The Department of Treasury’s office that administers reviews of foreign investments in U.S. companies is changing how it identifies critical technology businesses and related technologies that require mandatory review during a foreign investment process. The Committee on Foreign Investment in the United States (CFIUS or the Committee) issued a final rule effective October 15, 2020 that updates its approach to identifying export controlled items and know-how (“technology”) of concern to the Committee when reviewing potential national security issues with respect to foreign investments in the U.S. The Committee had earlier issued its own new approach to identifying those critical technology national security areas of concern, but appears to have recognized that the U.S. government already has a well-established system for determining whether U.S. military, nuclear, and dual-use items/know-how are critical technologies that are sensitive from a national security perspective. The new CFIUS approach falls back on identifications of sensitive know-how in the existing export controls in the U.S. Department of State’s International Traffic in Arms Regulations (ITAR) governing military item/know-how exports, Nuclear Regulatory Commission and Department of Energy export controls on nuclear products/know-how, and the Commerce Department’s, Bureau of Industry and Security (BIS) controls on dual use items/know-how.

The new approach implements the requirements of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA, which amended the prior CFIUS statute) to clarify whether a review will be required of foreign investments by CFIUS for critical technology businesses.” In short, mandatory review requirements now turn on whether an export license would be required to release export controlled critical technology” (the know-how required to develop, produce and in some cases to use export controlled items) to the foreign investor country/personnel. There are a few wrinkles related to export license exceptions, but those can be evaluated on a case-by-case basis for proposed acquisitions and investments.

This new approach provides more certainty for both U.S. and non-U.S. companies evaluating proposed investments in the U.S. as it relies on a long-established approach to the identification of export controlled know-how. That said, many U.S. companies make products that are subject to export controls and this new approach makes it clearer than ever that more foreign investment in the U.S. will be subject to mandatory CFIUS filings. The ruling also puts some additional pressure on BIS to continue its progress toward identifying emerging and foundational technologies that should be added to existing traditional export control lists, which are primarily based on multilateral agreements, with some important additional unilateral U.S. controls. As part of that effort, Commerce re-started its moribund Emerging Technologies and Research Technical Advisory Committee as one part of its effort to identify new technologies for export control.

The recent expansion by BIS of controls on a series of relatively low level technologies for military end use and end users (and those who provide support” for those users) in China, Russia and Venezuela is likely to trigger even more mandatory filings, particularly for proposed Chinese investment. The newly expanded scope of controls for military end users includes a broad swath of relatively basic products, including such common items as stainless steel plate, most industrial pumps and a variety of commonly used valves, items that are commonly traded and not typically thought of as sensitive from a national security standpoint. That said, not all of the newly-listed control categories have associated technology export controls. Sorting out what is controlled for export and what is not for a particular proposed investment will be critical to determining CFIUS filing strategy.