By: Magdalene Eallonardo

On September 15, 2022, President Biden issued Executive Order 14083 on “Ensuring Robust Consideration of Evolving National Security Risks by the Committee on Foreign Investment in the United States” (the “Order”).[1]  This Order is the first instance of presidential guidance directed toward the Committee on Foreign Investment in the United States (“CFIUS”) since its inception in 1975.[2]  CFIUS was originally authorized by Section 721 of the Defense Production Act (“DPA”) “to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons, in order to determine the effect of such transactions on the national security of the United States,” and its authority was later expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”).[3]

The Order guides CFIUS to evaluate transactions in connection with broader policy concerns without altering CFIUS’s jurisdiction, filing requirements, or general practices.[4]  By outlining considerations outside of the original statutory factors set forth in the DPA, the Order directs CFIUS’s focus to specific criteria as it is related to national security, including: the impact on U.S. supply chain; the impact on U.S. technology, particularly in business sectors such as microelectronics, artificial intelligence, biotechnology, and biomanufacturing; investment trends; cybersecurity; and the protection of individuals’ sensitive data.[5]

The Order raises legal questions regarding CFIUS’s scope as it adds new risk factors that will warrant CFIUS review.[6]  Firstly, the Order classifies any third party with a connection to a foreign government or party as a national security concern and similarly provides a list of business sectors with “manufacturing capabilities, services, critical mineral resources, or technologies that are fundamental to national security.”[7]  The Order also requires CFIUS to consider the “elements of the agriculture industrial base that have implications for food security” when evaluating transactions.[8]  While CFIUS has utilized these factors in past evaluations, their application was varied.[9]  The codification of these considerations will put involved parties on notice regarding foreign investment practices in the United States and provide tangible support for future CFIUS decisions when lawsuits arise.[10]  Nevertheless, this new language does not alter CFIUS’s susceptibility to due process claims following the U.S. Court of Appeals for the D.C. Circuit 2014 ruling that granted due process rights to any party whose transaction was blocked or suspended after CFIUS review.[11]  While the Order reinforces CFIUS’s overall legal jurisdiction, and its specificity will likely increase companies’ voluntary filings, Executive Orders are not permanent and may require supplementary guidance in the future to reinforce an overarching political strategy.[12]

The Order’s mention of “countries of special concern” also generated much speculation that it serves as the Biden administration’s most recent effort to implement additional security measures against Chinese investments in the U.S. technology sector.[13]  Chinese firms have attempted to acquire U.S. companies in the past, raising apprehension from both the Obama and Trump administrations and ultimately resulting in the passage of FIRRMA.[14]  This Order comes at a time when the United States and China are intertwined across the technology sector, from TikTok restructuring negotiations to competition in the semiconductor industry.[15]  As the Biden administration contemplates additional Executive Orders to advance its interests within the sector, the implementation of these policies may alter the course of domestic investment and legal trends alike.[16]

[1] Exec. Order No. 14083, 87 Fed. Reg. 57,369 (Sept. 15, 2022).

[2] See Antonia I. Tzinova, et al., New Executive Order Creates Roadmap of Heightened CFIUS Scrutiny for Cross-Border M&A, Holland & Knight (Sept. 20, 2022), https://www.hklaw.com/en/insights/publications/2022/09/publnew-executive-order-creates-roadmap-of-heightened-cfius-scrutiny.

[3] The Committee on Foreign Investment in the United States (CFIUS), U.S. Dep’t of the Treasury, https://home.treasury.gov/policy-issues/international/the-committee-on-foreign-investment-in-the-united-states-cfius (last visited Oct. 1, 2022); see Tzinova, et al., supra note 2.

[4] See 87 Fed. Reg. 57,369; Ama A. Adams, et al., New Executive Order Formalizes Expanded CFIUS Purview, Ropes & Gray (Sept. 20, 2022), https://www.ropesgray.com/en/newsroom/alerts/2022/September/New-Executive-Order-Formalizes-Expanded-CFIUS-Purview.

[5] See 87 Fed. Reg. 57,369; Tzinova, et al., supra note 2.

[6] See Tzinova, et al., supra note 2; Giovanna M. Cinelli, et al., Biden Issues CFIUS Executive Order: What Has Changed and What Remains the Same, Morgan Lewis (Sept. 21, 2022), https://www.morganlewis.com/pubs/2022/09/biden-issues-cfius-executive-order-what-has-changed-and-what-remains-the-same.

[7] See 87 Fed. Reg. 57,369; Adams, et al., supra note 3.

[8] See Cinelli, et al., supra note 5.

[9] See Cinelli, et al., supra note 5.

[10] See Cinelli, et al., supra note 5.

[11] See Ralls Corp. v. Comm. on Foreign Inv. in U.S., 758 F.3d 296, 319-21 (D.C. Cir. 2014); see also Noel J. Francisco, et al., D.C. Circuit Holds that CFIUS Must Provide Due Process Before Prohibiting a Transaction, Jones Day (July 2014), https://www.jonesday.com/en/insights/2014/07/dc-circuit-holds-that-cfius-must-provide-due-process-before-prohibiting-a-transaction; Cinelli, et al., supra note 5.

[12] See Tzinova, et al., supra note 2; Cinelli, et al., supra note 5.

[13] See Charles Hutzler, Biden Orders Deeper Scrutiny of Foreign Investment in Tech and Supply Chains, Wall St. J. (Sept. 15, 2022), https://www.wsj.com/articles/biden-orders-deeper-scrutiny-of-foreign-investment-in-tech-and-supply-chains-11663246802; Donald F. McGahn II, et al., New Biden Executive Order Aims to Set Focus of Future CFIUS National Security Reviews, Jones Day (Sept. 2022), https://www.jonesday.com/en/insights/2022/09/new-executive-order-addresses-cfius-review-process?utm_source=Mondaq&utm_medium=syndication&utm_campaign=LinkedIn-integration.

[14] See Hutzler, supra note 12.

[15] See Lauren Hirsch, et al., TikTok Seen Moving Toward U.S. Security Deal, but Hurdles Remain, N.Y. Times (Sept. 26, 2022), https://www.nytimes.com/2022/09/26/technology/tiktok-national-security-china.html; Ana Swanson, Biden Administration Releases Plan for $50 Billion Investment in Chips, N.Y. Times (Sept. 6, 2022), https://www.nytimes.com/2022/09/06/business/economy/biden-tech-chips.html.

[16] See Hutzler, supra note 12.