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Congress Advances Foreign Investment Regulatory Reform Effort

Efforts to reform the Committee on Foreign Investment in the United States (CFIUS), the Treasury-chaired inter-agency committee that conducts national security reviews of mergers, acquisitions or takeovers that could result in foreign control of a U.S. business, have gained steam in recent weeks. Most notably, the House Financial Services Committee and the Senate Banking Committee on 22 May marked-up different versions of the Foreign Investment Risk Review Modernization Act (commonly known as FIRRMA), a piece of legislation that has received support by the White House and a number of U.S. companies but has caused some concern in the U.S. business community.

According to a Banking Committee press release, the Senate version of FIRRMA seeks to leverage the natural jurisdiction and authorities of the CFIUS process with those of the U.S. and multi-lateral export control regimes to review certain inbound and outbound transactions that may involve acquisitions of emerging critical or foundational technologies to the detriment of U.S. national security. Among other things, the legislation would expand CFIUS authorities in four significant ways in an effort to capture certain investors and buyers while making “fundamental changes” to the review process.

In terms of joint ventures and outbound transactions, the legislation would establish an inter-agency process led by the president to identify new, emerging critical technologies and know-how not yet subject to export control. Another inter-agency process led by the DOC’s Bureau of Industry and Security and informed by the intelligence community would classify and determine how, if at all, critical technology or know-how can be transferred by whatever means, including by joint venture or any other transaction. According to press reports, amendments made to the legislation at the committee level would clarify certain criteria related to CFIUS reviews and require CFIUS to issue additional reports to Congress. Another amendment endorsed by the Banking Committee would prevent President Trump from modifying the current U.S. sanctions on mainland Chinese telecom company ZTE.

The House version of the legislation differs somewhat from the Senate version. According to Rep. Robert Pittenger (Republican-North Carolina), who is one of the main proponents of the bill in the lower chamber, the legislation would (i) expand CFIUS jurisdiction to include joint ventures, minority position investments and real estate transactions near military bases and other sensitive national security facilities; (ii) update the CFIUS definition of “critical technologies” to include emerging technologies that could be essential for maintaining the U.S. technological advantage over countries that pose threats; (iii) add new national security factors to the review process; and (iv) strengthen the U.S. government’s ability to protect American “critical infrastructure” from foreign government disruption.

FIRRMA supporters are hoping to secure congressional approval of the legislation in the coming weeks. The Senate version of the legislation has been attached to a defence authorisation bill for fiscal year 2019 that could be approved in June, while the timeline for a potential vote in the House is uncertain at this time.

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