BIS's ECRA Delay Not Significantly Hampering CFIUS Efforts, Lawyers Say

The Commerce Department’s delay in issuing emerging and foundational technology controls may not be hampering U.S. foreign investment reviews as much as some lawmakers have suggested, trade lawyers said. Although the Committee on Foreign Investment in the U.S. doesn’t yet have a clear set of Commerce-defined critical technologies to target, that has not slowed down CFIUS from catching non-notified deals in critical technology sectors, the lawyers said in interviews, especially those involving semiconductors (see 2109010051).

CFIUS’s jurisdiction was expanded last year (see 2001140060) to allow the agency to specifically target investment transactions involving emerging and foundational technologies, which are being defined by Commerce’s Bureau of Industry and Security through an ongoing export control effort begun in 2018. But lawmakers have criticized BIS’s slow pace of controls, which has so far included around 40 emerging technology controls and no foundational technology restrictions. In June, a group of Republican senators and a bipartisan congressional commission said the delayed effort is hindering the work of CFIUS, which doesn’t have a clear and complete group of technologies to target and may be missing many “undisclosed transactions” (see 2106160012 and 2106020024).

“I don't really buy it that much,” said Scott Flicker, a trade lawyer with Paul Hastings. He said CFIUS is likely seeing most investments that “trip their sensitivity wires in terms of advanced technologies.” Chris Stagg, who worked on export control issues at the State Department's Directorate of Defense Trade Controls, said the impact on CFIUS is likely “minimal,” partly because the committee’s review is already fairly broad. “They have so many equities that they're looking into,” Stagg said. “They probably already have enough to chew on at this point.”

There may be a subset of minority investment transactions, including those involving advanced biotechnologies or artificial intelligence, that CFIUS would have more visibility into if they were formally designated as critical technologies, Flicker said. But for most outright acquisitions, Flicker said CFIUS "is pretty well in there.”

CFIUS may also uncover some deals involving critical technologies through its increasingly aggressive pursuit of non-notified transactions (see 2101290021 and 2101220034). Flicker said he has noticed CFIUS actively reach out to Silicon Valley companies and ask questions about their incoming foreign investment. “They really are aggressively approaching that area,” said Stagg, now a CFIUS, export control and sanctions lawyer with Miller & Chevalier. “They're clearly checking press releases, clearly checking websites, they have all their sources that they can go to. They're certainly using those, and they're certainly reaching out on a lot of non-notified deals.”

While some companies are most concerned about whether their transactions will trigger a CFIUS filing, others in less scrutinized countries are feeling empowered to skip the CFIUS process by relying on the recently created excepted state provision. The provision, introduced by the Foreign Investment Risk Review Modernization Act last year, exempts the United Kingdom, Canada and Australia from certain CFIUS requirements and has been “quite helpful” in some situations, said Adelicia Cliffe, a Crowell & Moring trade lawyer.

While use of the provision is limited, Cliffe said she has worked with several Canadian and U.K. acquirers that have relied on the exception for transactions that would have otherwise required a mandatory filing. “I have worked with some companies that took a conservative approach and always went in voluntarily," she said, "and are now quite comfortable skipping CFIUS clearance given that they fall under the excepted state provision.”

Some CFIUS experts have said Germany and Japan could soon be added to the excepted state list, particularly because they have taken recent steps to strengthen their foreign direct investment screening regimes (see 2105060056 and 2108030045). Cliffe said expanding the list would “make sense,” and other lawyers said it would be welcomed by their clients. “It would allow CFIUS to focus more on the countries of concern,” Cliffe said. “I could see the administration deciding to do so from a resource standpoint.”

But she also said the administration will likely not expand the list “beyond our closest allies,” particularly because of the U.S.’s broad national security concerns surrounding foreign investment. “I would be pretty surprised if it were expanded in the near future,” Cliffe said. “I certainly would be surprised if it were expanded beyond maybe a very small number of additional countries.”

Although Stagg said there has been a “push” to get Japan on the list, he said the administration likely won’t rush to do so. “I think they're probably going to approach it slowly before they really start to add additional countries,” he said.