Articles Posted in CFIUS

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After more than a year of deliberations, the U.S. government appears close to implementing an outbound investment review mechanism that would regulate certain U.S.-origin investments in countries of concern, notably China. These efforts are part of a wider effort by the U.S. government to restrict access to certain sectors of the Chinese market in the name of national security. In “All Eyes on China: Upcoming Restrictions on Outbound Investment,” colleagues Nancy Fischer, Matthew Rabinowitz, Zachary Rozen, Samantha Franks, Ata Akiner, Laura Killalea, Amaris Trozzo and Jack Ko examine these potential restrictions and the pending legislation by which they would likely be informed.

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Overview of the Proposed “Reverse CFIUS” Process via the National Critical Capabilities Defense Act of 2022

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The U.S. Department of Treasury recently released Enforcement and Penalty Guidelines (Guidelines) that outline conduct violating the Committee on Foreign Investment in the United States (CFIUS or Committee) regulations. Specifically, these Guidelines, the first of their kind, outline CFIUS’ process and practical considerations when deciding whether to impose penalties and how severely to enforce a violation.

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On June 12, 2022, a bipartisan group of Senate and House lawmakers announced agreement on a new draft of the National Critical Capabilities Defense Act of 2022 (NCCDA), which would establish an expansive outbound review mechanism for investments and other transactions in specified countries of concern, including China. The draft is based on a bill introduced in the Senate last year that ultimately was not included in the U.S. Innovation and Competition Act (USICA), which passed, while the House included a similar measure in its America COMPETES Act, which also passed, and the two bills are now in conference.

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On September 14, 2021, the Kingdom of Saudi Arabia’s (KSA’ s) Cabinet of Ministers launched a new Permanent Ministerial Committee for Examining Foreign Investments (CEFI) that would review foreign investments for potential national security threats. This development comes at an important time as the Kingdom opens its doors for foreign investments in pursuit of the Vision 2030 plan. The Ministry of Investment recently reported that foreign investment licenses in the KSA rose 108% in the first half of 2021 in comparison the preceding year. The committee is expected to function in a manner similar to the Committee on Foreign Investment in the United States (CFIUS), and the proposed UK National Security and Investment Bill, although its future role and implementation remain to be determined.

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The CFIUS process itself requires close strategic consideration in getting to deal certainty. Navigating the review process can be a daunting task, especially as CFIUS appears to be moving quickly and proactively to stop risky deals from closing. Join our colleagues Nancy Fischer and Patrick Hovakimian in The Deal’s September 23 webinar, “Structuring M&A and Private Equity Deals: The CFIUS Challenge in Getting Deals Done” for a discussion of the advance planning and deal structuring needed to anticipate and navigate CFIUS. Nancy and Patrick will be joined by panelists Alex Darden (EQT Partners), Kevin Hutchins (Juniper Networks), Sirisha Kadamalakalva (DataRobot) and David Lam (Atlantic Bridge Ventures).

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On January 19, 2021, the Commerce Department issued an interim final rule to implement the Executive Order on Securing the Information and Communications Technology and Services Supply Chain (E.O. 13873), which was issued on May 15, 2019. The interim rule comes after the November 2019 proposed rule implementing E.O. 13873.

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On September 18, 2020, the U.S. Commerce Department published two rules defining the scope of prohibited transactions related to the mobile applications, WeChat and TikTok. The scope of prohibited transactions clarified the two parallel executive orders (EOs) issued by the Trump administration on August 6, 2020, which required the Commerce Department to impose restrictions on both platforms.

The scope of prohibited transactions are the same for both WeChat and TikTok. Prohibited transactions do not include individual use of these mobile platforms to exchange personal or business information. However, the rule would effectively shut down WeChat and TikTok within the United States via mobile application storefronts (e.g., Apple Store and Google Play), and additional restrictions would further impair the apps’ functionality and user experience.

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GettyImages-478409256-Treasury-300x261On September 15, 2020, the U.S. Department of Treasury published a final rule that removes the mandatory declaration requirement for filings to the Committee on Foreign Investment in the United States (CFIUS) based on North American Industry Classification System (NAICS) code and replaces it with a determination based on U.S. export control criteria. The final rule largely adopts the changes outlined in the proposed rule that was published on May 21, 2020, and which we discussed previously, with some added clarifications. The final rule will be effective on October 15, 2020.

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On May 21, 2020, the U.S. Department of the Treasury published a proposed rule that would revise the mandatory declaration requirement for foreign investments involving a U.S. business that produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies.

Currently, a key element of the mandatory declaration requirement is whether the U.S. business engaged in the specified activities involving critical technologies utilizes that critical technology, or designs the technology specifically for use in, one or more industries identified by North American Industry Classification (NAICS) codes.

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The COVID-19 pandemic has generated a renewed focus on biotechnology and life sciences companies. Non-U.S. investors need to be aware of the potential that the Committee on Foreign Investment in the United States (CFIUS) may have jurisdiction to review, and possibly disallow certain investments in U.S. companies. In particular, new rules enacted this year expand CFIUS jurisdiction to include non-controlling investments in certain U.S. businesses dealing in “critical technologies,” which includes certain products and technologies in the biotechnology sector. Moreover, the COVID-19 pandemic has resulted in the expansion of biotech-type businesses that might be considered sensitive from a national security perspective even if they do not rise to the level of “critical technologies,” which could trigger mandatory CFIUS filings. CFIUS risk assessments will be an important part of any transaction involving foreign investors in the biotech sector.

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