FOREIGN INVESTMENT SCREENING UNDER CFIUS

R&C: How would you describe recent efforts by the Committee on Foreign Investment in the United States (CFIUS) to scrutinise foreign investments into US assets? What prevailing attitudes and objectives has CFIUS demonstrated in its endeavours?

Gafni: Following the enactment of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) and the issuance of most of its implementing regulations in 2020, the scope of the Committee on Foreign Investment in the United States (CFIUS)’ jurisdiction and the complexity of the foreign investment process has significantly expanded. This gives CFIUS much more power to scrutinise inbound foreign investments. One of CFIUS’s consistent concerns has been investment from China, which expanded rapidly after the global financial crisis of 2008. Most of the seven transactions formally blocked by US presidents since 1990 following CFIUS reviews involved investors from China, though many other investments from China have also failed due to CFIUS objections. Less noticed is that CFIUS has also cleared many investments from China. CFIUS’s concerns with Chinese investments include transfers of sensitive technology and personal data, access to locations that could enable intelligence collection activities, and protection of key US supply chains, both quantitatively and qualitatively.

Cao: Increasingly, heightened CFIUS concerns have deterred certain China outbound investments in sensitive sectors. Many Chinese companies would take CFIUS risk assessment into consideration at the very early stage of deal planning. The results of such assessment may potentially affect the global transaction structure not only concerning US parts but also other countries. To this end, it is probably worth noting that following the CFIUS enforcement developments, some other jurisdictions in addition to the US have also sought to intensify their foreign investment rules, and Chinese investments have not been their favoured guests as shown in current practices. During the past couple of years, the overall environment for Chinese outbound investments has become highly complicated worldwide, resulting in delicate regulatory challenges for Chinese acquirers pursuing strategic foreign targets.

Jan-Mar 2022 Issue

Linklaters LLP