This article examines some of the changes to the Committee on Foreign Investment in the United States (CFIUS) process that have occurred over the last few years.

It is not, however, a detailed explanation of CFIUS.

Instead, the goal of this article is to provide a few useful takeaways for readers in the enforcement and litigation arenas as to either the weaknesses or opportunities within cases involving a CFIUS analysis.

Of these, the main takeaway is that the National Defense Authorization Act of 2019 promulgated two statutes key to the CFIUS process.

The Export Control Reform Act (“ECRA”) directed the President of the United States to analyze and identify any emerging and foundational technologies and then to review the export controls on those technologies.

Pragmatically speaking, emerging technologies and foundational technologies are those that are deemed essential to US national security.

The statute that is key to recent CFIUS reforms, however, is Foreign Investment Risk Review Modernization Act (“FIRRMA”). FIRRMA broadened CFIUS jurisdiction from a focus solely on control transactions into a focus that now includes certain non-controlling investments.

The rationale behind FIRRMA is that, if the foreign direct investment review mechanism is solely focused upon control transactions, a huge loophole is created. That is, if a foreign investor wanted to invest something less than a controlling investment, the CFIUS regulations were essentially removed from the table. The foreign investor could still obtain access to intellectual property and other sensitive information by “flying beneath the radar” of CFIUS jurisdiction.

Thus, FIRRMA was designed in response to the concern over the bleed of intellectual property.

Meanwhile, the mandate to identify emerging technologies was rolled out in the Fall of 2018 with an advance notice of proposed rulemaking that laid out 14 different technical areas of concern.

An interagency task force chaired by the Bureau of Industry and Security within the Commerce Department took on the main task of identifying these so-called emerging technologies.

As a result of the BIS review, certain categories such as AI, quantum computing, robotics, hyper sonics, precision navigation and timing technology, and advanced surveillance technologies were identified.

These technologies are still under review and, in some cases, have been placed under temporary export controls pending what the US government hopes will be a multilateral path to address and safeguard such technology advances.

That interest in rolling these technologies out in a multilateral way, or in placing them within a multilateral regime such as the Wassenaar Arrangement, is the catch. If the US over-controls, it will hurt its own industries/companies and their ability to export.

The US wants to protect national security, but it doesn’t want to cripple its defense industrial base, either.

Some emerging technologies under consideration are so cutting edge that there are no export controls upon them (yet).

Thus, some things are going to get export controls that haven’t existed before.

What does this mean for a CFIUS analysis?

Emerging technologies and foundational technologies are going to be considered one of the five subcategories of the key CFIUS term “critical technology.”

Knowing whether a company has a critical technology is very important in a CFIUS assessment because that is one of the ways the company will know whether it has a mandatory filing requirement.

A key consideration for an enforcement audience is to note that much criticism has been levied at BIS for the slow pace at which emerging technology controls have been rolled out. (And that the process to designate foundational technologies has barely started.) However, the slow pace is understandable when one considers that BIS in particular is concerned about “over-regulating” with export controls and thereby undermining the substantial progress made during export control reforms in the previous decade.

Over the next few years, we will certainly see more technology designations rolled out, whether as emerging technology or foundational technology designations. And they are, certain technology-dependent industries will be affected. It will be important to understand that CFIUS ties to export controls are inextricably linked at this point, and that you have to understand both to do that CFIUS analysis.

Further, based on CFIUS determinations and actions, the review cycle that you initially factor into your time schedule for transaction closings may expand beyond your control. This will have a significant impact upon supply chains, particularly those that touch any of our global political rivals.

This will certainly create additional challenges in the CFIUS process.

Joe Whitley of Baker Donelson, Chair of the Mackrell International (MI) White Collar Practice Group moderated a discussion with Michael E. Clark, Alan Enslen, and Aldo M. Leiva in the MI webinar titled “Evolving Foreign Trade Risks” You can view the entire session on our YouTube Channel