May 31, 2018

National Security: CFIUS Reform Bill & China Crackdown March On

We’ve previously blogged about the bipartisan push for CFIUS reform legislation & the Trump Administration’s initiatives to impose greater restrictions on Chinese investments in U.S. companies.  This O’Melveny memo says that both of those efforts continue to move forward.

Earlier this week, the White House announced the President’s decision to implement “investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology” – with specific actions to be announced by the end of June. At almost the same time, CFIUS reform legislation – The Foreign Investment Risk Review Modernization Act, or FIRRMA – was unanimously approved by the Senate Banking Committee & the House Financial Services Committee.

The memo says that both FIRRMA & the new restrictions on Chinese investment are expected to be in place by August.  This excerpt says that their combined effect will represent a substantial change in US policy toward foreign investment:

Individually or in combination, the White House action and FIRRMA will mark a pronounced — and probably permanent — departure from the 225-year-old US policy of welcoming foreign investment except in narrow circumstances. By highlighting “industrially significant,” “emerging,” and “foundational” technologies as specially under CFIUS protection, the government will assume broad new regulatory authority that will set the stage over the long term for future investment controls based more explicitly on economic policy and public interest concerns.

More immediately, implementation of the new authorities will significantly impact the financing and exit strategies of early stage US companies, as well as M&A and development partnership transactions involving mature companies, that possess technologies fitting the new designations.

The memo goes on to review the key components of the White House statement & the versions of FIRRMA that emerged from the House & Senate committees.

John Jenkins