Conversation with the Former Head of CFIUS: Insights on the U.S. Foreign Investment Regime

In the latest episode of our Global Foreign Investment Podcast Series, Jonathan Gafni, Washington-based head of Linklaters’ U.S. Foreign Investment practice and former member of the Committee on Foreign Investment (CFIUS), discussed recent developments in the U.S. foreign investment regime with Thomas Feddo, former Assistant Secretary of the Treasury for Investment Security, where he led CFIUS. Mr. Feddo currently serves as the Founder and Principal of The Rubicon Advisors, LLC, helping clients comply with national security regulations. 

We’ve summarised below the key points from their conversation:

Updating CFIUS: FIRRMA and its Effects

Mr. Feddo was charged with implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), the first update to the law governing CFIUS in 11 years. FIRRMA was a comprehensive overhaul of CFIUS, expanding the scope of CFIUS requirements by establishing mandatory filings for certain transactions and giving CFIUS jurisdiction over certain non-controlling investments and real estate transactions.

To assess the effectiveness of FIRRMA from a substantive perspective, more data is needed. Some of that data should be forthcoming in CFIUS’s upcoming Annual Report to Congress. In particular, we should see how many mandatory filings CFIUS is now reviewing, as well as the effectiveness of the Export Control Reform Act, FIRRMA’s sister legislation, in informing the scope of CFIUS reviews. It appears that CFIUS’s expanded jurisdiction over real estate transactions has not resulted in many more filings, although the national security proximity issue remains important to CFIUS.

Administratively, FIRRMA has been a real success. CFIUS is clearing 70% of cases filed through the declaration process that was created to facilitate more efficient processing of benign transactions. CFIUS now has an additional 15 days to review more complex transactions and has been granted the necessary financial and IT resources to handle its expanded responsibilities.  

Ultimately, Mr. Feddo does not think Congress will need to revisit FIRRMA in the near future.

“Reverse CFIUS”: Proposal for Mandatory Review of Outbound U.S. Investments 

Bipartisan support is growing for a proposal imposing mandatory review of outbound U.S. investments in adversarial countries, including the People’s Republic of China and Russia. The “reverse CFIUS” would involve an interagency federal committee reviewing certain overseas investments, information sharing, partnering, and offshoring capabilities in countries of concern, as deemed by the Department of State. The proposal is part of a larger bill being negotiated in a House-Senate conference committee.  

Mr. Feddo is not convinced of the need for a new committee and at a minimum thinks it is currently overbroad and vague on several key aspects, including the precise concern of Congress and the number of in-scope transactions. Mr. Feddo believes the proposal should not be one component of an omnibus bill, but rather standalone legislation that would have the benefit of careful scrutiny, on-the-record views of senior administration officials, a cost-benefit analysis, and a full legislative record. According to Mr. Feddo, a standalone bill would prompt policymakers to provide the private sector with more clarity on the bill’s language and therefore on the proposal’s potential effects. 

Interplay Between CFIUS and Sanctions

Transactions with sanctioned entities – a growing issue in light of recent expansions of U.S. and multilateral economic and trade sanctions – are flagged during CFIUS’s due diligence process. While CFIUS and the U.S. sanctions regimes are different tools addressing different national security concerns, CFIUS relies on input from the Treasury Department’s Office of Terrorism and Financial Intelligence which, along with the Office of Foreign Assets Control, reviews transactions for potential sanctions violations or related issues. While it is unlikely that CFIUS-reviewed transactions originate from sanctioned entities, dealings with sanctioned entities by other foreign investors are likely flagged during CFIUS’s due diligence process and could affect CFIUS’s assessment of the risk posed by a foreign investment.

For more on these topics and other insights from their conversation, head over to the podcast.