In November 2017, representatives and senators of the American Congress presented their Foreign Investment Risk Review Modernization Act (FIRRMA). This draft legislation on reforming U.S. investment reviews aims to align the Committee on Foreign Investment in the United States (CFIUS) and its areas of competence with the new threats to national security. According to the representatives, its focus is, above all, investments from Russia and China. The overarching goal is to submit a law on reforming investment screening to the president by August 2018 for his signature, and FIRRMA is the starting point for such legislation. The White House has thrown its support behind the legislative draft, and there is also backing in principle for the reform in both houses of the U.S. Congress.
CFIUS is an inter-agency committee of the U.S. executive branch that is subordinated to the Treasury. Since 1975, it has reviewed foreign investments in the United States to determine the extent of their influence on national security. The committee can either approve investments or make recommendations to the president that can lead to an investment being prohibited. From 1988 to 2015, 333 investment projects were subject to deeper scrutiny. A presidential prohibition was issued in only four cases – most recently in 2017.
FIRRMA Provides for Broader Competences
Under FIRRMA, the competences of CFIUS would be enlarged. Until now, CFIUS has screened only those investments in which an investor’s share in a company enabled them to exercise control over it, corresponding to German practice. However, FIRRMA also provides for screening in cases in which investments affect critical technologies or intellectual property that is relevant for national security. In addition, under FIRRMA, CFIUS could, also screen acquisitions of real estate located near military sites. Moreover, the competences of CFIUS are to be expanded with respect to, among others, terms for, the screening of and the suspension of transactions. Administration fees, new application forms and extended processing periods are also planned. CFIUS decisions would mainly enjoy legal protection and former “safe harbour” rules would be dropped, allowing further reviews even after the granting of initial project authorization. Moreover, some provisions could enable the extraterritorial application of the law. However, FIRRMA would allow companies from countries with which the US has certain agreements to be exempt from investment controls. Whether this regulation will apply to Germany remains unclear. Thus, investors from Germany could be affected by the stricter investment screenings under FIRRMA. This means that the development of this draft legislation must continue to be monitored.
Freya Lemcke is Vice President of RGIT in Washington, D.C. RGIT – the Representative of German Industry and Trade – is the representation of the BDI and DIHK in the United States.