(September 14, 2022)
MODERATOR: Great, thank you. Hey, everyone. Thanks for joining. So we’re going to do a background call today. I think you all have the factsheet and the Treasury statement on the President’s Executive Order on Inbound Investment Screening.
And the call is on background. It is attributable to senior administration officials, and the contents of the call are embargoed until 9:00 a.m. tomorrow, Thursday, September 15th.
For your awareness, but not for reporting, the speakers on our call today are [senior administration official], [senior administration official, and [senior administration official].
Our speakers are going to give some short remarks at the top, and then we’re going to take as many questions as we can.
So, [senior administration official], I’ll turn it over to you to get us started.
SENIOR ADMINISTRATION OFFICIAL: Great. Thanks so much. I want to thank all of you for joining this afternoon. And I know you all have seen the factsheet, so we’re not going to get into — we’re not going to go on too long today, but I do want to make just a couple of topline points about the executive order that the President will sign tomorrow, providing for the first time presidential guidance to the CFIUS Committee since it was established in 1975. And then [senior administration officials] are going to get into some of the details.
First point I want to make is that we certainly, from a Biden administration perspective, think this is an important development. Tomorrow, the President will be signing the first-ever presidential directive since CFIUS was established in 1975 to provide formal presidential direction on national security risks that, from the administration’s perspective, are important for CFIUS to consider in evaluating transactions by foreign investors making investments here in the United States.
The executive order centers the review of foreign investments within Biden-Harris administration priorities, including supply chain resilience, protecting American sensitive data, and maintaining America’s technological leadership, ultimately ensuring that our national security tools are deployed in mutually reinforcing ways.
The final point I want to make before turning it over to [senior administration official]: So I’d note that we believe foreign investment is key to supporting American workers, businesses, and growth in the United States. But as you’ve seen in recent weeks and months, the President himself and his senior advisors have met with numerous foreign CEOs and companies that are making transformative investments here in the United States. And we welcome that.
But the administration also knows and President Biden also knows that some countries exploit our open investment ecosystem to further their own national security priorities in ways that are directly contradictory to our values and interests. And this new executive order is a key part of our administration’s broader effort to maintain U.S. economic and technological leadership to protect our national security.
With that, [senior administration official], let me turn it over to you to talk about some of the factors that we’re talking about here.
SENIOR ADMINISTRATION OFFICIAL: Thanks very much, [senior administration official], and thanks to all of you for joining us today. So let me just briefly address some of the additional national security criteria that the new executive order will direct the committee to consider.
So, first, the executive order elaborates on two existing statutory factors: technological leadership, hereby specifically enumerating a handful of priority emerging and critical technologies, like semiconductors, quantum technologies, biotechnology, and artificial intelligence, as well as supply chain considerations, here acknowledging what we’ve learned from the past few years and the administration’s related efforts to address the need for supply — resilience of key supply chains, both inside and outside of the defense industrial base.
And second, the order also identifies three additional factors for the committee to consider. These are, first, aggregate industry investment trends, so acknowledging here that a series of transactions over time can increase systemic vulnerability, potentially resulting in a particular covered transaction giving rise to national security risk. Second, the importance of reviewing transactions with an eye toward cybersecurity capabilities of the foreign investor and cybersecurity practices of the domestic entity. And third, risks relating to American sensitive data, providing clarification and a signal to industry that technological and big data advances undermine the concepts of the identified or anonymized data.
So, with that, let me hand it over to our colleague, [senior administration official], from Treasury.
Thanks, [senior administration officials], and appreciate everybody being here for this. As you all know, Treasury is the Chair of CFIUS, and so what I wanted to do is share the executive order’s impact on the committee’s work as we go about it.
And as [senior administration officials] have laid out, the executive order highlights and elaborates on national security risk factors that CFIUS considers and, in doing so, provides important focus to the ever-evolving nature of our national security risks that we confront. And certainly national security is necessarily an evolving concept as new risks emerge. And CFIUS’s legal authorities are written precisely to reflect and account for that evolving and emerging risk.
CFIUS is mandated to consider any and all national security risks arising from a transaction before it. To guide the committee, Congress provided an illustrative list of factors in statute that the committee can consider when reviewing a transaction. And the executive order expands on that list by highlighting and contextualizing several areas where risks can emerge, and for the first time, as [senior administration official] pointed out, specifically and publicly articulates additional risk factors, expanding on Congress’s list of factors.
