Regulation

Treasury Targets Chinese Investors With New Tech Regulation

A U.S. Treasury-led interagency committee is now requiring foreign investors involved in deals that could give them access to critical technology to submit to national security reviews.

According to the Wall Street Journal, foreign investors in 27 industries — including semiconductors, telecommunications and defense — will be subjected to the new regulations because the Committee on Foreign Investment in the U.S. (CFIUS) believes they could threaten U.S. national security and technological superiority.

If investors do not go through the review process, they could get hit with fines as high as the value of their proposed transactions.

“This significantly changes the importance of CFIUS for foreign investors because it is now a mandatory process for a broad swath of technological acquisitions,” said Nova Daly, an advisor at law firm Wiley Rein LLP and a former Treasury official who used to run the CFIUS process.

While in the past filing for reviews was optional, lawmakers and officials have sent up red flags about the many deals involving U.S. technology that were not being reviewed by CFIUS — including various Chinese investors who have done business in Silicon Valley.

In fact, a recent report by the Defense Department’s Defense Innovation Unit noted the different ways Chinese investors take part in U.S. technology deals in the valley, including tech giants Baidu, Tencent HoldingsAlibaba Group Holding and JD.com.

These new rules mean that foreign investors who made early-stage investments in areas such as artificial intelligence and autonomous driving without filing for CFIUS reviews could be required to do so in the future, said Ivan Schlager, who runs the national-security practice at law firm Skadden, Arps, Slate, Meagher & Flom LLP.

In August, President Trump signed the CFIUS measure into law as part of an annual defense authorization bill. The new, temporary regulations take effect in one month, until the permanent regulations take over in around 15 months.

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