, Venezuela under Maduro), particularly in deals touching AI, quantum, or semiconductor technologies.
These changes signal a risk-tiered approach—encouraging transparency from allies while tightening the leash on opaque, state-linked capital. An enhanced review system for vetted repeat filers is also in development to facilitate high-trust transactions.
Reverse CFIUS: Controlling Outbound Flows
In a major policy shift, the U.S. now regulates not only inbound investments but also outbound capital. Effective January 2, 2025, the Reverse CFIUS program restricts certain investments by U.S. persons and entities into China, Hong Kong, and Macau, specifically where those investments touch:
- Quantum computing
- Semiconductors
- AI systems with military or surveillance applications
This reflects a more comprehensive national security framework—one that controls what leaves the U.S. just as carefully as what enters.
Enforcement Is Escalating
CFIUS is no longer just a gatekeeper—it's becoming an active monitor and enforcer. In 2023:
- 21% of filings led to binding mitigation agreements (up from 11% in 2021)
- Over 200 agreements are currently under active CFIUS supervision
- Four civil monetary penalties were issued—more than all prior years combined
Enforcement momentum is clearly building, with broader audits and compliance reviews expected in 2025 and beyond.
A Strategic CFIUS Playbook for 2025
For U.S. tech companies navigating global capital markets, here's how to get ahead of the regulatory curve:
1. Map Your National Security Footprint
Know your exposure. Conduct diligence on foreign investors, trace beneficial ownership, and assess your company's touchpoints with critical technologies, infrastructure, or personal data. Watch for the "inadvertent foreign person" trap, which can trigger filing requirements unexpectedly.
2. File Before You're Flagged
When in doubt, consider a voluntary filing. It's the only way to obtain safe harbor and true deal closure. Early engagement also positions your team to proactively address risks and shape mitigation terms.
3. Align Capital with U.S. Strategy
Favor capital from Excepted Foreign States, which enjoy faster, simpler reviews. Minimize reliance on funds from high-risk jurisdictions. Domestic funding—from U.S.-based VCs, family offices, or institutional investors—remains the lowest-friction option.
4. Call Your Foreign Direct Investment Lawyer
CFIUS law is dynamic and highly specialized. Experienced counsel can:
- Determine whether your deal triggers jurisdiction
- Navigate declaration vs. notice filing decisions
- Craft mitigation terms that preserve deal value
- Ensure long-term post-closing compliance
Conclusion
CFIUS has become a central force shaping how and with whom U.S. technology companies can do business. As national security policy continues to intersect with capital markets, the smartest companies will be those that embed CFIUS strategy into their transaction planning—not as an afterthought, but as a core capability.
U.S. Foreign Investment And The New CFIUS Rules
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
