On Thursday, May 18, U.S. Treasury Secretary Steven Mnuchin waded further publicly into efforts on Capitol Hill to amend the authorizing statute underlying the Committee on Foreign Investment in the U.S. (CFIUS), a U.S. Government interagency committee that conducts national security reviews. Munchin reportedly told a gathering of business executives at the U.S. Chamber of Commerce: “There are some parts of CFIUS we probably do need to amend,” adding that officials “should be looking at” joint ventures and acquisitions in particular. In congressional testimony earlier this month, Mnuchin also noted that he reviews CFIUS cases on a weekly basis. Consistent with an interview in early May that he gave to Bloomberg, though, he signaled that he did not expect an expansive modification to the CFIUS review process, which is fundamentally driven by national security concerns. Mnuchin reiterated that the focus of the U.S. Government is on “promoting” the “opportunity for foreign direct investment.”

As we have previously noted here and here, lawmakers in both the U.S. House of Representatives and Senate are examining ways to restrict Chinese and other foreign investment in the United States by reforming national security reviews conducted by CFIUS. At this time, the effort most likely to bear fruit appears to be that of Senator John Cornyn (R-TX), the second-ranking Republican in the Senate, and Rep. Rob Pittenger (R-NC), one of the leading voices on CFIUS matters in the House of Representatives. They are drafting CFIUS reform legislation with input from the Trump Administration, which was earlier rumored to be considering taking executive action on tightening CFIUS reviews. It is not clear whether the White House will ultimately pursue an executive order or rely on the significant breadth of the existing CFIUS statute.

The legislation is evolving, but, according to congressional sources, is centered on the following aspects:

  • Heightened scrutiny of transactions involving advanced technologies, steel, and transportation, as well as transactions involving bankruptcy scenarios;
  • Tiered treatment of transactions involving mitigation agreements, with greater scrutiny after the fact to transactions with such agreements; and
  • Possible tiered treatment of transactions emanating from specific countries of concern, e.g. China.

Another possible area of focus may be real estate transactions by foreign investors that result in foreign ownership of real estate in proximity to sensitive government facilities, including U.S. military bases. Last week, three leading Senate Democrats—the Ranking Members of the Finance, Homeland Security and Government Affairs, and Banking, Housing, and Urban Affairs Committees—requested that the Government Accountability Office review the approach taken by CFIUS to examine real estate transactions in order to “assess whether and how CFIUS addresses the full range of national security challenges such transactions may pose.” CFIUS has long considered proximity issues in its reviews and has effectively blocked certain transactions that raised national security concerns due to the specific foreign investor and the proximity of the U.S. target to U.S. military installations.

While the breadth of the existing statute clearly allows CFIUS to undertake reviews of transactions in sensitive industries, in the real estate sector, and from countries of concern to policymakers, Congress feels the need to make these points explicit in the law. The backers of the Cornyn-Pittenger legislation see this effort as a modest change to the statute. Indeed, equally significant from their perspective is what is not included in the currently proposed text. For example, they do not anticipate including agricultural transactions, greenfield projects, or net-economic benefit tests as a statutory focus of CFIUS.

Other lawmakers, however, are seeking more scrutiny over transactions involving food and agriculture. The Food Security is National Security Act would (i) give federal agriculture and food officials permanent representation on CFIUS and (ii) amend the statute to allow the Committee to consider agriculture and food-related criteria when reviewing transactions that could result in control of a U.S. business by a foreign person. Under the current statute, the Committee has the discretion to consider the national security impact of foreign investments on U.S. food and agricultural systems, but the proposed legislation would amend the statute to make food and agricultural criteria explicit.