\\jciprod01\productn\G\GWN\88-6\GWN605.txt unknown Seq: 1 29-DEC-20 9:26 Modernizing CFIUS Heath P. Tarbert* ABSTRACT Although foreign investment has been a critical component of U.S. eco- nomic growth since our nation’s founding, such investment has not always been benign. For over four decades, the Committee on Foreign Investment in the United States (“CFIUS”) has been the U.S. government’s primary tool for monitoring and addressing national security concerns arising from acquisi- tions of domestic businesses by foreign investors. Since its inception, CFIUS has sought to strike a balance between promoting an open investment environ- ment and protecting our nation’s security. Although it has experienced several challenges since its inception, none have been as momentous as those CFIUS has faced in recent years. Factors such as the increase in the complexity of merger and acquisition transactions, advancements in technology, and the eco- nomic rise of China exposed jurisdictional gaps in CFIUS, prompting legisla- tive and executive action. Seeking to modernize CFIUS, Congress developed the Foreign Investment Risk Review Modernization Act (“FIRRMA”), legis- lation aimed at expanding CFIUS’s jurisdiction and better equipping CFIUS to protect U.S. national security interests. The legislation was met with biparti- san support and signed into law by the President in 2018. While FIRRMA helps solve some of the recent national security concerns raised by foreign investment, it also brings new challenges to CFIUS. This Article tells the story of FIRRMA—what led to it and what the law does—and offers a glimpse of the unique challenges the adoption of FIRRMA will pose to CFIUS in the coming years. In particular, the Article highlights the added complexity of working in parallel with other U.S. government regimes, the rise of “Big Data,” and the need to increase cooperation with U.S. allies. TABLE OF CONTENTS INTRODUCTION ................................................. 1478 R I. PAST AS PROLOGUE: A BRIEF HISTORY OF CFIUS .... 1479 R * The author is the current Chairman and Chief Executive of the Commodity Futures Trading Commission (“CFTC”). Portions of this article have been excerpted from prior congres- sional testimony and speeches given by Dr. Tarbert while serving as Assistant Secretary for In- ternational Markets at the U.S. Department of the Treasury. The author would like to thank Susan Friedman, his former Senior Advisor at the Treasury Department, for her invaluable and outstanding assistance in drafting this article and Emily Kvalheim, former intern at the Treasury Department, for her helpful research contributions. The author would also like to thank the excellent editorial staff at The George Washington Law Review for their assistance. Any views expressed herein are those of the author and not necessarily those of the CFTC or its Commis- sioners, the Treasury Department, or any member agency of CFIUS. November 2020 Vol. 88 No. 6 1477 \\jciprod01\productn\G\GWN\88-6\GWN605.txt unknown Seq: 2 29-DEC-20 9:26 1478 THE GEORGE WASHINGTON LAW REVIEW [Vol. 88:1477 A. Importance of Foreign Investment in the United States ........................................ 1480 R B. Creation of CFIUS .................................. 1482 R 1. CFIUS’s Beginnings: Silent Monitor ............ 1483 R 2. Exon-Florio Amendment ....................... 1485 R 3. Byrd Amendment .............................. 1488 R 4. FINSA .......................................... 1489 R II. THE ROAD TO FIRRMA ............................... 1492 R A. Challenges Facing CFIUS in the 2010s .............. 1492 R 1. Increasing Caseloads ............................ 1493 R 2. New Investment Trends ......................... 1494 R 3. Military vs. Commercial Applications ........... 1495 R 4. Jurisdictional Gaps.............................. 1496 R 5. “Made in China 2025” .......................... 1497 R B. Legislative Action: A Bipartisan Moment ........... 1499 R III. KEY PROVISIONS OF FIRRMA ......................... 1503 R A. New Covered Transactions .......................... 1503 R B. Declarations Process ................................ 1506 R C. Clarification for Investment Fund Participants ...... 1508 R D. Black Lists and White Lists ......................... 1509 R E. International and Domestic Information Sharing .... 1510 R F. Increased Reporting Requirements .................. 1510 R G. Process Enhancements .............................. 1510 R IV. THE PATH FORWARD ................................... 1511 R A. Working in Parallel with Export Controls ........... 1511 R B. Confronting the Evolving Risks of “Big Data” ...... 1515 R C. Increasing Coordination with Our Allies ............ 