Key Takeaways from CFIUS’s Second Annual Conference of 2023
Septermber 24, 2023
On September 14, 2023, the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) hosted its second annual conference, signaling that CFIUS is, among others, taking a more proactive approach to mitigating national securities risks across various domains, aiming to cultivate a “culture of compliance” and preparing to update its existing regulations. Below are several key takeaways from the conference.
A. CFIUS Anticipating Future Risks
CFIUS is evolving from a reactive to a proactive stance, strategically addressing future risks in various domains. These include but not limited to cybersecurity, supply chain security, clean energy (such as small modular reactors, hydrogen, and nuclear fusion), and dual-use technology. As threats continue to evolve, CFIUS is working to identify vulnerabilities years in advance to prevent them from turning into risks.
B. Cultivating a Culture of Compliance
A recurring theme of the conference was the importance of fostering a “Culture of Compliance.” CFIUS is actively working to maximize compliance and has appointed a Chief Counsel for Enforcement to oversee compliance efforts, demonstrating a serious commitment to this area. Notably, CFIUS has already issued two civil monetary penalties in 2023, with more in the pipeline. This year is on track to witness more penalties than in the entire history of CFIUS.
C. Greater Pre-Filing Diligence
CFIUS has stressed the importance of proactive pre-filing diligence by transaction parties. According to CFIUS, parties to a transaction can leverage open-source tools (such as U.S. Government entity lists[1]) to assess threat levels. If threats are deemed unacceptably high, parties may reconsider their investments to avoid potential mitigation measures. Additionally, transparency in governance documents and export classifications will enhance the CFIUS review process, helping parties present a complete picture of the transaction’s risk profile.
D. New Regulations on the Horizon
CFIUS acknowledges the evolving risk landscape since the passage of Foreign Investment Risk Review Modernization Act (FIRRMA) in 2018 and believes it’s time for regulatory updates. The details of these updates are yet to be determined, but Assistant Secretary for Investment Security Paul Rosen announced that[2], CFIUS is actively reviewing the CFIUS regulations and dealmakers should expect to see new notices of proposed rulemaking in a number of areas, including with respect to the Committee’s penalty and enforcement authorities, to “sharpen and enhance the Committee’s tools in the non-notified space”, and to allow for more efficiency and effectiveness in case reviews.