BIS ECRA Effort Hindering Work of CFIUS, Former Officials Say

A former U.S. official and a Senate staffer who worked closely with the Committee on Foreign Investment in the U.S. criticized the Bureau of Industry and Security’s handling of emerging and foundational technologies, saying the lengthy process is impeding the work of CFIUS. David Hanke, the former staffer and architect of the Foreign Investment Risk Review Modernization Act, called CFIUS’s reliance on BIS’s export control effort a “deeply flawed system,” while Nova Daly, the Treasury Department’s former deputy assistant secretary for investment security and policy, acknowledged the process is difficult but said BIS should move faster.

“I understand it’s a hard list. Emerging technologies shift and change,” Daly, senior public policy advisory for the law firm Wiley, said during an Oct. 2 webinar hosted by the Center for Strategic and International Studies. “But look, it's a requirement by law. And I think it will help CFIUS do its job in terms of being able to make sure we don't lose those critical technologies.”

CFIUS’s jurisdiction was recently expanded by FIRRMA to allow CFIUS to review transactions involving emerging and foundational technologies (see 2001140060). But because of some BIS delays in issuing those controls, CFIUS may not have a clear definition for what technologies to target (see 2002210026 and 2008240017).

Hanke said BIS’s commitment to seek multilateral controls at the Wassenaar Arrangement, although a responsible strategy, is prolonging the process and impacting which transactions CFIUS can review. Making CFIUS partly dependent on BIS “was a really bad idea, and I think it needs to be re-looked,” Hanke said during the webinar. “There needs to be more agility, there needs to be more speed, the ability for [Treasury] to see something coming, and whether or not it's covered by BIS and the Commerce Control List, to be able to designate that in a quick manner.”

Hanke, now a partner at Arent Fox, said the administration is “stuck with the current” system due to “some last-minute maneuvering by opponents of FIRRMA.” He also pointed to a report issued last week by the House-led Republican Task Force, which threatened to take away BIS’s jurisdiction over controlling emerging and foundational technologies (see 2010010020). “When it comes to designating these technologies, there needs to be a little bit more urgency on the part of our friends at Commerce,” Hanke said. “If Commerce doesn't find some motivation, they're going to be sidelined, perhaps in the next year.”

BIS has so far issued controls on 37 emerging technologies, the majority of which were agreed to at the Wassenaar Arrangement. A BIS spokesperson pointed to the agency’s Oct. 2 notice that announced six additional emerging technology controls (see 2010020042). But the agency has yet to issue a foundational technology control -- only a pre-rule (see 2008260045).

Thomas Feddo, Treasury’s assistant secretary for investment security and the agency’s CFIUS lead, cautioned Hanke, Daly and other critics from placing too much blame on BIS. “I'm not an export controls expert. I wish Commerce was here to defend themselves,” he said during the webinar. “But I think they might make some argument that they're making a great deal of progress.”

Feddo also said CFIUS does not necessarily need BIS to designate critical technologies for the committee to target transactions. “Any transaction where we find control by a foreign person over a U.S. business, the technology doesn't need to be on the Commerce Control List or otherwise controlled in order for us to address any potential national security risk,” Feddo said. “So I appreciate [Hanke’s] points and greatly respect [Hanke], but there are some nuances to this.”

Feddo added that Treasury is working on enforcement guidelines to help parties better comply with CFIUS mitigation agreements -- conditions set by CFIUS to allow a transaction to be completed. Feddo said the agency will seek comments on the guidelines and will be publishing them “at some point in the short term.” He said the agency plans to increase enforcement of the mitigation agreements and wants to ensure parties know how to comply. “Mitigation is an important part of our toolkit, and we’ll be using it in the future,” he said. “We'll just be doing more on the enforcement side to make sure that parties are complying.”

Feddo also said CFIUS has seen a “steady rate” of filings during the pandemic. “I think this year we will exceed prior years in terms of the number of declarations filed,” he said. “So we've been very busy.”