On September 15, President Biden announced the issuance of Executive Order (EO) 14083 to sharpen the focus of inbound investment screening by more formally tying the role of the Committee on Foreign Investment in the United States (CFIUS or the Committee) to the president’s national security prerogatives. For the first time since the Committee was established in 1975, the EO provides formal presidential direction delineating five specific factors for the Committee to consider when reviewing foreign acquisitions of U.S. companies.

Supply Chain Resiliency

First, the Committee should appreciate and consider a transaction’s impact on the resiliency of the national security supply chain, both within and outside the defense industrial base. Foreign investment that would shift ownership or control of companies creating the potential for future disruptions of critical goods or services should be given special attention. The EO directs that, when making a determination, the Committee should consider each of the following:

  1. The diversification of supply domestically (and within allies and partners).
  2. The importance of supplier relationships with the government.
  3. The level of concentration of control by the foreign person in the specific supply chain.

Protecting American Technological Superiority

Secondly, pulling from the Biden administration’s strategy to “maintain economic and technological leadership,” the EO directs the Committee to look at how a foreign investment would affect American superiority in emerging technology such as microelectronics, artificial intelligence, biotechnology, clean energy, microelectronics, and quantum computing.

Incremental Acquisition

The EO also directs the Committee to be wary of incremental domestic cessation of sectors or technologies; even if foreign acquisition of a single firm in a particular industry may pose limited risk, the threat is amplified if a foreign firm or government acquires multiple companies within a specific sector. In the EO, the president emphasizes that incremental investments over time in a sector or technology may cede domestic development or control in that sector or technology. Correspondingly, the EO directs the Committee to consider the risks associated with multiple acquisitions or investments in a single sector by any foreign person.

Cybersecurity Risks

Additionally, the president highlights cybersecurity risks in the EO. The EO states that the Committee needs to ensure foreign persons or affiliated third-party ties do not gain access to conduct malicious cyber activities that could imperil national security. Therefore, the Committee is instructed to consider “the cybersecurity posture, practices, capabilities, and access of both the foreign person and the United States business that could allow a foreign person” to take malign actions.

Sensitive Information

Lastly, the EO directs the Committee to consider the position of a U.S. company in terms of access to sensitive data about U.S. persons. Data is increasingly used for surveillance and tracking individuals, and advances in technology increasingly enable the re-identification or de-anonymization of what once was unidentifiable data. As such, the EO states that the Committee is to pay close attention to acquisitions involving data related to a U.S. person’s health or digital identity.

Going Forward

The EO does not amend CFIUS processes or its jurisdiction. And while the EO is merely the first presidential directive to CFIUS since the Committee’s establishment, it probably will not be the last. Among other things, the EO mandates the Committee to regularly review its processes, procedures, and regulations; provide to the National Security Council the results of such reviews; and make policy recommendations that can better ensure national security objectives are reached.

As foreign persons look to invest in U.S. companies or American corporations look abroad for an infusion of money, parties should pay close attention to the origin of the foreign funds. This is particularly true in the context of the factors delineated in the EO.

Although no foreign country was explicitly named in the EO, given the current geopolitical environment, foreign investors from geostrategic competitors such as China are likely to be heavily scrutinized. Also, given that third parties are referenced throughout the EO, it is likely foreign persons with “third-party ties” will be subject to great scrutiny.