On September 15, 2022, US President Joseph Biden issued an Executive Order (EO) directing the Committee on Foreign Investment in the United States (CFIUS) to consider a specified list of national security risks when reviewing covered transactions. The EO represents the first time a US president has issued an executive order providing formal Presidential direction on priority national security risks since CFIUS was first established in 1975.
Specifically, the EO directs the Committee to evaluate covered transactions' impact on:
- Critical supply chain resilience. The EO instructs the Committee to consider a covered transaction's effect on supply chain resilience and security, both within and outside of the defense industrial base. Considerations under this factor include the degree of diversification through alternative suppliers across the supply chain, supply relationships with the US government and the concentration of ownership or control by the foreign person in a given supply chain.
- Critical and emerging US technologies. The EO instructs the Committee to consider whether a covered transaction impacts manufacturing capabilities, services, resources or technologies relating to microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, climate adaptation technologies and elements of the agricultural industrial base that have implications for food security.
- Aggregate-industry investment trends. The EO instructs the Committee to consider the impact of a covered transaction in the context of previous transactions, particularly in the context of multiple acquisitions or investments in a single sector or related sectors.
- Cybersecurity. The EO instructs the Committee to consider whether a covered transaction may provide a foreign person, or their relevant third-party ties, with access to conduct cyber intrusions or other malicious cyber-enabled activity.
- US persons' sensitive data. The EO instructs the Committee to consider where a covered transaction involves a US business with access to US persons' sensitive data, and whether the foreign investor or related parties have sought or have the ability to exploit such data.
Each of these factors is widely understood to have already been considered by CFIUS when reviewing covered the transactions and the EO does not change CFIUS' jurisdiction, operations or processes. Therefore, the EO's intent appears to be more oriented toward sharpening the Committee's focus on these particular risk factors and also providing notice to the business community that transactions involving these areas are likely to be subject to increased scrutiny in the future.
Parties contemplating current or future transactions involving foreign investments should continue to ensure that their CFIUS due diligence process includes an examination of these particular risk factors and anticipate that transactions involving such risks may be subject to enhanced scrutiny by the Committee.
Our team continues to monitor this space and will publish additional updates as appropriate.
Special thanks to Law Clerk Claire Huitt (Washington, DC) for her assistance in the preparation of this content.
