White House Issues National Security Memo on Foreign Investment Rules

White House Tightens Foreign Investment Rules Amid Security Concerns

The White House has recently unveiled a National Security Presidential Memorandum (NSPM) aimed at reinforcing national security while maintaining an inviting atmosphere for international investments.

Major Highlights of the NSPM

The NSPM specifies new limitations on investments and mergers involving foreign adversaries, while proposing more beneficial conditions for U.S. allies and firms distancing themselves from adversarial nations, particularly the People’s Republic of China (PRC). Stakeholders should note three essential points within the NSPM:

• Increased Restrictions on Chinese Investments. The CSPM continues with past administrations' policies by placing further restrictions on both incoming and outgoing investments from U.S. adversaries. Notably, it explicitly limits Chinese investment in significant sectors such as technology, critical infrastructure, and healthcare.
• Introduction of a “Fast Track” Process for Allies. Acknowledging the challenges allies face in navigating the mitigation agreement framework of the Committee on Foreign Investment in the United States (CFIUS), the NSPM suggests a streamlined process for these allied nations.
• Removal of the Greenfield Exception. The longstanding "greenfield" exception, which allowed startups and new ventures to bypass CFIUS review, is proposed to be eliminated under the NSPM.

Although the NSPM does not immediately enact these regulations or suggest a specific timeline, it is anticipated that CFIUS may begin a rulemaking process soon to implement these guidelines.

Specific Adjustments to CFIUS Protocol

The NSPM describes a strategy to enhance foreign investments in the United States:

• New “Fast Track” Process Details. The NSPM proposes an accelerated process to support investments from allied nations in sectors like advanced technology. Questions remain about how this process intersects with the “Excepted Investor” framework and whether CFIUS will require participants to prove no connections with U.S. adversaries.
• Simplification of Mitigation Agreements. The NSPM aims to clarify the mitigation agreements, easing compliance burdens. However, it's unclear if this will provide significant relief, as these agreements might still restrict relationships with adversaries or outright prohibit certain investments.
• Encouragement of Passive Investments. While still promoting passive investments, the NSPM suggests these might face scrutiny if originating from foreign adversaries.

Measures Against Investments from Adversaries

The NSPM introduces several measures to protect U.S. national security from adversarial investments:

• New Rules for U.S. Entities. The Secretary of the Treasury is tasked with forming new guidelines to prevent U.S. investments in sectors that support the PRC's Military-Civil Fusion strategy and to restrict PRC-affiliated individuals from acquiring critical American assets. This includes potential outbound investment restrictions in high-tech fields such as semiconductors and biotechnology.
• Enhanced Review of Real Estate Deals. The Administration intends to leverage CFIUS more effectively to safeguard critical U.S. assets, including strategic technology, infrastructure, and sensitive real estate, from adversarial investments.
• Strengthening Authority over Greenfield Investments. The NSPM seeks to enhance CFIUS's influence over greenfield investments to prevent foreign adversaries from accessing sensitive U.S. technologies.