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Congress Seeks To Curb Chinese Investment With CFIUS

A group of bipartisan lawmakers introduced legislation on Wednesday that aims to “modernize and strengthen” the Committee on Foreign Investment in the United States’ ability to review foreign direct investment in the country, as concerns about Chinese investment in areas like critical U.S. technologies continue to grow.

Sens. John Cornyn, R-Texas, Dianne Feinstein, D-Calif., and Richard Burr, R-N.C., chairman of the Senate Select Committee on Intelligence, introduced the Foreign Investment Risk Review Modernization Act in the Senate, while a companion bill of the same name was introduced in the U.S. House of Representatives by Rep. Robert Pittenger, R-Texas.

The Foreign Investment Risk Review Modernization Act aims to broaden CFIUS’ reach to explicitly include certain joint ventures, minority investments and acquisitions of real estate located near military bases or other sensitive facilities, according to a statement.

It also seeks to update the interagency committee’s definition of critical technologies to include emerging technologies; to allow for foreign investors to submit “light filings” for certain types of transactions; and to authorize CFIUS to exempt certain covered transactions if all foreign investors involved are from a country that “meets certain criteria,” like being a U.S. treaty ally, according to a statement.

The changes are needed to address gaps in the review process that foreign investors are exploiting in a bid to target sensitive technologies, Cornyn said in a statement announcing the legislation.

“By exploiting gaps in the existing CFIUS review process, potential adversaries, such as China, have been effectively degrading our country’s military technological edge by acquiring, and otherwise investing in, U.S. companies,” he said. “This undermines our national security and highlights the imperative of modernizing the CFIUS review process to address 21st century threats. This bill takes a measured approach by providing long overdue reforms to better protect our country, while also working to ensure that beneficial foreign investment is not chilled.”

Pittenger also highlighted the threat coming out of China as a factor driving the need for CFIUS to be updated.

“China is buying American companies at a breathtaking pace. While some are legitimate business investments, many others are part of a backdoor effort to compromise U.S. national security,” he said in a statement. “For example, China recently attempted to purchase a U.S. missile defense supplier using a shell company to evade detection. The global economy presents new security risks, and so our bipartisan legislation provides Washington the necessary tools to better track and evaluate Chinese investment.”

It’s unclear exactly how the bills will look if they ultimately become law, but they will further the discussion of what powers CFIUS should have in the current investment environment and will give the interagency committee a clearer mandate, explained Mario Mancuso, leader of Kirkland & Ellis LLP’s international trade and national security practice.

“These bills have high-profile, respected, bipartisan sponsors,” he said. “While the bills will likely not become law in their current form, they will powerfully frame the discussion around CFIUS reform. In any case, CFIUS will take note of these bills as a summary of what Congress cares about as it administers its existing authorities.”

On the Senate bill, Sens. Marco Rubio, R-Fla.; Amy Klobuchar, D-Minn.; John Barrasso, R-Wyo.; Gary Peters, D-Mich.; James Lankford, R-Okla.; Joe Manchin, D-W.Va; and Tim Scott, R-S.C. are the original co-sponsors of the bill.

Pittenger introduced the companion legislation in the House alongside Reps. Devin Nunes, R-Calif.; Chris Smith, R-N.J.; Denny Heck, D-Wash.; Dave Loebsack, D-Iowa; Sam Johnson, R-Texas; and John Culberson, R-Texas.

The newly introduced legislation comes after Cornyn in June said he was putting the “final touches” on a bill that would grow CFIUS’ reach to noncontrol and other uncovered transactions in a bid to stem Chinese investment in critical U.S. technologies.

It also comes after several government officials — including Secretary of Defense James Mattis, Director of National Intelligence Dan Coats, National Security Agency Director and Commander of U.S. Cyber Command Michael Rogers, and Attorney General Jeff Sessions — have called for a review of CFIUS in order to bring it up to date.

The U.S. isn’t the only country looking to tighten its process for reviewing foreign direct investment.

The European Commission in September unveiled a proposed framework aimed at harmonizing the review process for foreign investment in the European Union and providing greater transparency and communication between member states about investment activities.

The U.K., which is in the process of separating from the EU, is also working on its own set of proposals to tighten rules concerning outside investment in the country.