The Committee on Foreign Investment in the United States had a busy year in 2022, and shows no sign of slowing down in 2023. The inter-agency  committee of the US government reviews national security implications of foreign investments in US companies.

Active Year

The Biden administration actively provided guidance on CFIUS's activities last year. On Aug. 2, 2022, the committee published an  annual report analyzing its activities in 2021 after its first full calendar year under the expanded jurisdiction granted by the Foreign Investment Risk Review Modernization Act of  2018.

The Biden administration actively provided guidance on CFIUS's activities in 2022. In August, the committee published an  annual report analyzing its activities after its first full calendar year under the expanded jurisdiction granted by the Foreign Investment Risk Review Modernization Act of 2018.

In September, President Joe Biden issued an  executive order instructing the committee to consider particular national security risk factors, such as risk to supply chain resilience and security when reviewing covered transactions.

And in October, the Department of Treasury, the chair of CFIUS, released the first-ever  CFIUS Enforcement and Penalty Guidelines, providing important visibility into the committee's enforcement approach by spelling out categories of acts or omissions that may constitute a violation leading to a penalty.

Taken together, these three releases reinforce a continuation of trends seen over the past few years and suggest increased committee activity in the year to come. As companies plan for 2023, they should keep the following considerations in mind.

Non-Notified/Non-Declared Transactions

CFIUS will put non-notified/non-declared transactions under heightened scrutiny as the committee devotes resources to identifying such transactions through a variety of channels.

The committee is expected to increase enforcement, especially for parties that fail to submit mandatory filings, fail to comply with CFIUS mitigation terms, or make inaccurate filings.

Since there is no statute of limitations for CFIUS to exert jurisdiction over a transaction, failure to make an appropriate filing will increasingly result in unnecessary risk of a penalty and potentially to the transaction itself.

High-Tech and Energy

High technology—including quantum computing—life sciences, and green energy technology will continue to be key areas of interest for CFIUS, as will critical technologies.

Bolstered by the executive order's emphasis on these sectors, CFIUS will sustain its focus on transactions in these areas. It also will continue to prioritize protecting US  critical technologies, including items on the US Munitions List and Commerce Control List—certain emerging and foundational technologies—as well as nuclear-related items and select agents and toxins.

The committee cautioned in the annual report that foreign governments are "extremely likely to use a range of collection methods" to acquire such technologies.

Transaction Analysis

Assessing the security risks of covered transactions will require a more holistic analysis of the investment.  Transactions that appear to pose no threat in isolation, but that may represent a larger trend towards increasing control of a company or sector by foreign investors, will continue to attract CFIUS's attention.

Transactions should be considered in their broader industry context and diligence should be done on the third-party ties of foreign investors.

Most reviewed transactions will continue to involve foreign investors from allied countries. Transactions from China reviewed by CFIUS more than doubled in 2021, rising to 44 transactions.

But most reviewed transactions are expected to continue to involve foreign investors from allied countries, such as Canada, the UK, Germany, South Korea, Singapore, and Japan, which pose less of a national security risk and are more likely to be approved by CFIUS without mitigation.

Filing Review

A significant percentage of declarations will be cleared and the percentage of notices cleared with mitigation measures will remain low and steady. CFIUS has shown progress in streamlining its review process.

The percentage of declarations (short-form filings) cleared has increased while the percentage of notices (full-form filings) cleared with mitigation has remained steady. These trends are expected to continue into 2023.

National Security

Broadly, CFIUS will continue to play a key role in implementing the president's national security strategy. The  National Security Strategy issued in October prioritizes continued investments in technologies under CFIUS's ambit, such as semiconductors and advanced computing, clean energy technologies, cybersecurity, biotechnologies, and biomanufacturing, among others.

It also focuses on competition with China as America's "most consequential geopolitical challenge." To protect these investments from international exploitation, the strategy states that the administration is "modernizing and strengthening" investment screening mechanisms.

As CFIUS's increased activity shows no signs of abating, US business and foreign investors should keep the committee's requirements in mind, now more than ever, when considering cross-border transactions.

Originally Published by Bloomberg Law

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