1519 R D. Maintaining the Exclusive Focus on National Security .................................... 1521 R E. Fast-tracking Low Risk Investments ................. 1523 R CONCLUSION ................................................... 1524 R INTRODUCTION Foreign investment has been central to the growth of the U.S. economy since America’s beginnings. But sometimes capital from for- eign shores seeks more than just an economic return. The U.S. gov- ernment has relied on CFIUS to deal with national security issues implicated by transactions involving foreign investors for over 40 years.1 CFIUS is a committee composed of members from 11 different 1 Exec. Order No. 11,858, 3 C.F.R. 990 (1971–1975) (establishing CFIUS and vesting it \\jciprod01\productn\G\GWN\88-6\GWN605.txt unknown Seq: 3 29-DEC-20 9:26 2020] MODERNIZING CFIUS 1479 government agencies2 that reviews foreign investments in a wide array of businesses and properties with the help of the U.S. intelligence community. Encouraging an open market for foreign investment while up- holding national security have been the main goals of CFIUS. The body has dealt with many obstacles since it was created, but the most severe of those challenges have arisen in the past few years. To re- spond to these difficulties, Congress enacted the Foreign Investment Risk Review Modernization Act (“FIRRMA”) in 2018.3 FIRRMA represents the most significant effort to modernize CFIUS to date. This Article explains the events that gave rise to FIRRMA, how the law operates, and the issues CFIUS will likely face in implement- ing the Act. Part I briefly outlines the history of CFIUS and its devel- opment. Part II explains the changing landscape of foreign investment that prompted legislative and executive action to modernize CFIUS. Part III presents an overview of the key provisions of FIRRMA. Fi- nally, Part IV highlights several issues that CFIUS will confront as it implements the statute—topics likely to be ripe for further research and scholarship in the decades to come. I. PAST AS PROLOGUE: A BRIEF HISTORY OF CFIUS Before tackling the modern challenges of CFIUS, it is necessary to understand what exactly CFIUS is and why it came to be. To do so, one must first grasp the enduring importance overseas investment has with “primary continuing responsibility within the Executive Branch for monitoring the impact of foreign investment in the United States”). 2 See 50 U.S.C. § 4565 (2012). The members of CFIUS include: the Secretary of the Trea- sury, the Secretary of Homeland Security, the Secretary of Commerce, the Secretary of Defense, the Secretary of State, the Attorney General of the United States, the Secretary of Energy, the Secretary of Labor (nonvoting, ex officio), the Director of National Intelligence (nonvoting, ex officio), “and [t]he heads of any other executive department, agency, or office, as the President determines appropriate,” 50 U.S.C. § 4565(k)(2), which currently includes the United States Trade Representative and the Director of the Office of Science and Technology Policy. Exec. Order No. 13,456, 3 C.F.R. § 171 (2008). The Director of the Office of Management and Budget, the Chairman of the Council of Economic Advisers, the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, and the Assistant to the President for Homeland Security and Counterterrorism also have oversight roles in which they sometimes present their findings to the President. Id. 3 John S. McCain National Defense Authorization Act for Fiscal Year 2019, Pub. Law 115-232, 132 Stat. 1636, 2174 (to be codified at 50 U.S.C. § 4565) (“Defense Authorization Act”). FIRRMA was originally introduced in the House and Senate as the “Foreign Investment Risk Review Modernization Act of 2017.” S. 2098, 115th Cong. (2017); H.R. 4311, 115th Cong. (2017). These bills were ultimately incorporated into the Defense Authorization Act as the “Foreign Investment Risk Review Modernization Act of 2018.” §§ 1701–1728, 132 Stat. at 2174–2207. \\jciprod01\productn\G\GWN\88-6\GWN605.txt unknown Seq: 4 29-DEC-20 9:26 1480 THE GEORGE WASHINGTON LAW REVIEW [Vol. 88:1477 had on the American economy, and why the need to review these kinds of transactions arose. Finally, understanding how CFIUS has de- veloped over the years—both with respect to the ambit of its authority and how it operated prior to FIRRMA—is imperative to set the stage for analysis of present-day CFIUS issues. A. Importance of Foreign Investment in the United States Before the United States became an independent nation, the 13 British colonies were financed in large part by their mother country of Great Britain.4 Foreign investment was part of American life well before 1776 and carried on into the new Republic.5 In his famous Re- port on the Subject of Manufactures,