US economy

US moves to expand foreign deal review powers

The Trump administration has moved to expand the US government’s scrutiny of foreign investments to more deals involving sensitive technology, infrastructure, personal data, and real estate, in new rules implementing legislation passed last year.

The US Treasury department’s publication of the regulations on Tuesday offers further details of the new regulatory regime that foreign buyers will be facing in America in the coming years, as Washington frets over rising national security threats posed by China and other geopolitical rivals.

In particular, the Trump administration is broadening the powers of the Committee on Foreign Investment in the US (Cfius) — an inter-agency body chaired by the Treasury department — to examine non-controlling investments as well as property deals that were not previously under its scope.

Among the transactions that will be subject to additional scrutiny are real estate transactions close to critical facilities in terms of defence and infrastructure. 

“The United States welcomes and encourages investment in our country and our workforce,” Steven Mnuchin, the US Treasury secretary, said in a statement. “Today’s proposed regulations will provide clarity and certainty to investors regarding Cfius’s enhanced authorities to address national security risks that arise from certain foreign investments, and continue modernising the Cfius process.”

A senior US Treasury official said the regulations did not target any nation specifically, and would be subject to a 30-day comment period, to inform their final version which is expected to take effect no later than February 2020. 

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The new rules outlined by the Treasury department follow legislation enacted last year by Donald Trump — with bipartisan support in Congress — to toughen scrutiny on foreign investment at the same time as it expanded export controls with regard to sensitive technologies. 

They come at a sensitive time in US-China relations, with senior trade negotiators expected to meet in Washington in early October to try to mend fences in their trade dispute.

According to a report released last month by the Congressional Research Service, Mr Trump has already moved to block some high-profile acquisitions, including the purchase of Lattice Semiconductor by Canyon Bridge Capital Partners, a Chinese investment firm, the purchase of Qualcomm, another chipmaker, by Broadcom, and also raised “concerns” about an investment in Grindr, the online dating firm, by Beijing Kunlun. 

A senior Treasury official said Cfius’s new jurisdiction over non-controlling investments would depend on whether the deal would afford a foreign person “certain access, or rights, or involvement in a US business that is itself involved in critical technology, critical infrastructure, or sensitive personal data”.

The US administration has indicated that it may be willing to exempt investments from certain countries from being subjected to the scrutiny on non-controlling stakes, but would specify them at a later date.

“The regulations reflect considerable restraint on the part of the Committee. They acted very deliberately in trying to tailor the proposed regulations to true national security needs,” said Mark Plotkin, a partner at Covington and Burling, the law firm. “The proposed regulations also show a real sensitivity to the perception of Cfius as an obstacle to foreign investment,” he added. 


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