The Committee on Foreign Investment in the United States (“CFIUS” or “the Committee) is an interagency body of the U.S. government that plays a critical role in safeguarding national security by reviewing foreign investments in U.S. businesses and assets. Established in 1975 through an Executive Order issued by President Gerald Ford, CFIUS initially served as an advisory committee to monitor and evaluate the impact of foreign investments on the U.S. economy. Over time, its role has evolved significantly to focus on identifying and mitigating risks to national security posed by such investments.
Structure and Composition
CFIUS is chaired by the Secretary of the Treasury and includes representatives from several key federal departments and agencies, including the Departments of Defense, Homeland Security, State, Justice, and Commerce, as well as the Office of the U.S. Trade Representative (“USTR”). Additional agencies may participate in the Committee’s activities when issues within their jurisdiction are implicated. The diverse composition of the Committee allows CFIUS to evaluate foreign investments from multiple perspectives, ensuring a comprehensive assessment of potential national security risks.
Legislative Framework
CFIUS’s authority and responsibilities are grounded in several pieces of legislation, most notably the Defense Production Act of 1950, as amended, and the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). FIRRMA’s enactment carried out several important developments to modify CFIUS procedures, expand the Committee’s authority to review transactions involving foreign investments, and enhance the Committee’s ability to address evolving national security threats
Prior to 2018, CFIUS generally only had the authority to review foreign investment transactions that resulted in a foreign party gaining control of a U.S. business. However, FIRRMA expanded CFIUS’s jurisdiction by providing the Committee with the authority to review certain non-controlling foreign investments when a transaction involves a “TID” U.S. business (i.e., a business related to critical Technologies, critical Infrastructure, or sensitive personal Data). Importantly, transactions involving foreign investment in a TID U.S. business may now also trigger a requirement that the involved parties submit a mandatory notification of the transaction to CFIUS for review.
Before FIRRMA, notifications of a transaction to CFIUS were strictly voluntary. Now however those involved in cross-border deals must assess whether a subject transaction may trigger mandatory filing requirements under CFIUS regulations. Failure to notify CFIUS of a transaction that has triggered a mandatory filing requirement (i.e., submission of a notification of the transaction to CFIUS) may result in the assessment of penalties against the involved parties and action by CFIUS to review and mitigate national security concerns presented by the transaction even after closing.
One other key aspect of CFIUS’s expanded authority under FIRRMA is the Committee’s ability to review certain foreign investments in or acquisitions of U.S. real estate. While real estate transactions are not subject to mandatory filing requirements (i.e., parties may notify CFIUS of these transactions on a voluntary basis), CFIUS now maintains the authority to review transactions where foreign parties acquire certain property rights in real estate that is located near sensitive government facilities and military installations. This review authority ultimately furthers CFIUS’s agenda of protecting U.S. national security interests by aiding in the prevention of illicit access or surveillance of sensitive government sites by foreign adversaries.
Review Process
The CFIUS review process begins when parties to a subject transaction notify the Committee or when CFIUS initiates a review on its own. The process involves several stages:
- Filing and Initial Review: Parties to a transaction submit a notification to CFIUS, providing detailed information about the transaction, the foreign investor, and the U.S. business. CFIUS conducts an initial 45-day review to determine whether the transaction poses any national security risks.
- Investigation: If potential risks are identified, CFIUS may conduct an additional 45-day investigation to gather more information and assess whether mitigation measures are necessary.
- Presidential Action: If the Committee determines that national security concerns cannot be resolved through mitigation, it may refer the transaction to the President for a final decision. The President has the authority to block or unwind transactions that threaten national security.
Key Considerations and Trends
CFIUS evaluates transactions based on a range of factors, including the nature of the U.S. business, the identity and intentions of the foreign investor, and the potential implications for U.S. national security. Specific areas of concern include:
- Critical Technologies: Investments that may provide foreign entities access to technologies critical to U.S. national defense or economic security.
- Infrastructure and Supply Chains: Transactions involving critical infrastructure, such as telecommunications or energy, and supply chains essential to national security.
- Data Security: Investments that could result in foreign access to sensitive personal data of U.S. citizens.
- Regions of Special Concern: Transactions involving a foreign investor from certain countries of current concern, such as China and Russia, may generate increased scrutiny by CFIUS.
The increasing complexity of global supply chains and the rapid pace of technological innovation have heightened the importance of CFIUS’s work. The Committee has become particularly vigilant regarding investments from countries perceived as strategic competitors, such as China, which has sought to acquire U.S. companies within certain industries such as semiconductors, artificial intelligence, and biotechnology. CFIUS is also increasingly vigilant in its review of real estate transactions involving the acquisition of property by a foreign investor when the target property is located within close proximity to sensitive military or government sites in the U.S.
CFIUS has faced criticism for its opaque processes and the potential for decisions to be influenced by political considerations and foreign policy objectives. Importantly, those involved in cross-border deals may need to engage CFIUS counsel to help assess CFIUS compliance risks presented by a subject transaction. Legal counsel can also assist with consideration of potential outcomes of a CFIUS review in light of current foreign policy trends, U.S. export control developments (as businesses involved in the production of certain advanced technologies may trigger mandatory filing requirements and increased scrutiny), and prior actions taken by CFIUS.
Conclusion
CFIUS continues to play a vital role in the nation’s defense against security threats posed by foreign investments. By providing a mechanism to address security concerns, CFIUS ultimately helps maintain public confidence in the openness of the U.S. economy while protecting critical U.S. national interests. Balancing U.S. national security concerns with the benefits of foreign investment will continue to be a central challenge for the Committee in the years to come. For international practitioners and those involved in cross-border deals, assessing CFIUS-related compliance risks presented by a transaction should be a key consideration when conducting transaction due diligence before a deal is closed.
This post was originally published on here
