New Executive Order Directs CFIUS to Consider Additional National Security Factors in Evaluating Covered Transactions: Wiley


On September 15, 2022, President Biden signed an Executive Order (EO) that reaffirms the long-standing U.S. policy of open investment and elaborates and expands on the existing list of statutory factors that the Committee on Foreign Investment in the United States (CFIUS or the Committee) may consider when reviewing transactions to assess their potential impact on the national security of the United States.

The EO does not alter existing CFIUS processes or legal jurisdiction, but rather clarifies two existing national security factors and defines three additional factors for the Committee to consider when reviewing Covered Transactions. Although the CFIUS is not limited in the factors it may consider during its review and has historically considered many if not all of the factors described in the EO, the administration has stated that the EO will guide the Committee and “help companies and investors better identify national security risks arising from transactions early on to help them determine whether to file with CFIUS.

The OE provides additional guidance to CFIUS regarding two existing national security factors described in Section 721(f)(3) and (f)(5) of the CFIUS enabling statute:

1. Supply chain resilience. The EA directs the Committee to examine the effect of a covered transaction on the resilience and security of the supply chain, both inside and outside the defense industrial base, in manufacturing capabilities, services, critical mineral resources or technologies that are fundamental to national security, including microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy (such as such as battery storage and hydrogen), climate adaptation technologies, critical materials (such as lithium and rare earths), elements of the agricultural industrial base that have implications for food security, and any other sector identified in Section 3(b) or Section 4(a) of Executive Order 14017 of February 24, 2021 (America’s Supply Chains).

Relevant considerations include the degree of diversification through alternative providers, including suppliers located in Allied or Partner Economies; supply relationships with the US government and/or relevant industrial bases; and concentration of ownership or control by the foreign person in a given supply chain.

2. American technological leadership. The EO directs the Committee to consider whether a covered transaction involves manufacturing capabilities, services, critical mineral resources, or technologies that are fundamental to U.S. technology leadership, including microelectronics, artificial intelligence , biotechnology and biomanufacturing, quantum computing, advanced clean energy and climate adaptation technologies.

The EO also directs CFIUS to consider whether a covered transaction could reasonably result in advances and future applications of technology that could harm national security. To inform the Committee’s decision-making in this regard, the OE requires that the White House Office of Science and Technology Policy (OSTP) periodically publish a list of technology sectors deemed fundamental to U.S. technology leadership in related areas. to national security.

The EO also asks the Committee to consider the following additional factors that are not currently included in the CFIUS licensing law:

3. Overall industry investment trends. The OE notes that “[i]incremental investments over time in a sector or technology may cede, part by part, national development or control in that sector or technology” and that certain investments could therefore pose a limited threat when considered in isolation, but can be concerning when considered in context. context of previous transactions. Such transactions may facilitate the transfer of harmful technologies in key industries or harm national security through the cumulative effect of such investments. Accordingly, the EO directs CFIUS to review the risks arising from covered transactions in the context of multiple acquisitions or investments in a single industry or in manufacturing capabilities, services, critical mineral resources or technologies. related.

To inform the Committee’s decision making in this regard, CFIUS may request, as part of its review, that the Department of Commerce’s International Trade Administration provide the Committee with an analysis of the industry or industries in which the U.S. business operates, and the cumulative control of, or pattern of recent transactions by, a foreign person in that sector or industry.

4. Cybersecurity. The EO directs the Committee to consider whether a covered transaction may provide a foreign person with direct or indirect access to capabilities or databases and information systems on which threat actors could engage in malicious cyber activities affecting the interests of the United States or US persons. , including activities intended to undermine the protection or integrity of stored data or databases or systems hosting sensitive data; activity designed to interfere with U.S. elections, critical infrastructure, the defense industrial base, or other national security cyber security priorities; or the sabotage of critical energy infrastructure, including smart grids.

The EO also directs the Committee to review the foreign person’s and U.S. company’s cybersecurity posture, practices, capabilities, and access that could allow a foreign person to demonstrate cyber intrusion and other malicious activities enabled by cybersecurity in the United States.

5. Sensitive Data. The OE directs the Committee to consider whether a Covered Transaction involves a U.S. business that (i) has access to or stores sensitive data of U.S. individuals, including health, digital identity, or other biological data and any data that could be identifiable or -anonymized, that could be used to distinguish or trace the identity of an individual in a way that threatens national security, or (ii) has access to data on sub-populations at United States that could be used by a foreign person to target individuals or groups of individuals in the United States in a manner that threatens national security. The OE also instructs the Committee to consider whether a covered transaction involves the transfer of sensitive data from US persons to a foreign person.

With respect to each of the five factors described above, the EO directs CFIUS to consider not only the risk profile of the foreign person involved in the transaction, but also whether the foreign person has business ties, investment, non-economic, or other (relevant third-party connections) with other foreign persons, including foreign governments, that could cause the transaction to pose a threat to the national security of the United States.

In addition to developing and developing the national security factors that CFIUS may consider when reviewing transactions to assess their potential impact on the national security of the United States, the EO recognizes the importance of the continuous evaluation and improvement of the foreign investment review process. Accordingly, the EO directs CFIUS to regularly review its processes, practices, and regulations to ensure they respond to evolving national security threats and to implement necessary updates.

Wiley has an unparalleled ability to assist clients with investments that raise national security concerns. Our team has direct experience in government managing the CFIUS process and assisting clients with CFIUS exams. We have over two decades of experience handling matters involving national security, including CFIUS, Team Telecom, Defense Counterintelligence and Security Agency, US sanctions and export control laws, and the security of the supply chain, and have advised clients on transactions involving nearly every industry. area subject to CFIUS review.

Please contact any of the authors listed in this alert if you have any questions about the EO or CFIUS regulations governing foreign investment.

Jack Wroldsena business analysis coordinator at Wiley Rein LLP, contributed to this alert.

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