On September 15, 2022, President Biden issued an executive order (the “Order”) to provide further detail and expand on the factors that the Committee on Foreign Investment in the United States (“CFIUS”) uses to evaluate whether a foreign investment provides a risk to US national security. The Order1 is the first executive order to provide direction to CFIUS on the risks to be considered when evaluating transactions and comes against a backdrop of numerous actions to sharpen and focus the applications of several regulatory regimes to emerging technologies and present-day threats.
The Order builds on the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) and its implementation. The Order codifies recent expansions of CFIUS’s focus, providing additional clarity around the sectors and emerging industries that CFIUS considers to be sensitive.
Factors Being Analyzed
In particular, the Order directs CFIUS to consider the following factors when analyzing the effects of a proposed foreign investment:
- The resiliency of critical supply chains and the vulnerabilities to supply disruptions that may occur if a foreign investment shifts ownership, rights, or control of manufacturing capabilities, services, critical mineral resources, or technologies that are fundamental to national security, including microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, climate adaptation technologies, critical materials (e.g. lithium and rare earth elements), and elements of the agriculture industrial base that have implications for food security;
- Whether a transaction involves manufacturing capabilities, services, critical mineral resources, or technologies that are fundamental to US technological leadership, such as microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaptation technologies. The Order directs the Office of Science and Technology Policy to periodically supplement this list with additional sectors that are fundamental to US technological leadership;
- Aggregate industry investment trends, including the effects of incremental investments over time involving a particular sector or technology. The Order directs CFIUS to take into account the cumulative effects on national security of a series of investments in the same, similar, or related US businesses that implicate national security and the potential that these investments could result in harmful technology transfer;
- The cybersecurity risks posed by an investment and the effects of these risks on national security. In particular, the Order directs CFIUS to consider the potential of an investment to provide foreign persons with potential threat vectors to vital US capabilities or information databases and systems, including activities designed to undermine data protection or integrity; activities designed to interfere with US elections, critical infrastructure, the defense industrial base, or other cybersecurity national security priorities; or the sabotage of critical energy infrastructure, including smart grids; and
- The effects of a potential investment on the sensitive personal data of US persons, including whether the transaction involves US businesses that access or store this data, including health, digital identity, or other biological data and any data that could be identifiable or de‑anonymized or data on sub-populations that could be used to target individuals or groups of individuals.
Both investors and US businesses should carefully consider the Order’s implications and monitor its implementation by CFIUS.