Industry Officials Hope CFIUS Trends Toward More Predictable, Less Political Reviews

Kevin Klein, senior vice president of government affairs at the Global Business Alliance, said GBA has so far been “encouraged” that the administration “has at least recognized the value of foreign direct investment.” Klein noted that President Donald Trump has said he wants to boost investment in America, and a February White House memo said the U.S. is “committed to maintaining the strong, open investment environment that benefits our economy and our people” (see 2502240051).

But the memo also previewed efforts to expand both inbound and outbound foreign investment restrictions and tamp down the use of mitigation agreements.

“He wants more investment in the U.S., and he wants the U.S. to be the best place in the world to do business,” Klein said during a webinar hosted this week by Holland & Knight. “At least that overall goal is a positive, and we take it that way.”

Klein said there has been increasing “tension between politics and national security reviews.” CFIUS analysts criticized former President Joe Biden’s decision to block the proposed acquisition of U.S. Steel by Japan-based Nippon Steel, saying the move appeared to be done for political reasons (see 2501060017). Trump has since ordered CFIUS to review the deal again (see 2504070015).

“I think we're all trying to get to the same place,” Klein said. “We're not trying to limit the scope of the [CFIUS] program or what it looks like. But it does need to work the way it was intended to work, and that means a risk-based, not politically driven review process where the people who are sitting in those chairs take national security concerns for what they are: actual national security concerns.”

John Rood, CEO of commercial space company Momentus and the Defense Department’s former undersecretary for policy, said there has been “far too much variability” in the way CFIUS screens investments. “I think it would be in everyone's interests -- this is not a political comment -- for there to be a certain amount of predictability embedded in those things, and less tailoring,” he said during the webinar.

Rood acknowledged that some dealmakers may be seeking to work out “highly tailored solutions” with CFIUS in certain scenarios. “But as a general matter, I think we're better off with a fairly simple, predictable process, candidly.”

Rood also said “we've overdone the messaging on CFIUS as a country and government.” He said foreign investors, who may not entirely understand the CFIUS review process, are becoming increasingly spooked by its potential pitfalls. But some mitigation deals proposed by CFIUS can be “incredibly light touch,” he said, and an experienced CFIUS practitioner will know how to act as a company’s “Sherpa” through the approval process.

“There's an art that the right people can do who are attuned to the latest trends and sensitivities with respect to technologies or deal structure,” Rood said.

Klein also said his association is pushing for more consistency across federal and state efforts to restrict foreign investment. There has been a recent surge among states introducing laws that would bar purchases of land or real estate by investors from China or elsewhere, he said, and this risks creating a “patchwork of regulatory concerns that companies have to face moving forward.”

He pointed to one bill in Florida, signed into law in 2023, that would limit the ownership of real estate by “foreign principals” from certain “foreign countries of concern.” Klein said the law is subject to a “number of lawsuits,” including some that are challenging it under the Fair Housing Act.

“States may have to take a new tack if that is successfully challenged,” he said.

GBA is working with states to make sure any new bills “are more focused on national security concerns” and don’t broadly ban all foreign ownership of U.S. property, Klein said. "It’s more of a fight in the states to try to ensure that they align their rules with federal rules,” he said. “So those are the things that we're advocating for every day and would make the world a better place for everyone who has to deal with CFIUS.”

Panelists during the webinar also touched on CFIUS trends, including its efforts to find non-notified transactions -- deals that weren’t filed with the committee but maybe should have been. Robert Friedman, a CFIUS and trade lawyer with Holland & Knight, said the volume of non-notified transaction inquiries by CFIUS has decreased in recent years, but the percentage of them that result in an invitation to file with the committee is rising.

Friedman said he believes that’s partly because the committee is “getting better about evaluating national security issues associated” with those non-notified deals and only really reaching out to parties where there is “uncertainty.” He also said he thinks companies are “doing a better job” making voluntary CFIUS filings, which helps them avoid being called in by the committee’s non-notified program.

“I think there's a better job of transaction parties making filings in the appropriate circumstances,” Friedman said, “and the committee is doing a better job of only reaching out when they believe it's absolutely warranted.”