More Foreign Investors Opting to Submit CFIUS Filings, Lawyer Says

More foreign investors are opting to submit a filing with the Committee on Foreign Investment in the U.S. out of an abundance of caution, even when there is no mandatory filing requirement, George Grammas, a trade lawyer with Squire Patton, said. Grammas said “sophisticated” investors are especially likely to file before the investment is complete, particularly as CFIUS continues a trend of reviewing years-old investments.

“They want that filing done because they want to safe harbor for their investment,” Grammas said during a Jan. 28 webinar hosted by Content Enablers. “They don't want CFIUS to come back and look at the investment years later.”

CFIUS has emphasized reviews of older transactions -- some of which closed as many as 10 years ago -- to examine whether certain investors were able to slip under a less strict CFIUS regime to access sensitive export-controlled U.S. technologies (see 2101220034). The committee was granted authority last year to review investment transactions involving critical technologies, and has particularly focused on Chinese investments to prevent the country’s military from acquiring emerging and foundational U.S. technologies (see 2010270050).

CFIUS’s focus on older transactions can create problems for investors, who may have thought a past investment had no national security nexus, Grammas said. “But the geopolitical environment changes,” he said. “So what might not have looked like a national security concern in year one is a national security concern in year three. And now you have CFIUS asking questions.”

As a result, foreign investors are increasingly erring on the side of caution. “Investors are now just routinely engaging in the CFIUS risk assessment for every investment,” Grammas said. “Whether it's a U.S. investment or not a U.S. investment, if there's a U.S. touch point” the investor is “conducting risk assessments to decide if that is a transaction that should be filed with the declaration or notice to CFIUS.”

The Foreign Investment Risk Review Modernization Act last year expanded CFIUS’s jurisdiction to allow it to review transactions involving emerging and foundational technologies (see 2001140060), but some companies and investors are unclear about which technologies are captured because they have yet to be clearly defined by the Commerce Department (see 2010020055).

John Lash, founder of security strategy firm Darkhorse Global, said Commerce should stop trying to define emerging and foundational technologies, partly because the task is proving too difficult. “Technology is moving too fast,” Lash said during a Jan. 28 conference call hosted by The Capitol Forum. “Emerging technology companies are going to evolve faster than the [regulations] can evolve.”

Lash said the lengthy federal rulemaking process is an obstacle to defining the technologies. “In the six, 12, 18 months it takes to get things out there, take public comments on it, actually codify it and push it out, we're too late,” he said. “Stop trying to define them, and let's just address them in the ecosystem as they come up.”

Dan Anziska, a Troutman Pepper lawyer who focuses on CFIUS matters, said federal agencies are usually going to lag behind industry. “The problem with trying to play whack-a-mole and be a step ahead is you're the government, and they’re private industry, and they're the industry experts, and they innovate very rapidly,” he said during the event. “So you're always going to be a step behind." Commerce’s Bureau of Industry and Security didn’t comment.