The global economy and geopolitical trends have elevated the importance of trade compliance status and responsibilities.  We have witnessed a dramatic increase in the complexity and risks surrounding economic sanctions and export controls. Trade compliance professionals have to navigate a rapidly changing set of regulations.  Backing these rules and regulations is the Department of Justice looking for high-profile and significant cases to prosecute.

On top of these risks and challenges, trade compliance responsibilities are taking on a new and expanding challenge — compliance with the Committee on Foreign Investment in the United States (“CFIUS”) requirements for review of proposed transactions.

CFIUS is an interagency committee, consisting of nine Cabinet agencies, two ex officio members, and others appointed by the President.  CIFUS is responsible for reviewing certain transactions involving foreign investment in the United States to determine any potential effects on U.S. national security.  Since its inception in 1975, CFIUS has confronted shifting concepts of national security in response to global economic and geopolitical changes.

Under CFIUS, the President has authority to suspend or prohibit any “merger, acquisition or takeover” by a foreign person that “threatens to impair the national security of the United States.”  To block a proposed acquisition, the President must have “credible evidence” that the foreign interest exercising control might take action that threatens U.S. national security.  Final determinations made by the President under CFIUS are not subject to judicial review.

In a recent Executive Order dated September 15, 2022, President Biden provided direction on how the United States conducts Foreign Direct Investment (“FDI”) reviews aimed at focusing on sensitive technologies, personal data and other national security issues. The Executive Order put businesses on notice that CFIUS will be increasing the number and type of transactions subject to reviews.

In particular, CFIUS reviews are likely to increase in investments related to critical supply chains, sensitive technologies, industry control, cybersecurity and personal data, especially in China and Russia. While the Executive Order did not significantly alter the specific factors to be examined, CFIUS is likely to interpret the Executive Order as encouraging CFIUS to increase the number and scope of its reviews.  It also could spur CFIUS to reach back to past transactions that may already been closed. Also, many companies may decide to submit a voluntary filing to CFIUS in situations the companies may not have otherwise filed.

The Executive Order directs CFIUS to consider five factors when reviewing transactions, including the investment’s potential effect on U.S. critical supply chains, including deals that transfer control to a foreign person in certain critical industries, ceertain minereal resources or technologies that are fundamental to national security, outside and inside hte U.S. defense industrial base.

Additionally, CFIUS is directed to consider whether a transaction affects U.S. technological leadership, including in the microelectronics, artificial intelligence, biotechnology, quantum technology and advanced clean energy sectors.

Further, CFIUS is directed to focus on certain “industry investment trends,” including a foreign investor pursuing multiple deals within a sensitive sector. Other areas of cous should include cybersecurity risks and U.S. personal sensitive data.  Specifically, CFIUS should monitor investments by foreign people with the intent to conduct cyber intrusions or other malicious cyber-enabled activity and investments that involve a U.S. business with access to sensitive U.S. data.