CFIUS Reform Under FIRRMA

CFIUS Reform Under FIRRMA

Updated February 21, 2020
CFIUS Reform Under FIRRMA
Overview
investments in U.S. firms, but increases the allowable time
Some Members of Congress, the Trump Administration,
for reviews and investigations: (1) a 30-day declaration
and some U.S. businesses have raised concerns over the
filing; (2) a 45-day national security review (from 30 days),
risks to continued U.S. technological leadership to support
including an expanded time limit for analysis by the
national defense and economic security due to growing
Director of National Intelligence (from 20 to 30 days); (3) a
foreign direct investment (FDI), primarily by Chinese
45-day national security investigation, with an option for a
firms, in U.S. high-tech companies. On August 13, 2018,
15-day extension for “extraordinary circumstances”; and a
President Trump signed into law new rules governing
15-day presidential determination (unchanged). To date,
foreign investment national security reviews. Known as the
prior to FIRRMA, Presidents used CFIUS to block five
Foreign Investment Risk Review Modernization Act
foreign investment transactions.
(FIRRMA) of 2018 (Title XVII, P.L. 115-232), the
legislation amends the current process for the Committee on
Transactions Blocked by President
Foreign Investment in the United States (CFIUS) (under
P.L. 110-49) to review, on behalf of the President, the
1990: Acquisition of Mamco Manufacturing by China
national security implications of FDI in the United States.
National Aero-Technology Import and Export Corporation.
CFIUS is an interagency body comprised of nine Cabinet
2012: Acquisition of Oregon wind farm project by Ralls
members, two ex officio members, and others as appointed
Corporation, owned by Chinese company Sany Group.
that assists the President in overseeing the national security
2016: Acquisition of Aixtron, a German-based
risks of FDI in the U.S. economy. Since its inception in
semiconductor firm with U.S. assets, by Chinese firm Fujian
1975, CFIUS has confronted shifting concepts of national
Grand Chip Investment Fund.
security and a changing global economic order that is
marked by the rise of such emerging economies as China
2017: Acquisition of Lattice Semiconductor Corp. by
and state-led firms that are playing a more active role in the
Canyon Bridge Capital Partners, a Chinese investment fund.
global economy. The FIRRMA-amended CFIUS process
maintains the President’s authority to block or suspend
2018: Acquisition of semiconductor chip maker Qualcomm
proposed or pending foreign “mergers, acquisitions, or
by Singapore-based Broadcom.
takeovers” of U.S. entities, including through joint
ventures, that threaten to impair the national security.
FIRRMA broadens CFIUS’s role by explicitly including for
To exercise his authority under CFIUS, the President must
review certain real estate transactions in close proximity to
(1) conclude that other U.S. laws are inadequate or
a military installation or U.S. government facility or
inappropriate to protect national security; and (2) have
property of national security sensitivities; any
“credible evidence” that the foreign interest exercising
noncontrolling investment in certain U.S. businesses
control might take action that threatens to impair U.S.
involved in critical technology, critical infrastructure, or
national security. In addition, final determinations by the
collecting sensitive personal data on U.S. citizens; any
President are not subject to judicial review.
change in foreign investor rights; transactions in which a
foreign government has a direct or indirect substantial
The Foreign Investment Risk Review
interest; and any transaction or arrangement designed to
Modernization Act of 2018
evade CFIUS. Treasury issued final regulations on January
FIRRMA aims to “strengthen and modernize” the current
13, 2020, which became effective on February 13.
CFIUS process for reviewing potential effects of foreign
investment transactions on U.S. national security, last
Without mentioning specific countries, FIRRMA allows
updated in 2007. Certain provisions took effect
CFIUS potentially to discriminate among foreign investors
immediately, while others, including some related to the
by country of origin and transactions tied to certain
expanded scope of CFIUS, were subject to further
countries in reviewing certain investment transactions,
regulations. Some experts have suggested that the broad
pending specific criteria defined by regulations.
changes under FIRRMA could potentially lead CFIUS to
take a more assertive role that emphasizes both U.S.
FIRRMA also shifts the filing requirement for foreign firms
economic and national security interests, particularly
from voluntary to mandatory in certain cases and provides a
relative to the development of emerging or leading-edge
two-track method for reviewing transactions. Most firms
technology.
can file a short-form declaration to CFIUS and receive an
expedited review process, while transactions involving a
FIRRMA maintains core components of the current CFIUS
foreign person in which a foreign government has, directly
three-step process for evaluating proposed or pending
or indirectly, a substantial interest (25% between a foreign
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CFIUS Reform Under FIRRMA
person and U.S. business and 49% or greater between a
“emerging and foundational technologies”—such
foreign government and foreign person) are subject to a
items would also fall under CFIUS review of
mandatory declaration and receive greater scrutiny.
critical technologies—and establish controls by the
Mandatory declarations may also be subject to other
Department of Commerce on the export or transfer
criteria, as defined by regulations.
of such technologies.
FIRRMA provides a “sense of Congress” concerning six
FIRRMA also requires CFIUS to meet various deadlines in
additional factors that CFIUS and the President may
programs and reporting, and develop new regulations to
consider to determine if a proposed transaction threatens to
implement key aspects of CFIUS’s expanded jurisdiction.
impair U.S. national security. These include:
For more detail, see CRS In Focus IF11135, Deadlines,
Programs, and Regulations Mandated by FIRRMA, and
1. Transactions that involve a country of “special
CRS In Focus IF11334, CFIUS: New Foreign Investment
concern” that has a strategic goal of acquiring critical
Review Regulations.
technology or critical infrastructure that would affect
U.S. leadership in areas of national security;
Response by Other Countries
2. The potential effects of the cumulative control of, or
FIRRMA also recommends that CFIUS establish a process
pattern of recent transactions involving, any one type
for exchanging information with U.S. allies and partners to
of critical infrastructure, energy asset, critical
facilitate coordinated action with respect to trends in FDI
material, or critical technology by a foreign
and technology that pose national security risks. The United
government or person;
States is not alone in adopting new regulations governing
3. Whether any foreign person engaged in a transaction
the review of foreign investment for national security
has a history of complying with U.S. laws and
implications. Recent actions by other countries include
regulations;

