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1 1 (May 26, 2023)

handle is hein.crs/govelts0001 and id is 1 raw text is: Congr ssianalResedrch Se informing Ph Iegisltive d bate sino 191 S May 26, 2023 CFIUS Executive Order on Evolving National Security Risks and CFIUS Enforcement Guidelines On September 15, 2022, the Biden Administration issued the first-ever presidential directive defining additional national security factors for the Committee on Foreign Investment in the United States (CFIUS) to consider in evaluating foreign investment transactions. Executive Order 14083 reaffirms a commitment to open investment, while seeking to ensure CFIUS remains responsive to an evolving national security landscape and the nature of the investments that pose related risks. The E.O. informs how CFIUS reviews strategic transactions-in general and with regard to key sectors and factors-and could potentially enhance scrutiny of investments from countries of concern, such as the People's Republic of China (PRC or China). Also, in October 2022, the U.S. Department of the Treasury published CFIUS Enforcement and Penalty Guidelines (Guidelines) that describe how it approaches enforcement and penalty determinations for violations by parties subject to CFIUS action. Some see the Guidelines as a signal that CFIUS may more proactively seek enforcement actions and civil monetary penalties. CFIUS Background CFIUS is an interagency body, chaired by the U.S. Treasury Secretary, which serves the President in overseeing the potential national security implications of certain foreign investment in the U.S. economy. It has associated legal authorities (50 U.S.C. § 4565; 31 C.F.R. Chapter VIII), for example, to review, clear, and, if required, impose terms of mitigation to address U.S. national security risks before allowing transactions to proceed. CFIUS also has authority to refer transactions to the President for action, including prohibiting or compelling divestiture of transactions that present risks CFIUS determines it cannot sufficiently mitigate. See CRS In Focus IF10177, The Committee on Foreign Investment in the United States. Executive Order 4083 CFIUS decision-making is not public, in part to protect the confidentiality of parties to a transaction. E.O. 14083 gives insight into issues CFIUS may be navigating. The use of an E.O. requires CFIUS to adopt specified approaches and direction. While the E.O. does not name China, it targets behaviors common to PRC investments that seek U.S. capabilities in strategic areas prioritized and funded by China's industrial policies (see CRS In Focus IF10964, Made in China 2025 Industrial Policies: Issues for Congress). The E.O. focuses on countries that have a strategic goal of acquiring critical technology/infrastructure that affects U.S. leadership in areas related to national security. It also addresses foreign investors' use of U.S. entities and persons to act as third parties. This focus may signal U.S. government concerns that China among others may be using U.S. workarounds to evade scrutiny. With respect to investments directly or indirectly involving foreign adversaries or other countries of special concern, what may otherwise appear to be an economic transaction undertaken for commercial purposes may actually present an unacceptable risk to U.S. national security due to the legal environment, intentions, or capabilities of the foreign person, including foreign governments, involved in the transaction. -E.O. 14083 E.O. 14083 makes explicit certain national security factors that CFIUS is required to consider in reviewing investment transactions, but does not otherwise change its authorities or jurisdiction. The E.O. elaborates on two existing factors in the CFIUS statute: Critical U.S. supply chains resiliency-both inside and outside the defense industrial base. Key sectors include microelectronics, artificial intelligence, biotechnology, quantum computing, advanced clean energy, climate technologies, critical materials, agriculture, and food security. The E.O. requires CFIUS to consider U.S. supply chains broadly, not only U.S. Department of Defense supply chains. U.S. technological leadership-with a focus on areas affecting national security. The E.O. directs the Office of Science and Technology Policy (OSTP) to publish periodically a list of sectors, in addition to those the E.O. identified, fundamental to U.S. technological leadership. This provision may broaden the scope of technologies CFIUS considers and place emphasis on certain areas of risk in reviewing transactions. CFIUS is also to consider relevant third-party ties of the foreign person, and whether a transaction could lead to future advancements and applications in such technologies for the foreign actor that could undermine U.S. national security. This framing directs CFIUS to not only consider how the transfer of a capability to a foreign acquirer could affect a loss of certain U.S. national capabilities (with respect to manufacturing capabilities, services, critical mineral resources, or technologies) but also how an acquisition could enhance a foreign acquirer's gain in capabilities. In particular, with China's use of U.S. acquisitions to fill technology gaps, this provision may require CFIUS to more fully consider how a transaction advances PRC national capabilities. CFIUS is also to consider three additional factors:

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