On September 15, 2022, the President issued an Executive Order (“EO”) directing the Committee on Foreign Investment in the United States (“CFIUS”) to prioritize certain factors in its assessment of risks associated with a foreign investment. This EO does not modify the CFIUS process or impact its jurisdiction, but it essentially codifies the Biden administration’s approach to CFIUS reviews. In doing so, the EO provides insight to businesses into how CFIUS will analyze transactions before it.
Of particular relevance for investors with diversified portfolios and operations, the EO refers repeatedly to consideration of whether a foreign investor has “relevant third-party ties that might cause the transaction to pose such a threat.” It is unclear whether the concern the Administration is focused on is the potential for investments in other countries to create points of leverage of hostile governments, or that investments strengthening adversarial countries may undermine US national security.
The factors described in the EO are as follows:
- The effect on certain critical domestic supply chains
(a) The Committee will weigh both: (1) the degree of involvement in the supply chain by the foreign person and (2) the resilience of the supply chain, e.g. the existence of direct competitors in the US or allied countries.
(b) Critical supply chains would include those related to artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy (such as battery storage and hydrogen), climate adaptation technologies, critical materials (such as lithium and rare earth elements), and elements of the agriculture industrial base that have implications for food security, among others.
- The impact on US technological leadership
(a) CFIUS will consider (1) whether removing the capabilities from the US would be harmful to US national security and (2) whether a foreign investor might in the future create advancements and applications of the technology that could undermine national security.
(b) Technologies of particular interest include microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaptation technologies.
- Aggregate industry investment trends
(a) CFIUS will consider the cumulative impact of foreign investments in the relevant type of technology, infrastructure, or material, outside the scope of the particular transaction that is the subject of the filing.
- Cybersecurity risks
(a) CFIUS will address in particular the concern that a foreign person might interfere with (1) an election; (2) the operation of critical infrastructure; (3) the defense industrial base; (4) the confidentiality, integrity, or availability of United States communications; and (5) the protection or integrity of sensitive data in databases.
- Access to sensitive personal data
(a) CFIUS will weigh (1) whether the US business has access to sensitive data including health, digital identity, or other biological data, and any data that could be identifiable or de anonymized and (2) whether the US business would transfer data to the investor.
While these factors expand on the list of illustrative factors that the underlying statute sets out for CFIUS to consider when assessing national security risks, CFIUS has in our experience been considering these factors in specific reviews. That is, although this EO is framed as an instruction from the President to CFIUS, it is essentially descriptive of the Committee’s current approach. The EO accordingly provides a useful map for private parties in understanding how CFIUS will likely review their transactions.