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On September 15, 2022, US President Joe Biden signed an Executive Order (EO) aimed at increasing federal government scrutiny of foreign investments in US companies deemed critical to US national security interests.1 For the first time since the United States Committee on Foreign Investments (CFIUS) began reviewing foreign takeovers of U.S. companies in 1988, the President has, within his authority to review and block such transactions when they violate the national security of the United States US issued a formal statement providing guidance on a number of risk areas that CFIUS should consider when reviewing transactions under its jurisdiction (covered transactions).2
IN THE DEEP
Noting that some countries use foreign investment to gain access to sensitive data and technology for purposes detrimental to US national security, the EO directs CFIUS to assess the impact of covered transactions on:
- Critical US supply chains that may have national security implications: The EO directs CFIUS to assess the impact of a covered transaction on the resilience and security of the supply chain both on and off the defense industry base. In its assessment, CFIUS relies on considering the degree of diversification by alternative suppliers throughout the supply chain, supply relationships with the US government, and the concentration of ownership or control by the foreign person in each supply chain.
- US technologies in areas affecting national security: The EO specifically identifies sectors fundamental to US technological leadership and therefore national security, including (but not limited to) microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, technologies for adaptation based on climate change and elements of agribusiness that have an impact on food security. The EO directs CFIUS to assess whether a Covered Transaction involves manufacturing capacity, services, critical natural resources, or technology in such areas.
- Overall investment trends: The EO directs CFIUS to consider prior investments by foreign individuals in a single sector or related technology.
- Cybersecurity risks that threaten to compromise national security: This policy reflects the Biden administration’s concern about future malicious cyber-enabled activity. The EO directs CFIUS to assess whether a Covered Transaction could provide foreign persons or their relevant third party connections with access to systems or technology that would enable them to conduct malicious cyber intruders or other malicious cyber activities.
- The personal sensitive information of US citizens: The EO instructs CFIUS to investigate whether an affected transaction involves a US entity with access to sensitive information of US persons and whether the foreign investor or its related parties sought or could use such information.
The EO builds on existing legal and regulatory factors3 ; It highlights certain acute concerns in the current environment, but does not change CFIUS’ current jurisdiction or the way it conducts its investigations.4 However, it is expected that the five areas highlighted by the EO will be further examined in the CFIUS review process. Accordingly, parties to transactions involving any of these five areas should include this in their analysis of whether to notify CFIUS of a transaction and how to address concerns that CFIUS may raise in the review process.
1. Executive Order to Ensure Robust Accounting of Evolving National Security Risks of the Committee on Foreign Investments in the United States, (September 15, 2022) Available at https://www.whitehouse.gov/briefing-room/presidential-actions/2022/09/15/executive-order-on-ensuring-robust-consideration-of-evolving-national – security-risks-by-the-committee-on-foreign-investment-in-the-united-states/.
2. The Committee on Foreign Investments (CFIUS) was first established in 1975 by executive order. In 1988, however, Congress passed the Exon Florio Amendment, which authorized CFIUS to block foreign investment if it threatened national security.
See FACT SHEET: President Biden Signs Executive Order Ensuring Robust Reviews of Evolving National Security Risks by the United States Committee on Foreign Investments(September 15, 2022) Available at https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/15/fact-sheet-president-biden-signs-executive-order-to-ensure more robust reviews-of-the-evolution-of-national-security-risks-by-the-committee-on-foreign-investment-in-the-united-states/;
see also 50 USC App 2170.
3. See general 50 U.S. Code § 4565(f); 31 CFR Parts 800 and 802.
4. Background Press call on President Biden’s executive order screening incoming foreign investments(September 15, 2022) Available at https://www.whitehouse.gov/briefing-room/press-briefings/2022/09/15/background-press-call-on-president-bidens-executive-order-on- screening-inbound-foreign-investments.
The content of this article is intended to provide a general guide to the topic. In relation to your specific circumstances, you should seek advice from a specialist.
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