CFIUS Reform Shakes Foreign Buyers in America

The proposal includes review of additional categories of transactions, such as nonpassive investments in critical technologies or infrastructure companies.

Legislators from both US political parties introduced a bill in the Senate in November that would reform the CFIUS review process for foreign acquisitions of American companies and assets.

The Committee on Foreign Investment in the United States (CFIUS) is a multidepartmental committee, under the leadership of the Treasury Department and its secretary, that reviews proposed transactions for their national security implications. The president makes the final decision based on a CFIUS review. Following an attempt by the Abu Dhabi government to purchase major US port facilities a decade ago, CFIUS was reformed to include, for example, review of sovereign foreign investment or a purchase that would involve foreign investment in critical infrastructure.

Yet in recent years, and in light of the rising Chinese investments in America’s high-tech sector, US lawmakers from both ends of the political spectrum called for expanding the power and scope of CFIUS. The proposal includes review of additional categories of transactions, such as nonpassive investments in critical technologies or infrastructure companies. It also includes new tests, such as whether technologies providing strategic national security advantage to the United States would be adversely affected. The bill would also authorize increased filing fees and allow CFIUS to share information with other agencies, both foreign and domestic.

Chinese foreign investments in the US reached $46 billion in 2016, according to the Rhodium Group, a consulting firm; and many US executives have expressed concern that China does not show reciprocity in its inbound investment policies, keeps many of its sectors closed and uses foreign investments in the US as a way to gain control of advanced technologies and intellectual property while shifting manufacturing overseas. President Trump’s new “economic nationalism” and anti-China rhetoric empowered these business sentiments, reflected by Trump’s recent veto of Canyon Bridge’s proposed acquisition of Lattice Semiconductor.

Once passed, it is still early to judge what would be the chilling effect on the US of a CFIUS reform on foreign investment, one of America’s strongest economic engines. Chinese investments in the US, however, are already down 67% in the first three quarters of 2017 compared to 2016, according to Daniel Rosen of the Rhodium Group—a decline driven by Chinese restrictions on outbound M&A and by the new US political landscape.