CFIUS Executive Order Highlights Current Concerns Over Wide Range of Foreign Investments
On September 15, 2022, President Biden issued an Executive Order (“EO”) on the interagency Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) and guidance for ensuring robust national security reviews of foreign investment. The EO signals a strategic focus on national security risks associated with foreign investment into specific industries, technologies and data-driven products, as well as potential momentum toward an expansion of CFIUS’s scope and jurisdiction in the future. This comes at a time when the Administration and Congress continue to intensify the focus on national security concerns posed by China and Russia. While not explicitly stated in the EO, it is expected that CFIUS will use this framework in countering these concerns through foreign investment review.
While the EO does not alter the current CFIUS review process, statutory risk considerations, or filing thresholds, it outlines five key factors that the Biden Administration is instructing the Committee to consider when conducting national security reviews of covered transactions:
Expected Release of New Export Controls Around Semiconductors with Aim of Curbing Chinese Access to AI
Next month, the Biden Administration is expected to impose increased export controls around semiconductors, with a particular focus on artificial intelligence (AI) and a specific aim at curbing US shipments of semiconductors that use AI and related production equipment to China.
These new regulations will impact technology transactions and product sales, and could also significantly affect CFIUS reviews by expanding the categories of technologies that can trigger a mandatory CFIUS filing.
Last week, during a call with reporters, the US Commerce Department’s Bureau of Industry and Security (BIS) Assistant Secretary for Export Administration, Thea Kendler confirmed that BIS sent letters notifying specific industry leaders, including Nvidia, AMD, Lam Research, KLA, and Applied Materials, and that new restrictions were on the horizon. The letters explained that some of those companies’ AI chips or related technology that may not have previously required export authorization from the BIS will now be restricted as to various customers in China. While the new regulations continue to be drafted, more company-specific outreach is expected.
While CFIUS is focused on inbound investment, and export controls focus on outward transactions, neither regime addresses outbound investment. However, there have been recent legislative and executive branch rumblings about the possible implementation of a new regime to review and control outbound investment. As the US government evaluates its strategic alliances in the world, companies and investors in the tech sector should be alert to the political and regulatory trends toward decoupling of economic relationships and technological partnerships with countries like China and Russia, while affording preferential treatment to transactions with the US’s closest allied countries.
However, CFIUS, BIS, and other US government players in the national security space may not view all transactions with allied country investors or counterparties as innocuous if there is a perceived influence from China or Russia behind the scenes. For example, if a party derives the majority of its revenue from, has a significantly influential shareholder who is a national of, or conducts major operations in either of those countries, the presence of such factors could outweigh the US government’s comfort that it might otherwise have with an investor or commercial counterparty located in or organized under the laws of a closely allied country. It is therefore becoming increasingly essential for companies involved in cross-border investments, export transactions and other commercial arrangements to conduct a holistic assessment of the potential national security risks involved, especially if US government authorization or clearance may be necessary to proceed with the transaction.