On September 15, 2022, President Biden signed an Executive Order (EO) detailing certain national security risks that the Committee on Foreign Investment in the United States (CFIUS or the Committee) should consider when reviewing transactions.

While the EO articulates risk factors beyond those in the statute undergirding CFIUS operations, the Committee already has been focusing on many (and arguably all) of the factors in the EO. However, the EO may resolve disagreements among CFIUS officials—who represent different agencies and often maintain different viewpoints—about certain issues. These issues may include in particular the propriety of aggregating interests across multiple transactions involving the same industry (e.g., a foreign investor that takes stakes in multiple microelectronics companies) and whether investors "have relevant third-party ties that might cause the transaction to pose … a threat"¹ (e.g., whether a European investor may be dependent on revenue from China or Russia). In general, the EO endorses "hawkish" views on these and other matters, and such endorsements in the context of interagency disagreements likely will result in incremental tightening of the CFIUS process.

While left unstated in the EO, we expect that, in addition to the variables highlighted in the EO, the Committee will continue to emphasize concerns arising from investors with connections to China or Russia.

Presidential Order Formally Articulates Key Areas of CFIUS Focus

President Biden's EO states that the Committee should consider five sets of factors in its national security reviews, specifically:

• a transaction's effect on the resilience of critical U.S. supply chains, including those outside of the defense industrial base;
• a transaction's effect on U.S. technological leadership, including in areas of microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaption technologies;
• industry investment trends;
• cybersecurity risks; and
• risks to U.S. persons' sensitive data.

The "Fact Sheet" accompanying the EO states that it is not changing CFIUS processes or legal jurisdiction but that the factors outlined above should be read in conjunction with CFIUS's already broad authorities. The EO also is focused on inbound investment, as opposed to recent legislative and executive branch deliberations about the possible creation of a "Reverse CFIUS" to review and regulate outbound investment to countries like China and Russia.²

CFIUS Focus Unlikely to Materially Change in the Near Term

Although the EO provides greater formal, and public, specificity from the Committee, the Committee's work is unlikely to change significantly. Operating within the broad discretion that Congress has provided to CFIUS, the Committee already has been focused on the key areas highlighted in the EO. As a senior administration official stated, CFIUS "[already] has been considering these kinds of risks when reviewing cases and has taken actions to address these types of risks and will certainly continue to do so."³ Comments of this type have left some Committee watchers asking why President Biden issued the EO.

One explanation is that the EO is intended, at least in part, to resolve occasional disagreements among CFIUS officials. Different agencies that comprise CFIUS and the officials within those agencies often weigh competing considerations differently. For example, an official from the U.S. Department of Commerce's International Trade Administration, which has a mandate to promote trade and investment, may place more value on permitting an investment in a microelectronics company than an official within the Department of Defense's National Security Agency. The Commerce official might argue that a small investment in a small U.S. microelectronics company should not cause harm to national security. The Defense official might respond that the fact that the same investor already has investments in a dozen other U.S. microelectronics companies is cause for concern regarding the pending investment.

The EO seemingly resolves this issue, and one more—whether it is appropriate to consider an investor's ties to "third parties" (generally the Committee's concern is China and Russia, as further explained below)—in favor of those with more hawkish views. Accordingly, while the risk factors articulated by the EO have been considered regularly by CFIUS, the EO seems likely to result in incremental tightening of the CFIUS process.

CFIUS's Unstated Geographic Focus: China and Russia

The EO and its refined criteria for review do not explicitly call for the Committee to account for particular countries when conducting its review, but we expect that the Committee will continue to focus on transactions with a connection to China or Russia. While senior administration officials, in conjunction with the rollout, noted that "there's nothing that's sort of China-specific about this order or CFIUS," they did note that the Committee, as has been customary, is looking at "the inputs that to [the] national security risk generally come from looking at the foreign acquirer and assessing the foreign acquirer intent, capabilities, and other things, as well as the U.S. business that's being invested into to assess any potential vulnerabilities."

While the Biden Administration would not explicitly state that CFIUS will be focused on China or Russia, as we have noted recently, the Committee's actions over the last several years suggest that China and Russia are the primary focus. CFIUS has been notoriously aggressive and commercially insensitive with respect to any transaction that has a China or Russia link.

For potential foreign investors or acquirers, certain transactions that don't immediately appear to be China or Russia-linked may be viewed as such by the Committee. For example, a UK fund whose general partner includes a Chinese or Russian citizen could be assessed as having a greater national security risk profile by the Committee. Similarly, a Singaporean fund that has a number of smaller unaffiliated Chinese limited partners collectively comprising a significant share of the fund could potentially be viewed by the Committee as a Chinese-controlled fund. And, in addition to the potential influence exercised by investors into otherwise innocuous foreign parties, the Committee appears poised to expand its efforts to review the commercial ties foreign parties may have in nations of concern, even if those commercial ties are unrelated to investment. For example, a German semiconductor manufacturer that uses a Chinese contract fab as a key supply partner may receive enhanced scrutiny from CFIUS going forward.

As one of the most recent public examples of this China/Russia focus, in early September (and prior to the release of the EO), Snapdragon Chemistry stated that its previously announced acquisition by Chinese company Asychem, a contract development and manufacturing organization (CDMO), would not proceed because the parties to the transaction could not agree with the Committee on conditions that would address the Committee's concerns.⁴ Asychem had previously been an investor in Snapdragon,⁵ a U.S.-based company focused on continuous manufacturing and early-stage chemical process development services. Its proposed acquisition of the U.S. company was a step too far for CFIUS, reflective of the Committee's pattern of imposing greater scrutiny on transactions where a Chinese buyer could potentially acquire control over a U.S. business with a nexus to bioproduction, drug development, and potentially access to data of U.S. persons—all focus areas of the EO.

Above all, President Biden's EO underscores the U.S. government's distinct focus on national security risks arising from foreign investment and CFIUS's growing remit to address those risks. 

[1] https://www.govinfo.gov/content/pkg/FR-2022-09-20/pdf/2022-20450.pdf.

[2] https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/15/fact-sheet-president-biden-signs-executive-order-to-ensure-robust-reviews-of-evolving-national-security-risks-by-the-committee-on-foreign-investment-in-the-united-states/.

[3] https://www.whitehouse.gov/briefing-room/press-briefings/2022/09/15/background-press-call-on-president-bidens-executive-order-on-screening-inbound-foreign-investments/.

[4] https://ktla.com/news/business/press-releases/cision/20220909NE68556/snapdragon-chemistry-and-asymchem-abandon-planned-acquisition/.

[5] https://www.fiercepharma.com/manufacturing/china-s-asymchem-cdmo-snaps-up-snapdragon-for-60-million.