And just to be clear, as appropriate, CFIUS has been considering these kinds of risks when reviewing cases and has taken actions to address these types of risks and will certainly continue to do so. However, by highlighting and sharpening the committee’s focus on these evolving and emerging risks, the executive order will help guide the committee and should also help businesses and investors better identify early on national security risks arising from transactions to help them determine whether to file with CFIUS.
And just for the avoidance of any doubt or confusion, I want to emphasize the executive order does not expand or limit the legal authorities or jurisdiction of CFIUS, which remains broadly focused on assessing and mitigating any national security risks arising from covered transactions.
And with that, I’ll turn it back over to our moderator for any questions.
MODERATOR: Great. Thank you. Could we please give out the directions to ask a question?
(Operator instructions are given).
Q Thank you. It’s Demetri Sevastopulo. Just a quick question. Is there anything that CFIUS officials could not consider before in evaluating potential transactions that this executive order now allows them to do? Or is it really just trying to reinforce that these areas, whether it’s artificial intelligence, or quantum, et cetera, are things that America needs to be looking more closely at?
SENIOR ADMINISTRATION OFFICIAL: Sure, I can start by jumping in and then see if [senior administration officials] have anything to add.
The answer is: From a legal perspective, no. But the exec- — that is to say, Congress’s authorization in statute to assess national security factors was intentionally quite broad. And that has and will remain CFIUS’s statutory mandate. But what I will say, as I alluded to in my remarks, the order’s direction of CFIUS to sharpen its focus on these emerging threat pieces, data, supply chain, and the like, and certainly aggregation issues, will certainly help guide the committee’s work as it does assess these national security risks.
MODERATOR: I think we can go ahead to the next question then.
Q Hi, guys. I think I might be sort of re-asking the same question. But, you know, the courts have typically afforded CFIUS great leeway in how it defines national security and its reviews, its authorities. So I’m still trying to understand exactly what the goal is, what the impact would be. I mean, you can internally tell CFIUS to sort of sharpen its focus on these issues. So if you could just sort of clarify substantively what the need is here.
SENIOR ADMINISTRATION OFFICIAL: So I think there are — this is [senior administration official]. Let me just jump in with a couple of thoughts and then come back to [senior administration officials]. I think we’re doing a couple of — the President is doing a couple of things with this executive order.
I think the first is, as [senior administration official] says, you know, we are providing some sharpened guidance about, you know, of all the factors that could potentially be considered here, some sharpened guidance to the committee about these are ones that appear to be really of emerging importance and ones that you should be focused on as a part of your work.
And I think, more sort of relatedly, but also a little bit more broadly, I think we are sending a message — look, you know, CFIUS is a process that requires a lot of engagement with the corporate sector, right? A lot of what CFIUS — you know, companies have to bring in cases to CFIUS, or trying to think about how CFIUS works as they’re making decisions about M&A and that kind of thing. And I think this is sending a very clear message, a public message, to the private sector — in a way the committee’s day-to-day work often can’t — about what are some factors that we as an administration are very focused on.
And then thirdly, I think we are making clear again, both to the committee and to the, kind of, corporate community and the public as a whole, as well as foreign governments, allies, and partners around the world, this is how we are incorporating concerns that we have about a set of issues that we are also working on in other areas into this tool so that, as [senior administration official] said kind of at the top, we see and continue to see and use CFIUS as an integrated — as a tool that is integrated in a suite of other tools to protect our national security.
Q Thanks for taking the question. I was wondering, there have been some developments in the last year or so and particularly after Ukraine — you know, new sanctions, new investigations against both Russia- and China-related entities. And I’m wondering if any of those helped drive this order, if there was anything that showed up in your investigations or in others’ investigations that caused you to want to sharpen the focus for CFIUS going forward.
SENIOR ADMINISTRATION OFFICIAL: I’m happy to start with that one — this is [senior administration official] — and then see if [senior administration officials] want to weight in. You know, I — without getting into any specific cases, which we can’t do, of course, here, I do think that the review of certain cases really has, kind of, brought out some of the specific concerns that we’re addressing here.
In some cases — right? — we’re looking at a variety of tools to see how we can address particular concerns. So, for example, when it comes to data security — I think was one of the questions earlier alluded to — but I think also with respect to the review by the committee itself, I think we’ve had — there have certainly been cases where deliberations have raised, I think, questions about whether there has been historically adequate focus on some of the factors that we’re looking at today.
