CFIUS Revamp Would Lead to Better FDI Reviews, Transparency, Lawyers Say
The U.S. should transform the Committee on Foreign Investment in the U.S. into a new Commission on Foreign Investment and National Security, which would improve transparency and reduce uncertainty around investment reviews, Morgan Lewis lawyers said. Although the process of standing up a new government commission and issuing regulations may be “arduous and expensive,” the lawyers say the benefits will outweigh the costs.
“From our perspective,” they said in an August report, “these objections are not insurmountable and are outweighed by the benefits of bringing objectivity, internally driven resources, a broader mandate, and more certainty to a currently uncertain process.” They said CFIUS is “at best reactive and at worst incapable of addressing the serious national security threats faced by the United States and the industrial base.”
The report, authored by trade lawyers Giovanna Cinelli and Kenneth Nunnenkamp, said Congress should establish the so-called CFINS by modeling parts of it after the Securities and Exchange Commission, the Federal Communications Commission and other similar government bodies. Instead of reviewing investments through an interagency committee that requires consensus among “many” federal agencies, the U.S. could establish a commission with a more “unified federal approach,” the report said.
“In a fast-moving world with tens of thousands of cross-border transactions every year, the process is not ideal to manage national security risks,” the lawyers said. “A process lacking consistent analytical structure and operating as a multilevel black box appears to fall short of adequately identifying, assessing, and protecting US national security interests.”
The new CFINS would include five Senate-confirmed commissioners with fixed terms; internal offices to focus on national security, mitigation measures, intelligence, multilateral coordination and more; and an expanded jurisdiction to cover both inbound and outbound investments, the report said. Each commissioner’s staff would be composed of subject matter experts who could advise on transactions, the lawyers said, and the commission’s regulations would “reflect a coordinated, consolidated view of the equities of the current CFIUS members.” Funding for the commission could be initially taken from CFIUS member agencies, and regulations could be “prepared in fairly short order” based on those agencies’ “approaches to the national security reviews currently conducted.”
The lawyers say CFIUS shouldn’t simply be tweaked -- it needs an “evolution” to address the U.S.’s lagging ability to “identify, evaluate, and manage national security risks” increasingly present in foreign direct investment. CFIUS’s “composition” as a committee as opposed to a commission has decreased its effectiveness, the lawyers argue: The committee relies “heavily” on laws and regulations -- other than the Foreign Investment Risk Review Modernization Act -- to “mitigate national security concerns that are “themselves fraught with infirmities.”
In the past, changes to the committee’s authority, such as FIRRMA, have “arisen almost exclusively as a reaction to perceived crises, and even then, CFIUS has been slow to evolve to keep pace,” the report said. “Despite almost 50 years to resolve these challenges, CFIUS FDI review remains reactive and the process itself requires extensive and sometimes contentious interagency and intergovernmental engagement.”