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Focus on Regulation

Mnuchin Repeats Call for CFIUS Reform While Stressing National Security Element

On June 7, U.S. Treasury Secretary Steven Mnuchin said publicly that Congress should pass legislation to amend the authorizing statute for the Committee on Foreign Investment in the United States (CFIUS), a U.S. Government interagency committee that conducts national security reviews.  Without elaborating on the specific changes he envisions, Mnuchin said that there was a need for “technical changes” to the statute.

This is the latest reference that Mnuchin has made with respect to ongoing discussions between the Trump Administration and Republican lawmakers over changes to the scope of CFIUS reviews. According to a well-informed congressional source, these discussions are collaborative and involve multiple agencies within the federal government. Consistent with the Treasury Secretary’s role as the Chairperson of CFIUS, the Treasury Department has taken the lead on these discussions on behalf of the Administration.

We have previously reported on CFIUS reform efforts during the 115th Congress discussions here, here and here. The discussions are believed to be focused on heightened scrutiny of transactions involving advanced technologies, steel, and transportation, as well as transactions involving bankruptcy scenarios.

Speaking at the U.S.-China Business Council’s annual membership meeting, Mnuchin reportedly said: “As it related to CFIUS, there are some technical issues and some technical changes that we’re working on legislative fixes for. Fundamentally we want to keep CFIUS as a national security review and we want to deal with economic issues separately.  We don’t want to confuse those issues.”

This is of a piece with the Treasury Secretary’s other recent public comments. Mnuchin has indicated that he does not want to change the fundamental nature of CFIUS reviews, which, under the existing statute evaluate the national security implications of “covered transactions” that result in control of a U.S. business by a foreign person.

This is significant inasmuch as there is considerable interest from some in Congress to amend the statute in order to impose a commercial or net economic benefits test on CFIUS reviews or to have such reviews explicitly consider food security as a national security issue. Mnuchin recently has eschewed broadening CFIUS’s mandate in these ways, despite Mnuchin’s January 2017 confirmation hearing statement about CFIUS’s role in “protecting American workers” and a Trump transition team draft memorandum reportedly advocating that CFIUS reviews be expanded to consider food security and reciprocity in the treatment of U.S. investments abroad.  Thus, based on the Administration’s discussions with Republican lawmakers and Mnuchin’s recent public statements, the Administration appears to favor retaining the core function of CFIUS reviews: national security. Of course, while Congress will pay close attention to Treasury’s views, it is also free to take a more expansive view of “national security” in legislation.

While Mnuchin has emphasized the Administration’s goal of achieving a more balanced bilateral trade relationship with China, Mnuchin’s statements about CFIUS maintaining its focus on national security appear to be aimed at emphasizing that the U.S. Government is not attempting to discourage foreign direct investment. At the same time, it is still possible that “America First” proponents in the White House will ultimately seek to address the trade gap between the U.S. and China through CFIUS by objecting to Chinese investments in the U.S. on national security grounds.