CFIUS Executive Order pushes to screen supply chain risk and other factors in foreign investments

The Biden Administration’s new Executive Order (E.O) signed on September 15, 2022, is an initiative directed at the Committee on Foreign Investments in the United States (CFIUS) to better protect the nation’s critical industries from unwarranted security risks. In its establishment, the order aims to direct U.S. businesses and investors to cover and minimize risks that have been proven to be recent and evolving concerns to U.S. national security. The order formulates five key risk factors that the CFIUS needs to consider when reviewing foreign investments or acquisitions.

The five risks considered are as follows:

1)    Impact on Critical Supply Chains
Transactions have various effects on the resiliency of U.S. supply chains that may have national security implications. Therefore, considerations to foreign transactions include:

1. How diverse alternative suppliers across the supply chain are considered, including suppliers based in partner countries
2. What the supply relationships of parties involved are with the U.S. government
3. How much control foreign persons or foreign investors have within the supply chain

2)    Resilient Technological Leadership
Specific sectors that the E.O. covers include those that are vital to U.S. technological leadership, such as:

1. Microelectronics
2. Artificial Intelligence (AI)
3. Biotechnology and biomanufacturing
4. Quantum computing
5. Advanced clean energy
6. Climate adaptation technologies
7. Agricultural industries

· Pursuant to the E.O., CFIUS is required to understand if the foreign transactions could reasonably result in future advancements or adaptations that could weaken U.S. national security.

· Additionally, further consideration is required on whether the foreign investors are tied to third parties that pose a threat to U.S. national security.
a. To inform the Committee’s decision-making on these considerations, the E.O. requires the White House Office of Science and Technology to publish periodicals assessing the technology sectors that are vital and relevant to U.S. national security.