U.S. Congress Passes CFIUS Reform Measure

As part of the John S. McCain National Defense Authorization Act for FY 2019 (H.R. 5515), Congress has passed language to make major reforms to the Committee on Foreign Investment in the United States (CFIUS).

CFIUS is the federal inter-agency body responsible for reviewing and determining the effect on national security of transactions involving a foreign entity taking a majority stake in a U.S. company. If CFIUS determines that the transaction poses a potential threat to the national security of the US, the Committee can impose conditions on the transaction or refer the request to the President for a final decision.

The profile of CFIUS has been raised lately with the President intervening since taking office in two significant cases involving US semiconductor companies. In 2017, the President denied the request of Canyon Bridge Capital Partners, a Beijing-based private equity firm, from taking control of Lattice Semiconductor Corporation of Portland, Oregon. This year, the President blocked Broadcom from acquiring Qualcomm. Broadcom was based in Singapore when the President made his announcement, but the company has since finalized incorporation in the US.

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How This Impacts Mobility

While the reforms are likely to have a minimal immediate direct impact on the workforce mobility industry, there are future implications regarding the ability of foreign entities to acquire majority stakes in U.S. companies and real estate. This in turn could lead to changes in certain business sectors in the movement of employees of foreign entities to the U.S. and vice versa. There is also the larger issue of the potential impact of reduced foreign investment in the U.S.

The most significant reform is that requests for CFIUS review by foreign entities will no longer be voluntary in cases where the entity is looking to control a company in which a national security issue could be raised. Until now, requests for review were voluntary however CFIUS has had the right to review the transaction if the Committee thought there was a national security issue. The new reforms also include those transactions in which a minority investment is being made instead of a controlling interest in a company.

The reform language would also provide CFIUS with greater authority regarding the investment of foreign entities in real estate in the U.S. in which the location or influence over tenants of the property could pose national security concerns. Examples of such locations would be properties near the key federal buildings in Washington, DC or military installations.

Issues could also be raised if the property is leased to a key U.S. agency or state or local first responder. The new language would also place emphasis on investments in companies collecting personally identifiable information of U.S. citizens posing a potential threat.

While some of the reforms will take effect almost immediately, the Secretary of the Treasury as the Chair of CFIUS will be promulgating a rule to implement of majority of the changes.  In addition to the Secretary of the Treasury, members of CFIUS include the Secretaries of Commerce, Defense, Energy Homeland Security, Justice and State as well as the head of the Office of Science & Technology Policy and the U.S. Trade Representative.

Representatives of the Office of Management and Budget (OMB), Council of Economic Advisors, National Security Council, National Economic Council, Homeland Security Council and the Director of National Intelligence and Secretary of Labor are also observation members of CFIUS.

President Trump is expected in the next few days to sign into law H.R. 5515 with the language to reform CFIUS.