CFIUS Prepares to Assume Bigger Role, Law Firm Says

The Committee on Foreign Investment in the U.S. is adding staff and becoming more active amid growing concern about China, Dechert said in a client alert.

CFIUS is increasing enforcement and raising penalties for violating its regulations, the law firm wrote this month. The interagency committee plans to boost its outreach to Capitol Hill, where much of the China concern exists; conduct more site visits at U.S. businesses subject to mitigation measures; and bolster the office that identifies non-notified covered transactions.

CFIUS also intends to increase its focus on the booming biotechnology and alternative energy sectors (see 2309210024) and its scrutiny of private equity fund structures. It wants to examine those structures to ensure that foreign limited partners are truly passive, Dechert said.

CFIUS is expected to release “clarifying” amendments in 2024 and will likely play a role in developing new outbound investment restrictions. President Joe Biden signed an executive order in August that calls for creating an outbound investment regime, and the Treasury Department is writing regulations to implement it (see 2308090066).

A further enhancement of CFIUS’s powers could come from Congress. In a wide-ranging report released this month, the House Select Committee on China made several recommendations for CFIUS, including one that would give it greater authority to assess real estate transactions near sensitive national security sites (see 2312120050).

“It remains to be seen whether the [House] report will result in new legislation, galvanize pending legislative proposals, or both,” Dechert wrote. “It would appear, however, that the concerns voiced in both chambers of Congress this year will remain on the agenda in the year to come, as the forward-leaning, public nature of the report will keep these issues in focus.”

Despite the heightened scrutiny of Chinese investments in the U.S., the flow of such transactions is expected to remain robust. “Chinese investors continue to be at or near the top of the list with respect to number of notices filed and reviewed,” Dechert said.