Owner security

Proposed Legislation Seeks to Create a “Reverse CFIUS”: National Security Review of Outbound Activities Benefitting Entities or Countries of Concern

US lawmakers have proposed requiring government approval for certain outbound investments, much like the current Committee on Foreign Investment in the United States regime requires a national security review of certain investments in the United States.

The bill, called the “National Critical Capabilities Defense Act of 2022,” seeks to impose a national security screening process for outbound investments related to “critical capabilities” in the United States and resources (such as funding, technology, or intellectual property) that support them, according to a first draft. Under the proposed regime, where such transactions benefit a country of “concern” (e.g., China or Russia) or a related “entity” of concern, parties to the transaction would be required to report such transactions to, and eventually to obtain the approval of a committee composed of representatives of various parts of the government.

The proposed national security screening process would involve requiring companies to notify the committee – which the bill calls the “National Critical Capabilities Committee” – of proposed certain transactions in order to obtain US approval. United to achieve them. The committee would include representatives from the Office of the U.S. Trade Representative and the Office of Science and Technology Policy as well as the Departments of Commerce, State, Homeland Security, Defense, Health and Human Services, agriculture and labor. The committee would not review transactions that took place before the law was passed. “A U.S. person or foreign entity that engages or plans to engage in a covered activity must submit written notification of the activity to the Committee,” according to the bill. “The Committee may review an activity to determine whether the activity is likely to cause an unacceptable risk to one or more national critical capabilities.” If such a risk is discovered, the committee may “make recommendations to the president for appropriate actions that can be taken to address or mitigate the risk,” the draft says.

Although the concept behind the legislation – to “screen” business transactions that could help those with ties to China, Russia and other countries of concern – is apparent, much is unclear to the moment. Many of the key terms in the latest circulated draft would require further definition through regulation, so the scope and effect of the legislation, if enacted, would likely not be clear for several months or more regulatory efforts. Implementation.

The proposal received mixed reactions. Proponents of the US Congress say the legislation would prevent the United States from inadvertently funding capabilities that would give geopolitical advantages to foreign adversaries and competitors. Furthermore, proponents argue that it would give the United States the necessary transparency in the relationship between American companies and China, allowing for proper regulation. However, opponents Remark the bill’s ambiguous use of national security to justify increased executive power over foreign investment. Other opponents pointed out that the legislation could be unenforceable for businesses: “[N]at first, all sectors of the U.S. manufacturing and agricultural economy — and the service sectors that make them indispensable — appear to be covered,” the U.S. Chamber of Commerce and other associations wrote in a statement. June release. letter urging Congress not to pass the proposed legislation. “The resulting compliance burden on US businesses and the US government would be very high, and it would require the creation of a massive new bureaucracy to administer its new restrictions.”

Currently, the legislation remains in draft form and has not passed both houses of Congress, but bipartisan support for it is reportedly growing. Additionally, the White House has noted that the president would be likely to sign such legislation. “The administration supports Congress’ bipartisan, bicameral effort to provide greater transparency about U.S. investments in China and other countries of concern, particularly for transactions in critical sectors that could harm national security. by blunting our technological edge or undermining the resilience of our supply chain,” National Security Advisor Jake Sullivan reportedly said in a July statement.

Earlier drafts of legislative language creating a similar review process were attached to earlier iterations of the CHIPS+ Act, which recently passed both houses of Congress and awaits the President’s signature. The final version of this law does not include the concept of outbound investment, a blow to any hopes proponents may have of passing outbound investment review legislation this session. However, the creation of the stand-alone bill has given its proponents something to negotiate while waiting for an opportunity to attach it to another piece of legislation, such as this year’s National Defense Authorization Act, or a new bill in Congress 2023-2024.

For more information on the National Critical Capabilities Defense Act 2022, please contact Stephane Heifetz, Joshua Gruenspecht, or another member of our national security practice.