CFIUS at a Crossroads: Congress Considers Significant CFIUS Reform on Heels of CFIUS Annual Report and Blocked Chinese Semiconductor Investment
After a summer of discussion surrounding the U.S. government’s ability to control Chinese investment in U.S. companies, members of the House and Senate have introduced new legislation that seeks to improve the government’s national security review process. In recent weeks, a bipartisan group led by Sen. John Cornyn (R-TX) introduced the Foreign Investment Risk Review Modernization Act (“FIRRMA”), which would make significant changes to the Committee on Foreign Investment in the United States (“CFIUS” or “Committee”), an interagency committee responsible for assessing threats to U.S. national security posed by acquisitions of control in U.S. businesses by non-U.S. investors.
Among other changes, the bill would expand the scope of transactions subject to CFIUS review to include joint ventures and other transactions involving contributions of U.S. intellectual property, U.S. real estate transactions and other investments in U.S. technology or infrastructure companies. The new legislation seeks to shore up CFIUS jurisdiction by closing what some lawmakers view as a gap in existing authority. Under the current rules, investors have increasingly crafted transactions specifically to avoid the Committee’s reach. By granting CFIUS the authority to review a wider variety of deals resulting in the transfer of industrial and technological capabilities to foreign investors, FIRRMA would allow the Committee to capture a greater share of the transactions that affect U.S. national security.
Sen. Cornyn and other supporters of the bill have described it as a response to the problem of “potential adversaries, such as China . . . degrading our country’s military technology edge by acquiring, and otherwise investing in, U.S. companies.” The Senate is considering FIRRMA just weeks after CFIUS released its annual report to Congress detailing the Committee’s activities through 2015, the most recent year for which complete data on foreign investment in the United States is available. CFIUS also released high-level information regarding transactions reviewed in 2016. This information demonstrates a continuation of recent trends, such as the growing number of reviews, the expanding timeframes of many reviews and the significant number of reviewed transactions involving Chinese investors.
The proposed legislation focuses new attention on CFIUS, which advised President Donald Trump to block a major Chinese investment in a U.S. semiconductor manufacturer in mid-September. After CFIUS conducted an extended review, President Trump blocked the proposed US$1.3 billion acquisition of Lattice Semiconductor, a U.S. chip manufacturer, by Canyon Bridge Capital Partners LLC, a Chinese-backed private equity fund. The action represents only the fourth time that a U.S. President has formally blocked a transaction on CFIUS’ recommendation (though it also represents the second time during the last year that a transaction was blocked due to concerns raised by CFIUS).This report examines highlights from the CFIUS Annual Report, describes the Lattice Semiconductor transaction in detail and outlines the key changes that will result if and when FIRRMA becomes law.