Biden Signs EO to Guide CFIUS Screening Priorities

President Joe Biden this week signed the first executive order to give specific presidential direction to how the U.S. conducts foreign direct investment reviews, a move officials hope will sharpen the country's focus on sensitive technologies, personal data and other national security-related issues.

The order adds “several national security factors” for the Committee on Foreign Investment in the U.S. to consider when reviewing covered transactions, senior administration officials said during a Sept. 14 call with reporters. But it also emphasizes “existing statutory factors” that CFIUS already considers when reviewing deals, such as a transaction's impact on critical U.S. supply chains, U.S. technological leadership and sensitive personal data.

The order, which doesn’t expand or limit CFIUS’s legal authorities, is designed to “provide important focus” to the committee’s review functions and help companies and foreign governments better understand the U.S.’s FDI screening priorities, the officials said.

“We're providing some sharpened guidance” to CFIUS, one official said. “Of all the factors that could potentially be considered here, we’re providing some sharpened guidance to the committee that these are ones that appear to be really of emerging importance and ones that you should be focused on as a part of your work.”

The order directs CFIUS to consider five sets of factors when reviewing transactions, including the investment’s potential effect on U.S. critical supply chains. This includes any deals that shift control to a foreign person involved in certain critical manufacturing industries, critical mineral resources or technologies that are “fundamental to national security,” the White House said, both within and outside the U.S. defense industrial base.

“These considerations include the degree of diversification through alternative suppliers across the supply chain, including suppliers located in allied or partner countries; supply relationships with the U.S. government; and the concentration of ownership or control by the foreign person in a given supply chain,” the White House said.

CFIUS should also consider whether a transaction affects U.S. technological leadership, including in the microelectronics, artificial intelligence, biotechnology, quantum technology and advanced clean energy sectors. The White House said CFIUS should consider whether a transaction could “reasonably result in future advancements” of a technology that could “undermine” U.S. national security, and whether a foreign person in the transaction has ties to other parties that threaten national security.

CFIUS should also focus on certain “industry investment trends,” including a foreign investor pursuing multiple deals within a sensitive sector. “Certain investments by a foreign person in a sector or technology may appear to pose a limited threat when viewed in isolation,” the White House said, “but when viewed in the context of previous transactions, it may become apparent that such investments can facilitate sensitive technology transfer in key industries or otherwise harm national security.” CFIUS shall consider risks “arising from a covered transaction in the context of multiple acquisitions or investments in a single sector or in related sectors.”

Other areas of focus for the committee should include cybersecurity risks and U.S. personal sensitive data, the White House said. CFIUS should specifically monitor investments by foreign people “with the capability and intent to conduct cyber intrusions or other malicious cyber-enabled activity” and investments that involve a U.S. business with access to sensitive U.S. data.

Although CFIUS already considers many of these factors when reviewing transactions, the White House believes the order will send clearer direction to both the committee and industry about the administration’s investment screening priorities.

“I think this is sending a very clear message, a public message to the private sector in a way that the committee’s day-to-day work often can't,” the official said, noting that companies often try to predict CFIUS’s response before notifying the committee about a merger or acquisition. These “are some factors that we, as an administration, are very focused on,” the official said.