Trump, Congress Rushing to Pass Foreign Investment Buffer

Stay current on the latest developments from agencies including the CFPB, Federal Reserve, FDIC, and OCC to advise clients on real-life regulatory situations.

By Alexei Alexis

The Trump administration is partnering with Congress on a fast-moving effort to put new U.S. restrictions on foreign investments in the face of pleas from industry participants to tread carefully.

The legislative push is moving “like a freight train,” said Rod Hunter, a partner who advises corporate clients in national security reviews at Baker & McKenzie LLP in Washington.

Senior administration officials provided details on the administration’s perspective at a Jan. 25 hearing in front of the Senate Banking Committee.

At issue is the system for vetting foreign investments where national security concerns are raised. Top lawmakers say existing rules don’t go far enough and want to expand the reviews. They’re particularly worried about Chinese efforts to acquire U.S. technologies.

“New risks require new tools,” said Heath Tarbert, assistant secretary for international markets and investment policy at the Treasury Department. “Military capabilities are rapidly building on top of commercial innovations. And what’s more, the digital, data-driven economy has created vulnerabilities we’ve never before seen.”

“There’s a lot of momentum around this,” Hunter told Bloomberg Law. “But I think there may be some evolution yet to be had.”

Both the Senate Banking Committee and the House Financial Services Committee have held multiple hearings on the matter in preparation for action on their respective bills ( S. 2098, H.R. 4311). The companion bills have the support of Treasury Secretary Steven Mnuchin, Attorney General Jeff Sessions, and Defense Secretary Jim Mattis.

The White House issued a statement in advance of the Senate hearing expressing support for the measure. The proposal would expand the factors under review in foreign transactions with the U.S. “to more effectively address national security concerns that fall outside the current scope,” the statement said.

Business representatives from big tech companies such as IBM Corp. and Intel Corp. worry that global business deals with U.S. companies will be negatively affected.

The Committee on Foreign Investment in the United States (CFIUS), a multi-agency panel headed by the Treasury Department, is responsible for assessing the national security risks of foreign transactions. CFIUS looks at transactions that result in foreign “control” of a U.S. business.

The number and complexity of deals that CFIUS must review has increased in the past decade. The committee needs more resources to conduct its reviews, lawmakers and industry participants have said.

‘Appropriately Tailored’

The U.S. Chamber of Commerce is among the groups that are watching the legislation evolve without explicitly stating opposition. “We are reviewing the legislation with our members to ensure that it is appropriately tailored and does not create new, unreasonable criteria or unintended consequences that would block beneficial investments in the United States,” Myron Brilliant, the chamber’s executive vice president and head of international affairs, said in an e-mailed statement.

Brilliant added that the U.S. must remain open to investments from overseas, which today total more than $3 trillion and support nearly 7 million American jobs.

The Senate bill, introduced by Sens. John Cornyn (R-Texas) and Dianne Feinstein (D-Calif.) would expand the list of national security factors that CFIUS should consider and broaden the purview of CFIUS by covering additional types of transactions.

Cornyn, the No. 2 Senate Republican, is urging the Banking Committee to move quickly on the issue, citing growing national security threats posed by China. “I don’t think we have any time to waste,” Cornyn told reporters Jan. 18 after testifying before the committee.

In the House, Rep. Andy Barr (R-Ky.), chairman of the House Financial Services Subcommittee on Monetary Policy and Trade, has said he wants to get a bill to President Donald Trump’s desk by August.

More Work Needed

The bill sponsors have done a good job identifying the relevant issues and building bipartisan support, said Baker & McKenzie’s Hunter. But the legislative language still needs a lot of work, he said.

A key sticking point is language that would give CFIUS increased jurisdiction over a wide variety of transactions between U.S. companies with “critical” technology — deemed as innovations that will sustain a U.S. competitive edge in the future — and foreign companies. Tech companies are watching those provisions with concern that they may be too restrictive on non-sensitive transactions such as computer hardware sales or software licensing, Hunter said.

The bill could require government scrutiny of virtually any kind of technology transfer that a U.S. company undertakes, Josh Kallmer, senior vice president of global policy at the Washington-based Information Technology Industry Council, told Bloomberg Law. That could put a big damper on how the U.S. firms do business abroad.

—With assistance from Llewellyn Hinkes-Jones.

To contact the reporter on this story: Alexei Alexis in Washington at aalexis@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Antitrust on Bloomberg Law