In August 2018, it was reported that the Committee on Foreign Investment in the US (CFIUS) informed China’s HNA Group that it must sell its stake in a Manhattan skyscraper. The apparent reason? The building is home to a police precinct that protects Trump Tower. Around the same time, on August 13, 2018 US president Donald Trump signed the National Defense Authorization Act for Fiscal Year 2019, which among other things expands the authority of CFIUS to review foreign investments in US companies for national security risks. 

The new measure also expands CFIUS’s jurisdiction by giving the committee authority over minority-stake investments made by venture capital and private equity funds. CFIUS, in short, is clearly going to be having a stronger voice about foreign investments in sectors and projects that may be sensitive to national security – and as the report on HNA shows, it is not afraid to use it.

There are other areas in which CFIUS now has the authority to make or break a proposed foreign investment: it can cover non-controlling investments in infrastructure, technology, and sensitive personal information. There will also be new procedures and greater resources budgeted to the committee, which could well be applied to more rigorous monitoring of transactions that have not been filed.

With the law now passed, the rest of the world waits. The true impact of the law will best be seen by the regulations that must be written that will spell out the details of its implementation. In a brief, law firm Sidley reports that it will likely be several months before the relevant agencies finalise implementing regulations.

While the changes to CFIUS have been under the spotlight, it should be noted that the National Defense Authorization Act also covers the Export Control Reform Act (ECRA). Changes were made to ECRA that could also affect foreign investment, especially in the area of technology. 

Sidley writes: “Although ECRA does not enumerate emerging and foundational technologies, it is worth noting the Trump administration’s statements concerning cutting-edge fields such as artificial intelligence, robotics, aerospace and 5G technology. It seems reasonable to infer that these fields will receive the attention of the interagency process.”