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Event Brief: Understanding the Foreign Investment Risk Review Modernization Act (FIRRMA)

Speaking on the Panel -Putting FIRRMA Into Practice: Implications for the Investment Screening Regime. From Left to Right: Robert D. Atkinson, President; Information Technology and Innovation Foundation, Giovanna Cinelli, Lead; International Trade, National Security and Economic Sanctions Practice; Morgan, Lewis & Brockius LLP, Jason Gudofsky. Partner; McCarthy TétraultClay Lowery, Managing Director; Rock Creek Global Advisors, Hidetaka Nishimura, Director; Ministry of Economy, Trade and Industry; Government of Japan, Stephanie Segal,Deputy Director and Senior Fellow; Simon Chair in Political Economy; CSIS

Foreword

Chairman Jeb Hensarling (R-TX) of the House Financial Services Committee shares insights into deliberations and intent of FIRRMA

Washington, DC – On September 25, FAO Global Founder, Brandon Hughes, was front row for an event on understanding the Foreign Investment Risk Review Modernization Act (FIRRMA) which was signed into law on August 13, by United States President Donald Trump. The event brought together many notable speakers, to include U.S. Congressman and Chairman of the House Financial Services Committee, Jeb Hensarling (R-TX), as well as Heath P. Tarbert, the Assistant Secretary for International Markets and Investment Policy; U.S. Department of the Treasury. There was also a panel discussion on what FIRRMA and “Implications for the Investment Screening Regime.”

The event was held at the Center for Strategic and International Studies (CSIS) in Washington, DC and attended by representatives from international trade law firms, academics, and representatives from Australia, Canada, New Zealand, among others.

Summary

According to Chairman Hensarling, the new law places additional limits on the Committee on Foreign Investment in the United States (CFIUS) and narrows the scope so that the government will not have full-purview over areas which apparently are not national security-related as well as eliminating the ability to name new critical technology areas outside of current export controls. He also added that FIRRMA is not intended to restrict the acquisition over every aspect of a business, just because one area is not able to be sold. CFIUS is not, and should not be used as an Industrial Policy and the House Financial Services Committee sought to eliminate the likelihood of abuse by current and future administrations. Simply put, the Congressman stated that FIRRMA gives CFIUS the strength in self-restraint. However, there are still areas that need to be refined and, according to one panelist, gaps that still need to be filled. Assistant Secretary Tarbert contended, from the Trump Administration Standpoint, that FIRRMA strengthened and modernized CFIUS. Some on the panel felt that FIRRMA micro-managed CFIUS but that there are many areas that are still undefined. CFIUS has 18 months to enact all the changes that FIRRMA brought forth which will likely lead to internal and external debate about many regulations and authorities.

Key Takeaways:

  • CFIUS will have more purview to monitor acquisitions and investments through the addition of new offices, hiring authorities, and funding.
  • CFIUS resources are still constrained and will likely lead to lengthened wait times for review, up to 45 days in some cases. The declarations process may eliminate the length of time by providing a condensed version of a notice.
  • Chinese investments will continue to be scrutinized as long as Chinese state-owned enterprises are believed to drive investments supporting national industrial policies (i.e. the Made in China 2025).

FAO Global Assessment

CFIUS continues to have purview over all foreign acquisitions of U.S. firms that may affect national security. While notification is still voluntary, countries politicized or deemed “strategic competitors” (i.e., China, Russia) will likely face more challenges, especially in emerging and foundational technologies. While this process is opaque, Chinese business with state-owned enterprise connections will likely suffer the most scrutiny. This law is vital for both U.S. companies and Chinese companies to understand. Forecasting what the potential for an M&A is and its effect on U.S. National Security, especially in the current politicized climate is just as important to assess the risk in CFIUS review.

The signing of FIRRMA does not create restrictions on any one country. Would-be investors and potential companies should not be deterred merely because of the geographical location of a company. Proper due-diligence (with CFIUS in mind) should be conducted, regardless of where the parent company, investor, or partner is located. U.S. companies should know and understand the impacts of FIRRMA and the changes to CFIUS, as well as the qualitative aspects of what goes into a National Security Assessment review. Our team at FAO Global can help, and we will continue to track this topic.


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