4. Control of U.S. industries and commercial activity
In February 2019, the European Commission
that affect U.S. capability and capacity to meet the
approved a block-wide mechanism for screening
requirements of national security, including the
FDI to build on national review mechanisms
availability of human resources, products,
already in place in 12 member states.
technology, materials, and other supplies and
 In May 2018, Canada blocked the Chinese
services;
acquisition of a Canadian construction company.
5. Transactions involving personally identifiable
 In July 2018, the British government issued a draft
information, genetic information, or other sensitive
paper proposing additional authority to review
data of U.S. citizens that, if exploited, could threaten
acquisitions and to “call in” previously concluded
national security; and
investments for national security reviews.
6. A transaction is likely to exacerbate or create new
 In July 2018, Germany blocked the Chinese
cybersecurity vulnerabilities or result in a foreign
government gaining a significant new capability to
takeover of a German machine tool manufacturer
engage in malicious cyber-enabled activities.
and expanded its authority to block acquisitions of
firms involved in “critical infrastructure.”
Other Changes
 In July 2018, China proposed new draft
FIRRMA also mandates other changes that would provide
regulations to expand the foreign investments
more resources for CFIUS, add new reporting requirements,
covered under its national security review process.
and links part of CFIUS’s purview to certain reforms of
export controls.
Issues for Congress

The FIRRMA-amended CFIUS process for reviewing
Resources. Provides for more staff and funding
for CFIUS through authorization of a $20 million
certain foreign investment transactions may raise a number
annual appropriation and a filing fee for firms of
of questions for Congress, including:
1% of the value of the transaction, not to exceed
 How will Congress evaluate the success of the
$300,000.
amended review process in protecting U.S.

national security?
Risk-Based Analysis. Formalizes CFIUS’s use of
 Does the expanded CFIUS review process balance
risk-based analysis by assessing the threat,
the traditionally open U.S. investment climate with
vulnerabilities, and consequences to national
the requirement to protect U.S. national security?
security of transactions.
 How does CFIUS compare to other countries’
 Reporting. Modifies CFIUS’s annual confidential
review processes, and to what extent will
report to specified Members of Congress and
FIRRMA facilitate greater information sharing to
nonconfidential reports to the public to provide for
advance national security?
more information on investment transactions,
For more information, see CRS In Focus IF10177, The
including specifically those involving China.
Committee on Foreign Investment in the United States.
 Export Controls. Subtitle B of Title XVII
mandates separate reforms related to dual-use
James K. Jackson, Specialist in International Trade and
export controls, with requirements to establish an
Finance
interagency process to identify so-called
https://crsreports.congress.gov

CFIUS Reform Under FIRRMA

IF10952
Cathleen D. Cimino-Isaacs, Analyst in International Trade
and Finance

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