Representative Jim Banks introduced a bill on 5 May 2020 to “place temporary restrictions on acquisitions [of U.S. companies] by the People’s Republic of China. . .” during the COVID-19 pandemic. The bill would mandate, with certain exceptions, that the Committee on Foreign Investment in the United States (CFIUS) review, and the President deny, certain Chinese government-backed controlling investments in U.S. companies. Specifically, the proposed bill applies to controlling investments by the Chinese government or entities affiliated with the Chinese government in U.S. companies dealing with critical infrastructure, the media, or otherwise deemed by the President to be critical to national security or culturally significant. The bill requires that the President block such transactions except when certain conditions for a waiver are satisfied — effectively flipping the traditional CFIUS process, which precludes the President from suspending or prohibiting a transaction unless the President concludes that it threatens to impair U.S. national security.
Under the proposed bill, the President could approve such purchases if (i) it would not be in the interest of the United States to block the purchases, (ii) the purchase price was not significantly affected by the COVID-19 pandemic, and (iii) the sale would not permit the investor “additional access to distribute propaganda or otherwise alter U.S. news and media consumption.” The proposed legislation would sunset on the date on which the President notifies CFIUS, Congress, and the public that the U.S. has substantially recovered from the economic impacts of COVID-19.
Legislation to alter CFIUS’ process or expand its jurisdiction in light of geopolitical circumstances is not a new phenomenon – over the years, there have been a number of such proposals, most of which have not become law. To a certain degree, the proposed legislation reflects a concern that motivated the enactment of the Foreign Risk Review Modernization Act of 2018 (FIRRMA) — Chinese government-backed investments that threaten U.S. national security. The legislation is also consistent with Undersecretary of Defense for Acquisition and Sustainment Ellen Lord’s recent statements about “adversarial capital” targeting small businesses during the COVID-19 pandemic. Nonetheless, the bill – by specifically targeting China, setting denial of certain foreign investments as the default position, and highlighting “cultural[ ] significan[ce]” and “U.S. news and media consumption” as national security concerns – would represent a significant departure, even if only a temporary one, from the national security role envisioned for CFIUS under FIRRMA.
This bill may not be the last piece of proposed legislation to address the potential national security implications of the COVID-19 pandemic, and we will continue to monitor this space for further developments.