The House Financial Services Subcommittee on Monetary Policy and Trade reviewed the history and operations of the Committee on Foreign Investment in the United States ("CFIUS"). The hearing focused on the effectiveness of CFIUS and potential solutions to address current challenges.

CFIUS is currently charged with reviewing so-called "covered transactions" – mergers, acquisitions or takeovers, by or with any foreign entity that could result in foreign control of a U.S. business – to determine the effects of such transactions on U.S. national security. CFIUS has the ability to recommend that the President block a deal or take other appropriate action.

At the hearing, several panelists called on Congress to modernize CFIUS and allocate more resources to support its ability to fulfill its objectives. Among those who testified, the following recommendations were made:

  • Alan F. Estevez, former Principal Deputy Under Secretary of Defense for Acquisition, Technology, & Logistics, advocated for increased jurisdiction in the areas of (i) joint ventures, (ii) coverage over entities in bankruptcy, and (iii) ability to assess trend analysis rather than reviewing each transaction separately.
  • Kevin J. Wolf, former Assistant Secretary of Commerce for Export Administration, urged caution in evaluating whether or not to expand the scope of CFIUS. He noted that the expansion of authorities could discourage foreign investments, adding that "prescriptive" regulations could "limit the ability of the Administration and staff to resolve national security issues in a creative way."
  • Nancy McLernon, President & CEO of the Organization for International Investment, proposed that Congress explore a potential "fast track" to provide for expedited resolution of transactions that do not possess a level of complexity or risk that necessitates extensive reviews.

The Subcommittee noted the importance of balancing "free flow of capital" with the need to guard against foreign investments that might "weaken the U.S."

A bipartisan bill recently introduced in Congress, the Foreign Investment Risk Review Modernization Act of 2017 ("FIRRMA"), would broaden the range of transactions involving foreign investments in U.S. companies that are subject to review, blocking, or unwinding by CFIUS. FIRRMA would expand the types of covered transactions subject to CFIUS review to include certain joint ventures (either within or outside the U.S.), minority position investments in U.S. companies, and purchases of real estate located near U.S. military or other government installations.

Additionally, FIRRMA would (i) expand the current list of factors that cause transactions to have "national security" implications; (ii) apply scrutiny to acquisition of certain early-stage technologies (e.g., artificial intelligence) that are funded from nations designated as "countries of special concern"; (iii) replace the voluntary nature of CFIUS filings with a mandatory declaration process for certain transactions with significant foreign investment; and (iv) provide CFIUS with new powers to suspend transactions or impose conditions.

Commentary / Joseph V. Moreno

The bi-partisan nature of FIRRMA, and growing concerns about foreign investment in U.S. technologies and companies, indicate that some strengthening of the CFIUS process is highly likely to be enacted into law. This is especially true as it relates to recent concerns about the Chinese government's use of corporate investments to obtain military and technological advantages. Any person involved in a transaction contemplating foreign investment should consider whether U.S. national security is implicated under existing CFIUS standards, which are already broader than may be commonly understood, and also consider whether that analysis would change if FIRRMA were to be adopted. CFIUS review can add substantial time, cost, and complexity, and the national security implications of an investment deal should be thoroughly explored at the onset of a potential transaction.

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