By: Christine Thebaud
The Committee on Foreign Investment in the United States (“CFIUS”) will likely have a critical role in shaping the U.S. economy once the spread of Covid-19 is contained, and American life returns to normal. On February 13, 2020, the 2018 Foreign Investment Risk Review and Modernization Act (“FIRRMA”) expanded the reach of the famously secret Committee by granting the Committee jurisdiction over a nebulous concept of “critical technology.”[1] Even before the global pandemic, commentators noted how the Trump Administration utilized CFIUS to subject Chinese backed investments to particular scrutiny.[2] As Americans emerge from quarantine and the federal government shapes legislation from lessons learned, CFIUS could play a pivotal role in reinforcing America’s independent sustainability for the sake of national security.
CFIUS is an interagency committee tasked with reviewing transactions involving foreign investment into American companies for potential national security concerns.[3] The Treasury Secretary leads the Committee with the other seats held by members of the State, Defense, Justice, Energy, Commerce, and Homeland Security departments.[4] Covered transactions are defined as “any merger, acquisition, or takeover . . . by or with any foreign person that could result in foreign control of any person engaged in interstate commerce in the United States.”[5] If CFIUS determines the transaction should be prohibited, the Committee sends a report to the President concerning the transaction’s impact on national security.[6] Should the President determine there is credible evidence that the foreign entity’s involvement compromises national security, he may issue an order blocking the transaction.[7] In the only challenge to CFIUS’ authority, Ralls Corp. v. Committee on Foreign Investment in United States,[8] two Chinese nationals challenged President Obama’s order following CFIUS’s recommendation that the investors abandon their acquisition of windfarms near restricted airspace.[9] Notably, the United States Court of Appeals for the District of Columbia found that under the Defense Production Act of 1950, courts are barred from reviewing the final actions of the President “to suspend or prohibit any covered transaction.”[10] Ralls demonstrates how even if a court rules that CFIUS exceeded its authority, the President’s order blocking a transaction stands.
FIRRMA recently expanded the scope of transactions subject to the Committee’s review.[11] Among the changes is a mandatory pre-transaction filing for transactions involving “critical technology” U.S. businesses.[12] These critical technologies include emerging and foundational technologies identified in the Export Control Reform Act of 2018 (“ECRA”).[13] Forthcoming Commerce Department regulations will clarify the range of companies that will be impacted by the Committee’s jurisdiction over critical technology business transactions.[14]
With the range of covered business transactions still malleable, the Trump Administration may direct the Committee scrutinize foreign investments made into the American manufacturing sector and domestic infrastructure to ensure independent sustainability for the sake of national security. Throughout the Trump Administration, CFIUS has increased its scrutiny of deals coming out of Asia, particularly China.[15] While the President nor the Committee have commented on the pivot towards China, in May 2019, President Trump argued that automobiles and other automobile parts were being imported into the United States in such a manner that could impair the national security of the United States.[16] Indeed on March 24, 2020, during the White House Task Force briefing on Covid-19, President Trump remarked how the pandemic demonstrates that “[the United States] should never be reliant on a foreign country . . . for our own survival . . . . This crisis has underscored just how critical it is to have . . . a robust manufacturing sector.”[17] Between President Trump’s calls for the United States to increase self-sufficiency, the forthcoming Commerce regulations, and the court’s aversion to review the final orders of the President, CFIUS will be instrumental in shaping our post Covid-19 economy.
[1] Quinn, Emanuel, Urquhart & Sullivan LLP, July 2019: Legal Challenges to CFIUS Reviews, Jdsupra (Aug. 5, 2019), https://www.jdsupra.com/legalnews/july-2019-legal-challenges-to-cfius-54793/.
[2] David McLaughlin, Saleha Mohsin, & Jacob Rund, All About CFIUS, Trump’s Watchdog on China Dealmaking: QuickTake, Wash. Post (Feb. 13, 2020), https://www.washingtonpost.com/business/energy/all-about-cfius-trumps-watchdog-on-china-dealmaking-quicktake/2020/02/13/76510e36-4e1e-11ea-967b-e074d302c7d4_story.html.
[3] See id.; Quinn, Emanuel, Urquhart & Sullivan LLP, supra note 1.
[4] David McLaughlin, Saleha Mohsin, and Jacob Rund, supra note 2.
[5] Defense Production Act of 1950, 50 U.S.C. § 4565 (2018).
[6] 31 C.F.R. § 800.506 (b)-(c).
[7] Defense Production Act of 1950, 50 U.S.C. § 4565 (2018).
[8] 758 F.3d 296 (D.C. Cir. 2014).
[9] Id. at 304-306.
[10] Id. at 311.
[11] John McCain National Defense Authorization Act of 2019 §1721 (c), 115 P.L. 232 (2019).
[12] Quinn, Emanuel, Urquhart & Sullivan LLP, supra note 1.
[13] Id.
[14] Gibson, Dunn & Cruthcer, United States: CFIUS Reform: Top Ten Takeaways From the Final FIRMMA Rules, Mondaq (Feb. 26, 2020), https://www.mondaq.com/unitedstates/Government-Public-Sector/897820/CFIUS-Reform-Top-Ten-Takeaways-From-The-Final-FIRRMA-Rules.
[15] Quinn, Emanuel, Urquhart & Sullivan LLP, supra note 1.
[16] Id.
[17] President Donald J. Trump, White House Coronavirus Task Force Briefing (Mar. 24, 2020) (transcript available at https://www.whitehouse.gov/briefings-statements/remarks-president-trump-vice-president-pence-members-coronavirus-task-force-press-briefing-10/).
