CFIUS Under the Biden Administration

Carly Sadicario

 

In August 2020, due to the threat of a TikTok ban, the Committee on Foreign Investment in the United States (“CFIUS”) was thrown into the public spotlight. President Trump ordered a divestiture of the merger between ByteDance, a Chinese company that owns TikTok, and musical.ly, a United States company, using the CFIUS as the catalyst.[1] Now that the executive office has switched hands, there is speculation as to how the new administration will utilize CFIUS, if it will continue to be yielded as weapon or if it will revert to its old ways.

The main function of CFIUS is to review acquisitions of United States companies by foreign investors to ensure that there are no national security implications in a potential investment.[2] CFIUS can determine whether (1) the investment has no national security issues and can proceed as normal, (2) the investment has some issues but those issues can be fixed with a mitigation agreement, or (3) the investment has too high of a national security risk and will recommend to the President that the transaction be unwound or stopped from proceeding.[3]

CFIUS has had this power to review deals since 1975,[4] however, during the Trump administration, new rules were released to give the United States government even more power than before to review these transactions.[5] The Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) broadens the scope of transactions that CFIUS has the power to review.[6] FIRRMA requires a mandatory filing for some types of transactions (whereas before, the requirement was strictly voluntary),[7] and lengthens the review process and gives additional funding to the committee.[8] Before CFIUS, the committee only had the power to review controlling transactions. Now, due to FIRRMA, the committee has the power to review minority, non-controlling transactions in Critical Technology, Critical Infrastructure, and Data-Sensitive businesses.[9]

Presidential transitions have historically brought some uncertainty for those engaged in mergers and acquisitions in the United States.[10] It will likely be the case that the two trends to will emerge in regards to CFIUS under Biden administrations. First, the committee will likely go back to being discrete. Second, the committee will likely continue its scrutiny of Chinese investment in United States companies.

Throughout his presidency, President Trump used CFIUS as a “tool in his ‘America First’ policy and China trade war.”[11] He was significantly more vocal about the transactions that were being scrutinized by CFIUS, which diverged greatly from the traditionally tight-lipped precedent set by the committee.[12] President Trump was very vocal about CFIUS involvement in the ByteDance and musical.ly merger, which was also unprecedented.[13] The President added even more fuel to the fire when he suggested that if the divestiture should go through, that the United States should get a percentage of the sale price and publicly discussed potential buyer and their merits, even though divestment negotiations are granted confidential protection.[14]

Some experts predict that, in a sharp difference from the Trump administration, the confidential treatment of CFIUS filings will return to being the norm under the Biden adminisration.[15] CFIUS’s confidentiality is protected by federal law.[16] Since its inception, CFIUS has historically maintained the confidential nature of its transactions, even to go as far as declining to acknowledge that a review was underway.[17] The Biden administration is set to follow this long-standing practice once again so that investors can have confidence that the committee will be confidential.[18]

Under the Trump administration, CFIUS has repeatedly scrutinized Chinese investment in U.S. firms. Experts predict that this kind of outspoken behavior will continue under the Biden administration.[19] If President Biden decides to follow in President Obama’s footsteps, then the administration will likely “keep a keen eye on deals featuring Chinese investors buying into U.S. companies, while also understanding that there can be advantages to allowing such transactions, assuming there are no serious national security issues.” [20] This prediction seems evident due to President Biden’s words and the words of his National Security Advisor.

President Biden stated last year that the United States needs to “get tough with China.”[21] President Biden’s National Security Advisor wrote last year that the United States needs to protect itself against “China’s intellectual property theft,” which would require “enhanced restrictions” on “technology investment and trade in both directions.” However, he caveated it with “these efforts should be pursued selectively rather than wholesale, imposing curbs on technologies that are critical to national security… and allowing regular … investment to continue for those that are not.”[22] Investors can have more confidence in the substance of these reviews and will see more predictability.[23]

In any instance, CFIUS will not likely be returning to its pre-2016 ways. As a result of FIRRMA, the committee has been greatly expanded and it will continue to scrutinize more transactions to ensure the national security of the United States is sufficiently protected.

 

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[1] Chris Griner et al., CFIUS Won’t Be ‘Weaponized’ Under the Biden Administration, Bloomberg Law (Dec. 24, 2020, 4:01 AM), https://news.bloomberglaw.com/banking-law/cfius-wont-be-weaponized-under-the-biden-administration.

[2] James K. Jackson, Cong. Rsch. Serv., RL33388, The Committee on Foreign Investment in the United States (CFIUS) 1 (2020).

[3] James K. Jackson and Cathleen D. Cimino-Isaacs, Cong. Rsch. Serv. IF10952, CFIUS Reform Under FIRRMA (2020).

[4] Exec. Order No. 11,858, 3 C.F.R. §990 (1971-1975).

[5] Anat Alon-Beck, TikTok, Your Time is Up, Forbes (Dec. 8, 2020, 10:57 AM), https://www.forbes.com/sites/anatalonbeck/2020/12/08/tiktok-your-time-is-up/?sh=7bf2f0dc7179.

[6] Foreign Investment Risk Review Modernization Act § 1703 (definition of covered transaction expanded).

[7] Foreign Investment Risk Review Modernization Act § 1706.

[8] Foreign Investment Risk Review Modernization Act §1723.

[9]John M. Beahn and Robert S. Larussa, Final CFIUS Regulations Implement Significant Changes by Broadening Jurisdiction and Updating Scope of Reviews, Shearman & Sterling (Jan. 14, 2020), https://www.shearman.com/perspectives/2020/01/final-cfius-regulations-implement-changes-by-broadening-jurisdiction-and-updating-scope-of-reviews.

[10] CFIUS in the Biden Administration, Covington (Jan. 29, 2021), https://www.cov.com/en/news-and-insights/insights/2021/01/cfius-in-the-biden-administration.

[11] Danielle Myles, The Biden Fix: CFIUS, FDI Intelligence (Nov. 23, 2020), https://www.fdiintelligence.com/article/79111.

[12] Benjamin Horney, CFIUS Under Biden Will Quietly Keep Nose to the Grindstone, Law360 (Nov. 8, 2020, 5:13 PM), https://www.law360.com/articles/1326541/cfius-under-biden-will-quietly-keep-nose-to-the-grindstone.

[13] Griner et al., supra note 1.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Id.

[20] Horney, supra note 12.

[21] Joseph R. Biden, Jr., Why America Must Lead Again: Rescuing U.S. Foreign Policy After Trump, Foreign Affairs (March/April 2020), https://www.foreignaffairs.com/articles/united-states/2020-01-23/why-america-must-lead-again.

[22] Kurt M. Campbell and Jake Sullivan, Competition Without Catastrophe: How America Can Both Challenge and Coexist with China, Foreign Affairs (September/October 2019), https://www.foreignaffairs.com/articles/china/competition-with-china-without-catastrophe.

[23] CFIUS in the Biden Administration, supra note 10.