Investors Should Track CFIUS Changes as Part of Business Plan

The Trump administration announced its “America First Investment Policy,” setting forth how it seeks to promote foreign investment in US companies and restrict investments with Chinese companies, including sectors such as artificial intelligence.

Changes signaled in the memo will impact US companies, foreign investors, and reviews before the Committee on Foreign Investment in the United States.

The significant changes include:

• A new “fast-track” for investments from allied nations that commit to realignment away from partnerships with countries that the memo has deemed as “foreign adversaries,” including China and Russia.
• Coupled with this new expedited track for allies is a commitment to terminate “open-ended” CFIUS mitigation agreements with foreign adversaries.
• Curtailing both outbound investments (investments by US companies in businesses overseas), in certain Chinese technology and inbound investments (foreign direct investments in US companies) by Chinese companies in US companies in high-tech sectors such as AI and emerging technologies.
• Strengthen authority over greenfield investments and investments in agricultural land.
• Restrict “foreign adversary access to US talent and operations in sensitive technologies (especially AI).”
• Promises to “expedite” environmental reviews for more than $1 billion in inbound investments.

As with other national security policy memorandums, this one directs agencies and CFIUS to take action to implement the new policy direction. Some of the changes will take time to take effect, whether in the form of new rules, policy changes, or additional presidential actions (and consultation with Congress). Nonetheless, we expect the following near-term impact:

Previously, to be afforded preferential treatment under the CFIUS rules, foreign countries typically needed to commit to a CFIUS-like national security review process that would place similar scrutiny on foreign direct investments in those jurisdictions. Based on the criteria for the new fast-track procedure, there is now an additional expectation that countries decouple from China, whether by ending partnerships with China or supply-chain dependencies on Chinese technology.

This proposal will be particularly relevant for investment firms with limited-partner bases that may include Chinese investors, global manufacturing, and other operational entities that have a presence in China, or that rely on technology sourcing from China, as those relationships could be seen as reducing their “distance from” China.

The new policy outlined in the memo stating that CFIUS will terminate “overly bureaucratic, complex, and open-ended” mitigation agreements could affect investors generally, specific investors, and CFIUS. While the proposal could simplify mitigation agreements for investors for whom CFIUS requires mitigation to clear the transaction, the proposal could also reduce the use of mitigation agreements or National Security Agreements as a means for allowing investments from certain foreign adversaries (thereby resulting in more blocked transactions involving investors from China, even when national security concerns might previously have been resolved with an NSA).

In either case, it will likely reduce compliance monitoring burdens on parties to an NSA and the US government by reducing reporting obligations, simplifying provisions, and time limiting the agreements.

Impact on AI

The spotlight that the memo places on emerging technology and artificial intelligence will be important for US companies providing critical infrastructure to support model development. The desire to restrict Chinese access to US talent and operations in AI signals that the US government might start to regulate access to US technology, particularly by Chinese companies, within US borders. This follows efforts—especially in recent years—to curb access to advanced computing items (graphic processing units) for export outside the US, particularly to China. Also significant for the AI sector is the promise of expedited environmental reviews.

The memo deputizes the administrator of the Environmental Protection Agency (in consultation with the heads of other agencies) to implement this policy direction. While it doesn’t detail how the environmental reviews will be streamlined, this will be an important area to watch for transaction parties involved in major AI infrastructure projects in the US.

The memo signals a shift in the administration’s deployment of existing regulatory tools, using the CFIUS process, the Outbound Investment Security Program, and other regulatory systems as both carrots and sticks. Parties should begin factoring these developments into their overall transaction strategy and timelines.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Keith Schomig is partner in the national security regulation and investigations and global trade controls practices at Paul Hastings.

Quinn Dang is an associate in the litigation practice at Paul Hastings.

Brad Dumbacher is an associate in the national security and international trade practice at Paul Hastings.

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