And, you know, just to kind of come back to the question raised by Demetri and Alex as well, you know, I think if you look at the universe of cases, it’s not always been the case that you would say, “I’m going to look at a particular transaction and really identify that as…” — you know, that’s — really, the crux of that is whether we are protecting technology leadership because of the following national security implications, or whether this is really a question about data and the security of data.
I think giving it that weight and that lens actually really can, I think, have an impact on some of the deliberations.
But over to [senior administration officials], if you’d like to add anything to that.
SENIOR ADMINISTRATION OFFICIAL: Nothing here.
SENIOR ADMINISTRATION OFFICIAL: Nothing further from me.
Q Thanks very much. A quick question about the discussion that’s been underway of beginning to look at American investment in other countries — China and other places where technology is frequently taken from the investors and getting the United States to begin to review investment running in that direction — outbound investment. It doesn’t sound from your description like this executive order covers any of that. But am I missing something, or is that something that would be covered in a future order?
SENIOR ADMINISTRATION OFFICIAL: That’s correct, David. This is direction to the existing CFIUS process, which is looking at, as you know, foreign investment here in the United States.
I know there’s been a fair amount of interest lately in this question of outbound investment review. And obviously, there’s been some proposals on Capitol Hill looking at that issue.
You know, as the National Security Advisor has said over the course of the last year, you know, we are looking at gaps in our existing toolkit, including whether it would be or is appropriate to look at some targeted and narrowly scoped requirements around certain, specific kinds of U.S. investment and foreign competitor countries. But that’s a process that is ongoing and is distinct from what we’re talking about here today.
Q Hi, thanks for taking my question. I just wondered what could you say about China in regards to these, kind of, refined criteria that you put out today? Is the message that China should take away that the U.S. is not as open to investment from China as it has been in the past?
And a second question, which may be impossible to answer: But if these criteria had been in place over the past five years, would there be a greater number of transactions that had been denied or at least modified for national security purposes?
SENIOR ADMINISTRATION OFFICIAL: So, on the first question, what I would say is neither this order nor CFIUS is, as a general matter, country specific, is country focused.
As you all know, what the committee does is look at transactions on a transaction-by-transaction basis to assess national security risks. Now, the inputs to that national security risk generally come from looking at the foreign acquirer and assessing the foreign acquirer intent, capabilities, and other things, as well as the U.S. business that’s being invested into to assess any potential vulnerabilities.
Now, issues of geography, jurisdiction, the makeup of the investors would certainly go into that risk analysis, but there’s nothing that’s sort of China-specific about this order or CFIUS.
Now, that said, it’s going to matter where investments are coming from and who the investors are.
On your second question, you know, it’s hard to know, but what I would go back to and say is the committee has broadly been looking at all sorts of national security threats. And for example, on this issue of data, I mean, data has been something that the committee has been looking at for some time. It’s something that Congress focused on in the 2018 Foreign Investment Risk Review Modernization Act, and specifically provided some added jurisdiction around companies that sought to acquire large amounts of data.
So, going back to, sort of, the first point, I think these factors help sharpen and focus CFIUS’s focus on these issues, but I’m not sure that it would have increased transactions or filings in this space. Although let me just say the last point, to [senior administration official]’s point: Because CFIUS is largely a voluntary process, the messaging to the business community is going to be important about the kinds of things that CFIUS is going to consider.
[Senior administration officials], I don’t know if you want to come in on any of that.
SENIOR ADMINISTRATION OFFICIAL: Thanks. I’ll just add to that, as [senior administration official] said, the committee reviews transactions on a case-by-case, transaction-by-transaction basis, but they can also look at those cases with respect to systemic threats, systemic vulnerabilities, particularly with a focus on technology issues, supply chain issues.
And so I think that’s really where this guidance is focused, which is to say the committee can maintain this most by statute — that transaction-by-transaction approach — but it can also look at patterns, look at systemic risks, and apply what we know from those systemic challenges to its focus on individual cases.
MODERATOR: Okay, great. Unfortunately, we have to wrap. We had a hard stop at this time. But thanks, everyone, for joining. If we didn’t get to your question, please feel free to reach out to me or, of course, the Department of Treasury comms team.
And as a reminder, this call was on background, attributable to senior administration officials. And the contents of this call are embargoed until tomorrow, Thursday, September 15th, at 9:00 a.m. Eastern. Talk to you soon. Bye.
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Background Press Call on President Biden’s Executive Order on Screening Inbound Foreign Investments – The White House
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