Recently, the President signed into law the John S. McCain 2019 National Defense Authorization Act, or NDAA, fulfilling one of Congress’s most serious responsibilities to provide for and protect our nation’s military service members.
This legislation will strengthen our military’s readiness, provide our troops a pay raise, support effective implementation of the National Defense Strategy, drive further innovation in emerging technologies to secure our military advantage, and continue to reform the U.S. Department of Defense.
One of the NDAA’s most important provisions was legislation to reform the Committee on Foreign Investment in the United States (CFIUS). The Committee on Foreign Investment in the United States is an interagency committee that reviews certain foreign investment transactions for national security implications. There was some concern that certain nations like China have attempted to use crafty investment arrangements with U.S. companies in order to gain access to critical technologies vital to our national security.
The CFIUS panel investigates and determines whether such investments by a foreign company pose a national security risk and can send its findings and a recommendation to the president, who has the power to postpone or disapprove the deal. For example, last fall, the U.S. rejected the acquisition of Lattice Semiconductor by a Chinese consortium due to national security concerns over potential transfer of valuable intellectual property, according to press reports.
The last time the CFIUS committee underwent any sort of reform was in 2007. The foreign investment and national security landscape has changed significantly over the past decade, as have the types of investments that pose the greatest risk. There have been growing national security concerns over foreign exploitation of investment-driven critical technology transfers, particularly where those deals are structured as joint ventures or early-stage, minority investments, which traditionally have largely fallen outside of CFIUS jurisdiction.
To remedy this problem, members of Congress introduced legislation to expand CFIUS’s jurisdiction and authorities to address today’s national security concerns, which stretch beyond mergers and acquisitions resulting in control of a company, particularly from China and other nations. The Senate Banking Committee, which I chair, unanimously passed this legislation earlier this year. As the House of Representatives had passed its own version of the bill, we engaged in a Senate-House conference to reconcile the bills. The final product was included in the NDAA legislation.
The new law improves the CFIUS process by enabling review of certain minority investments, including those involving critical technology, critical infrastructure, and sensitive personal data. It also, importantly, updates the export control system to address the transfer of emerging and foundational technologies, which could be detrimental to U.S. national security. It ensures that modernization of the rules surrounding CFIUS-oriented transactions and export controls preserves the open investment climate necessary to promote future U.S. innovation against the heightened United States national security concerns faced today. CFIUS’s new authorities will ensure that it is equipped to handle emerging threats from China and other bad actors, while keeping America’s doors open to investment.
The bill that was signed into law was the result of months of bipartisan, bicameral and cross-government efforts to appropriately tailor and modernize CFIUS and export control authorities to ensure the continued protection of U.S. national security, while promoting foreign investments in the U.S. It represents a very serious, bipartisan effort to ensure that our critical technologies are safeguarded, while preserving important free-market principles and an open foreign investment environment.