U.S. Treasury Rules Strengthen Oversight of Foreign Investors

By Saleha Mohsin | October 11, 2018

Foreigners seeking to invest in U.S aircraft and missile manufacturers, semiconductors or two dozen other industries would face heightened scrutiny by a government committee wielding stronger powers, under rules the Trump administration will issue Wednesday.

Investors interested in American developers of semiconductors, telecommunications, missile technology, aircraft, and batteries and other products would see their bids undergo more intensive review, a senior administration official told reporters at a briefing.

The Committee on Foreign Investment in the U.S. will begin subjecting any foreign investment, including non-controlling ones, in 27 industries to the stricter review process beginning Nov. 10. It will apply if the investment would result in a board seat, any decision-making power or the disclosure of non-public information about a company, according to the official, who was granted anonymity to discuss the policy.

The Trump administration, with bipartisan support from lawmakers, is strengthening Cfius’s power to block or force changes in deals as it escalates a trade war with China that has rattled markets and raised political tensions between Beijing and Washington.

Review of foreign acquisitions for national security risks by Cfius, as the panel is known, will no longer be voluntary, under a law Congress passed earlier this year.

CFIUS Blocks

While the official insisted the new rules aren’t directed at Chinese investors, Cfius under President Donald Trump last year blocked the sale of Lattice Semiconductor Corp. to a Chinese investor, and in March prevented Broadcom Ltd., then based in Singapore, from taking over Qualcomm Inc. after the administration said the acquisition might benefit Chinese technology companies.

The review would involve looking into what kind of sensitive information would be obtained by a foreign entity and whether that information could compromise American interests, the official added.

The Treasury Department will publish the full list of 27 industries in the Federal Register on Wednesday.

The U.S. is imposing the new measures against the backdrop of reports that China is undertaking cyber attacks on the U.S.

Bloomberg Businessweek reported last week that Chinese spies exploited vulnerabilities in the U.S. technology supply chain to infiltrate the computer networks of almost 30 U.S. companies, including Amazon.com Inc., Apple Inc., a major bank and government contractors. Among the targets was a contractor that made software to helped funnel drone footage to the Central Intelligence Agency and communicate with the International Space Station.

Offensive Cyber

The administration has said that economic espionage by China validate the Trump administration’s emphasis on offensive cyber operations of its own. The relationship between the world’s two largest economies has deteriorated amid the confrontations over trade, with political disagreements intensifying.

In a speech at the Hudson Institute in Washington last week, Vice President Mike Pence accused China of “a whole-of-government approach” to sway American public opinion, including spies, tariffs, coercive measures and a propaganda campaign.

In August, Congress gave the Treasury Department the authority to strengthen Cfius. The legislation, which will take another 16 months of regulation-writing to be enacted, widens the scope of Cfius to review investments related to real estate, joint ventures and from state-owned enterprises.

Treasury’s announcement on Wednesday begins pilot a program through which the department said it can “implement provisions of the legislation that did not become effective immediately upon enactment.”

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