Analysis

CFIUS Under Biden Will Quietly Keep Nose To The Grindstone

Law360 (November 8, 2020, 5:13 PM EST) -- The Committee on Foreign Investment in the United States will push forward in examining mergers and acquisitions that involve foreign investors to determine whether they raise national security concerns, but experts say CFIUS under President-elect Joe Biden will do its work with less fanfare than it had under President Donald Trump.

Biden won the presidency on Saturday after his apparent victory in Pennsylvania, and while President Donald Trump is continuing to fight the results in court, the former vice president said he was moving forward with his transition plans so he would be ready to hit the ground running on Inauguration Day in January.

Biden has plenty of experience working in a government where CFIUS quietly toils away investigating deals for potential national security implications, having served as vice president in the Obama administration for eight years starting in 2008. Although certain CFIUS probes have garnered significant press attention in the last four years — the brouhaha over TikTok being a prime example — the committee itself has actually remained relatively tight-lipped about which matters it is reviewing and why under Trump. 

With Biden in the White House, there's no reason to believe that CFIUS will become more vocal. In fact, for those who work within the inter-agency committee, speaking publicly about the deals they are reviewing is against the law.

"Frankly, CFIUS itself is like Fort Knox," said Chris Griner, chair of Stroock & Stroock & Lavan LLP's CFIUS practice. "I've never heard of any violation of confidentiality. That would be a fireable offense and a violation of CFIUS regulations."   

The staffers who make up the bulk of the CFIUS workforce have every reason not to reveal the deals they are looking at. Much of CFIUS is staffed by career civil servants, and their work quietly continues no matter who is president.

"The government participants in the CFIUS process are keenly focused on national security," said Shannon Reaves, a Stroock special counsel. "Despite the headlines that surface from time to time, it's not something we view as a political process."

That said, there are political appointees involved in CFIUS, including the secretary of the Treasury, as well as representatives from government agencies including the U.S. Departments of Defense and Homeland Security. Much of the attention CFIUS has received over the last four years can be attributed to Trump and his advisers. Treasury Secretary Steven Mnuchin, for example, spoke to reporters on the South Lawn of the White House in late July to explain that CFIUS would be handing a recommendation to the president at some point on the TikTok matter. Peter Navarro, director of the White House Office of Trade and Manufacturing Policy, also made public remarks about TikTok, as did Trump. 

All of that was abnormal, according to Holland & Hart LLP of counsel Gwen Green.

"Historically, CFIUS has been quiet with regards to the transactions that are in front of them for review," she said. "Though we have seen very high-profile public statements by the Trump administration, that has not been the norm. One would anticipate that, under a Biden administration, CFIUS would go back to its historical stance of being quiet and maintaining silence with regards to the transactions that are under review."

Aimen Mir, a partner at Freshfields Bruckhaus Deringer LLP who previously worked as a deputy assistant secretary for investment security at the U.S. Treasury and helped run the CFIUS investigation process for a decade starting in 2008, said that the Trump administration's desire to project strength in the national security space, particularly with respect to China, contributed to its strong support for the enactment of the Foreign Investment Risk Review Modernization Act of 2018. FIRRMA broadened the scope of CFIUS, including by explicitly allowing it to recommend a deal be blocked because of concerns related to personal data.

"While there were certainly questions under Obama about whether there were gaps in CFIUS' authority, I don't think his administration would have been as quick to jump on the new legislation that expanded CFIUS in the way the Trump administration did," Mir said. "Instead, it likely would have considered whether there were changes that could be made to CFIUS's regulations or whether other policy tools could be used to fill those gaps."

Now that the legislation has passed and the new regulations are in effect, there's no need for the type of public spectacle related to CFIUS that was created by Trump and his aides, so CFIUS can go back to doing its work in the shadows.

"The bedrock throughout the history of CFIUS has been national security," Griner said. "Politics are on the outside."

According to Antonia I. Tzinova, a partner at Holland & Knight LLP, the biggest likely difference in CFIUS under Biden will be a "change in tone."

"And the administration probably is not going to be crucifying every single Chinese transaction," she added. 

That's not to say China will be less of a concern to CFIUS, Tzinova said. Instead, it simply means that CFIUS will continue to quietly do its work, and when there are transactions that set off an alarm bell, action will be taken, whether that means an agreement is blocked or some kind of mitigation is required to ease the government's concerns.

"This has been consistent over the last few administrations," she said. "[The U.S. government] does view China as a particular threat to U.S. national security, both technologically and militarily. And CFIUS has taken a broader view in recent years on what is a threat to national security."

China's perceived threat to U.S. national security doesn't mean CFIUS blocks all deals involving investors from the region. If Biden follows in the footsteps of President Barack Obama, the new administration will keep a keen eye on deals featuring Chinese investors buying into U.S. companies, while also understanding that there can be advantages to allowing such transactions, assuming there are no serious national security issues.

"We work with China all the time, and we need them to understand that there are many Chinese deals that have gone through the CFIUS process that the public never hears about," Griner said. "In some cases, there might be some mitigation in place, but that doesn't stop the deal."

There are many intriguing questions going forward when it comes to what falls within the realm of CFIUS' jurisdiction, especially considering the public nature of the situation involving TikTok, the popular video platform owned by owned by Chinese company ByteDance. There, the U.S. had concerns that the Chinese government could request that TikTok share sensitive American user data, which led some people to wonder whether the data housed in TikTok's servers is even sensitive enough to trigger true national security concerns. CFIUS won't stop looking into transactions where one of the companies collects personal data, but as time goes on, the issue of what constitutes sensitive enough information to cause CFIUS pause on a given deal should become more well defined.

"I don't think CFIUS will be less concerned about sensitive personal data, but I do think there's room for it to be more discerning about what type of data warrants blocking a transaction versus mitigating or trying to put in place protections," Mir said. "Not all data is equally important from a national security perspective, warranting the same treatment. In some cases, data may be sufficiently unique or valuable that it makes sense to block a transaction to avoid any risk of loss of that data. In other instances, the data may be of very limited value and may be generally available in the commercial market place without buying a U.S. company."

Ultimately, CFIUS under Trump worked the way it was supposed to, just with a little more drama because of the hullabaloo from the president and some of his aides. Under Biden, CFIUS is expected to continue to take seriously its job of policing M&A to ensure that U.S. national security is protected. The public might just hear less about it.

"As we have seen, the Trump administration, and Trump in particular, is more vocal, and not just with regards to CFIUS," Green said. "I anticipate that with Biden we'll get more predictability."

--Editing by Jill Coffey.

For a reprint of this article, please contact reprints@law360.com.

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