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The Expansion of the CFIUS

By Gareth Bowen

The Committee on Foreign Investment in the United States’ (CFIUS) oversight scope has expanded under the Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018.  FIRRMA was signed into law on August 13, 2018, and went into effect on February 13, 2020.  This legislation is necessary in a globalized world where nefarious actors may increase the risk to United States’ national security by taking advantage of economic means—under the guise of profit seeking behavior—to acquire dual use technologies and trade secrets to advance their own military and economic competitive advantage.

CFIUS was created under Executive Order 11858 by President Gerald Ford.  It is an interagency policy committee hosted by the U.S. Department of Treasury which reviews foreign direct investment (FDI) in the United States for national security risk implications.  CFIUS’ original purpose was to study foreign investments, but CFIUS’ power to reject deals on national security grounds was expanded in the 1980s when a US semiconductor firm, Fairchild Semiconductor, sought to sell itself to a Japanese semiconductor manufacturer: Fujitsu.  Entities involved in foreign acquisition can voluntarily submit notice to CFIUS for a lightened or shortened review process.  Reviews are mandatory; however, for transactions that would lead to foreign government control of the acquired entity.  CFIUS can also invite for review transactions which are not voluntarily submitted, called “non-notified transactions.”  More information on the government offices that are a part of CFIUS and CFIUS review timelines can be found on the U.S. Department of Treasury’s website.  During the past decade, CFIUS’ attention has become more focused on United States’ critical technologies, infrastructure, and sensitive data.  CFIUS has a mandate to force divestment in instances where CFIUS review and investigation discovers national security risks are increased by the FDI.  If CFIUS recommends completely blocking of a deal, then the President must sign off on the block.  Examples of this include the 2016 cancellation of Philips’ plan to sell Lumileds to GO Scale Capital—a group of Asian investors—and, more recently, the blocked proposed acquisition of US semiconductor manufacturer Qualcomm by Singaporean chipmaker Broadcom in 2018.

Before FIRRMA, CFIUS’ scope was limited to reviewing controlling investments—those where the acquiring foreign entity would gain majority voting interests and/or majority equity in—of US companies; now, CFIUS’ scope has expanded to non-controlling interests in US companies, certain real-estate transactions in sensitive proximity of government facilities, and any other transaction attempting to circumvent CFIUS scrutiny and review.

Since the United States’ industrial revolution, U.S. innovation has allowed for not only astounding economic growth and quality of life, but also an immense military advantage.  During World War II, the U.S. infantryman’s standard issue rifle was the M1 Garand, a semi-automatic rifle capable of much greater volumes of fire than other nations’ standard issue slower-firing bolt-action rifles.  The Sherman tank—the United States’ main battle tank of WWII—had a gyroscopically stabilized turret which both the opposing Axis powers and friendly Allied powers had not developed.  Of course, nowadays, critical technologies providing U.S. military superiority are far more complex: semiconductors processing immense volumes of data for defense systems, lasers created for guiding missiles, jet engines propelling military aircraft, the logistics knowledge to operate gargantuan aircraft carriers, et cetera.  As a result, the United States has a clear and justifiable interest in expanding CFIUS’ oversight of FDI.  With FIRRMA expanding CFIUS’ authority, the United States now has a larger toolbox both to protect critical components of U.S. national security and economy and to prevent foreign espionage via real estate located near U.S. federal government facilities.

As some developing nations strive to achieve the United States’ level of economic and military influence on the global stage, they are undermining Western property rights law.  CFIUS is just one tool the United States has to stop profit-seeking business entities from handing over key technologies and protect against this behavior.  Legislators and agencies need to continually develop solutions to the evolving means by which nefarious actors take advantage of not only U.S. companies, but all of our institutions.  While the U.S. Department of Justice is actively tackling the problem of scientists stealing research data in the US, it cannot remain a game of catch-up.  Foreign-national professors employed by U.S. academic institutions have stolen research funded by US grants and patented them abroad, U.S. professors are partaking in foreign state-run academic espionage programs, and foreign-national students are spying on university research to take it abroad for profit.  In order to defend the United States’ ability to promote the world’s highest rate of innovation—benefitting US security and humanity’s welfare alike—it is critical that US administrations proactively counter these threats.


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