The Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person, is the primary tool available to the U.S. government to review foreign investments. Recently, CFIUS has more closely scrutinized foreign investments, especially from certain jurisdictions, such as China, and has increasingly recommended to the President that he officially reject proposed transactions for national security reasons. In the last year, parties have also abandoned several transactions, reportedly due to concerns about whether the transaction could withstand the CFIUS review process. These developments have occurred within the context of calls for a more robust review of foreign investment into the United States, coming from various sources within the U.S. government, including from, as we previously outlined, a Department of Defense commissioned report and several members of Congress.

Pending legislation introduced by Senator John Cornyn (R-TX) and co-sponsored by a bipartisan group of high-ranking Senators would subject even more transactions to a higher level of CFIUS review than under current law. The proposed legislation was introduced in the Senate and the House of Representatives in November 2017 and is called the Foreign Investment Risk Modernization Act (FIRRMA). FIRRMA would expand the definition of covered transactions for purposes of CFIUS review to include:

• the purchase or lease by a foreign person of private or public real estate that is located in the United States and is in close proximity to a United States military installation or to another facility or property of the United States Government that is sensitive for reasons relating to national security and meets such other criteria as the Committee prescribes by regulation;
• non-passive investments by a foreign person in any United States critical technology company or United States critical infrastructure company, subject to certain prescribed regulations;
• any change in the rights that a foreign person has with respect to a United States business in which the foreign person has an investment, if that change could result in foreign control of the United States business or a non-passive investment described above;
• the contribution (other than through an ordinary customer relationship) by a United States-based critical technology company of both intellectual property and associated support to a foreign person through any type of arrangement (e.g., a joint venture); and
• any other transaction, transfer, agreement, or arrangement which is designed or intended to evade or circumvent CFIUS review.

FIRRMA also would require CFIUS notice for certain transactions (i.e., transactions involving certain state-owned foreign investors), extend CFIUS’ current review period, and institute a filing fee capped at the lesser of $300,000 or 1% of the transaction’s value.

In sum, enactment of FIRRMA would significantly alter the CFIUS process. We will continue to report on CFIUS reform efforts in future editions.