Articles Posted in Regulation of Foreign Investment in the US (CFIUS)

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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 US 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.

If enacted, the NCCDA would establish a new interagency panel to review and potentially prohibit outbound transactions on national security grounds. The Committee on National Critical Capabilities (CNCC) would function in a manner similar to the Committee on Foreign Investment in the US (CFIUS), which reviews inbound foreign investment. Both US persons and foreign entities that engage in or plan to engage in a “covered activity” would be required to submit a mandatory written notification 45 days before engaging in the activity.  It is not clear how the requirement would apply to a foreign entity that does not have a connection with the United States.

“Covered activities” include an extraordinarily wide range of transactions including any activity by a US person or a foreign entity or their affiliates that:

  • Builds, develops, produces, manufactures, fabricates, refurbishes, expands, shifts, services, manages, operates, utilizes, sells, or relocates a national critical capability to or in a country of concern;
  • Shares, discloses, contributes, transfers, or licenses to an entity of concern any design, technology, intellectual property, or knowhow, including through open-source technology platforms or research and development, that supports, contributes to, or enables a national critical capability by an entity of concern or in a country of concern; or
  • Invests in, provides capital to, or consults for, or gives any guidance, related to enhancing the capabilities or facilitating access to financial resources for a national critical capability for an entity of concern or a country of concern.”

Covered activities would also include transactions by certain entities that receive financial assistance pursuant to the Bipartisan Innovation Act (the presumed name of the legislation that emerges from conference), as well as activities by entities that benefit from government contracts over a certain amount (to-be-determined) with a US national security agency with respect to an entity of concern or a country of concern.

In addition to China, “countries of concern’ include Russia, Iran, North Korea, Cuba, and Venezuela. The term “entity of concern” is broadly and vaguely defined to include entities “affiliated with” or “influenced by” a country of concern. Covered activities would not include de minimis value transactions, as well as “ordinary business transactions,” which generally include transactions involving the sale or license of a finished product.

“National critical capabilities” are defined as those identified necessary for supply chains identified pursuant to the supply chain review mandated by Executive Order 14017, including:

  • semiconductor manufacturing materials,
  • large capacity batteries,
  • critical minerals and materials,
  • pharmaceuticals and active pharmaceutical ingredients, and
  • “critical and emerging technologies,” such as artificial intelligence, bioeconomy, and quantum information science and technology.

Once a notification is submitted, the CNCC would undertake a review to determine if the activity is likely to result in “an unacceptable risk to one or more national critical capabilities.” If it determines such a risk exists, it will make a recommendation to the President to address the risk, including imposing mitigation measures, potentially including disinvestment. The Committee would also have the authority to initiate investigation of a covered activity if a notification is not submitted.

Although the lawmakers announcing the agreement characterized the bill as a “refined proposal,” it is still extremely broad. Key terms and concepts are vague and ill-defined or left to regulators to fill in the blanks, and industry groups including the US China Business Council and the US Chamber are raising their voices in opposition.

 

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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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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 October 5, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule that imposes new multilateral controls on six “emerging technologies,” agreed during the December 2019 plenary meeting of the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies (Wassenaar Arrangement).  These recently developed or developing technologies “essential for the national security of the United States” include forensic hacking tools, surveillance software, sub-orbital craft, and manufacturing tools and technology used to make integrated circuits and semiconductors.

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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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Beginning on May 1, 2020, the Committee on Foreign Investment in the United States (CFIUS) will require a fee for any joint voluntary notice of a “covered transaction” or “covered real estate transaction.” This requirement also applies to (i) voluntary notices filed after CFIUS has completed its assessment of a declaration, (ii) voluntary notices filed for transactions subject to mandatory declarations, and (iii) voluntary notices filed in lieu of a declaration when the transaction is not subject to a mandatory declaration. There is no fee to submit a declaration with CFIUS or if CFIUS initiates a unilateral review. Continue reading →

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On March 6, 2020, President Trump issued an Executive Order (EO) instructing the Chinese company Beijing Shiji Information Technology Co. Ltd. (Shiji) to divest its acquisition of StayNTouch Inc., a U.S.-based software company providing management systems to hotels. Pursuant to the EO, Shiji is required to fully divest its interest in StayNTouch within 120 days, with the possibility of a 90-day extension. The President determined that there was “credible evidence” that Shiji, through its acquisition of StayNTouch, “might take action that threatens to impair the national security of the United States.” The EO does not specify CFIUS’s particular concerns but it appears that StayNTouch’s platform could provide Shiji with access to a large database of personal and financial information of its users.

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On September 17, 2019, the U.S. Department of Treasury issued two new proposed rules for the Committee on Foreign Investment in the United States (CFIUS) implementing the Foreign Investment Risk Review Modernization Act (FIRRMA), which was enacted in August 2018. The first proposed rule covers, among other things, FIRRMA’s expansion of CFIUS’ jurisdiction to non-controlling investments in U.S. businesses engaged in critical technology, critical infrastructure and sensitive personal data. The second proposed rule addresses FIRRMA’s expansion of CFIUS’ jurisdiction over certain real estate transactions.

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Recent comments from Bureau of Industry (BIS) officials at the BIS Update indicate the U.S. Government is progressing towards more detailed proposed rules with respect to both “emerging” and “foundational” technologies that will become subject to future export controls. This required rulemaking is part of an interagency effort mandated by the Export Control Reform Act (ECRA) of 2018.

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OmniVision-logo-300x300The Committee on Foreign Investment in the U.S. (CFIUS) has cleared the acquisition of Beijing OmniVision Technologies Co., Ltd. by Shanghai Will Semiconductor Co., a PRC-listed company, according to an April 16, 2019, filing with the securities regulators in China. This is welcome news after a string of negative decisions by CFIUS.

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