Davis Polk partner and National Security practice head Paul Marquardt was quoted in International Financial Law Review discussing the Committee on Foreign Investment in the United States (CFIUS) and its evolving approach to national security.

Discussing the transformation of CFIUS over time, Paul said, “One of the interesting aspects of CFIUS is that the statute deliberately doesn’t define national security. It’s literally whatever the president says it is, and that has evolved significantly over time.”

He noted that while most companies strive to maintain a working relationship with CFIUS, particularly if they are repeat players, the day may come when a party challenges the committee’s authority. “CFIUS is pushing the outer limits of what it can do under existing mitigation agreements, and eventually it’s going to bump up against those limits,” he said.

“The expansion of what CFIUS considers to be a national security issue has been significant over the last 20 years, moving beyond direct defense-related industries to include technology, personal data, infrastructure, and supply chains,” he added.

The article notes that the U.S. government has heightened its scrutiny of foreign investments that could expose Americans’ data to non-U.S. entities. “The big themes recently are data and supply chains, with a growing emphasis on personal data,” Marquardt says.

Noting that extended reviews and mitigation have become more common, Paul explained, “With over half of the notices extending beyond the initial review period, certain transactions will naturally require movement into the investigation period.”

There are also a number of challenges companies can face. Paul noted, “CFIUS often delivers draft mitigation agreements late, and they often contain commercially unworkable terms. It takes time to address their concerns while making the agreement feasible for the business.”

“Timing and burden are the two pieces that our clients are most concerned about, and CFIUS is, unfortunately, not primarily concerned with either of those things,” he continued.

The article noted that at the core of CFIUS’s reviews is a delicate balancing act between national security concerns and the operational needs of businesses. “The government is not a commercial entity and often does not understand the operations of the business in detail, and so understanding both the commercial realities and the government’s underlying concerns is crucial,” concluded Paul.

“Clifford Chance and Davis Polk partners explore CFIUS’ evolving role as a proactive regulator and reveal emerging client strategies,” IFLR (September 4, 2024) (subscriptions required) 

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