In today’s international nuclear marketplace, foreign investment is a significant source of capital for U.S. next-generation nuclear ventures. However, about-to-be signed legislation has the potential to broadly expand the ability of the Committee on Foreign Investment in the United States (“CFIUS”) to review foreign investment into the United States directed towards the nuclear industry, as well as the ability of the U.S. government to control exports of emerging nuclear technologies.
The new legislation, expected to be signed today, will among other things: (1) increase the number of transactions falling under CFIUS jurisdiction, (2) make some CFIUS reviews mandatory, (3) and give CFIUS the ability to suspend pending investments. The legislation will also (4) expand export controls for “emerging and foundational technologies.” The advanced reactor community should be aware of the legislation as it could impact future investment plans. The community may also want to involve itself in expected rulemakings that will clarify important parts of the legislation.
As background, CFIUS is a multi-agency committee, led by the Treasury Department, which has the ability to review foreign investments into the United States that pose a threat to national security. Under the current law, CFIUS is able to review transactions that allow a foreign entity to gain “control” over a US business that poses a national security risk—including U.S. businesses holding or involved in critical infrastructure and critical technologies, which includes nuclear power. CFIUS works aside a separate, complex nuclear export control regime to police efforts by foreign powers to infiltrate critical infrastructure and technologies in a manner harmful to U.S. national interests.
The about-to-be-signed legislation, entitled the Foreign Investment Risk Review Modernization Act of 2018 and the Export Controls Act of 2018, have both been inserted into the John S. McCain National Defense Authorization Act for Fiscal Year 2019. Hogan Lovells’ International Trade Practice has summarized key elements of the legislation in two client alerts (here and here). The legislation has many components, but a few of which are worth calling out in more detail:
(1) Increasing the Scope of CFIUS Jurisdiction: Currently, the touchstone of CFIUS jurisdiction is whether any transaction would give a foreign entity control of a US business. However, CFIUS will now be able to review many other types of transactions, including “any other investment[s]” (to be clarified by CFIUS by rulemaking) that concern critical infrastructure, critical technologies, or sensitive personal data of U.S. citizens.
Depending on how future CFIUS rulemaking efforts proceed, this could capture many types of investments in advanced reactor start-ups or fusion ventures, regardless if control is at stake—potentially even if the transaction just results in the foreign entity gaining access to material non-public technical information. CFIUS will also now be able to review changes to existing investor rights that could lead to the same result, as well as certain investments designed to get around CFIUS review. Certain limited carve-outs exist for private equity and venture investments, but these are still to be clarified further.
(2)Making CFIUS Submissions Mandatory: Currently, while CFIUS can itself seek review of a transaction, generally no entity is required to submit a transaction to CFIUS for review (i.e., submissions are voluntary). However, businesses seeking investment involving foreign government backing will now have to submit “declarations” to CFIUS, and CFIUS would have 30 days to take a number of potential actions (again, to be clarified further by rulemaking). This piece of the legislation, like many others parts, is in response to increasing concerns around Chinese state-owned investment into sensitive US businesses.
(3) Allowing CFIUS to Suspend Transactions: Currently, CFIUS can only recommend to the President that a transaction be blocked, making it in practice very hard and rare for a transaction actually to be blocked. However, now CFIUS can suspend a proposed/pending transaction that appears to pose a threat to national security while it conducts its review. This gives the committee a strong new tool to effectively kill transactions it does not favour.
(4)Intensifying U.S. Government Export Controls: Alongside CFIUS reform, new legislation will allow the U.S. government to intensify how it controls exports of “emerging and foundational technologies.” Currently such exports are controlled by a variety of regulators, including the U.S. Departments of Commerce and State, and in the case of nuclear power, also the U.S. Department of Energy and the U.S. Nuclear Regulatory Commission, under well-defined but also sometimes slow-to-change regimes.
This broad, new legislation appears designed to gives the Executive Branch important new mechanisms to quickly apply export controls to emergent fields that concern U.S. economic interests. Within the nuclear space, this could impact both novel fission and fusion technologies that are either not covered or loosely regulated under current export control regimes—although its actual impact will follow only after this legislation is applied in practice.
While certain parts of this legislation may come into effect immediately, both CFIUS and the Executive Branch will have to undertake rulemakings and additional actions to fully implement its new powers. This will provide opportunities for potentially affected parties to get their voice known, especially as the role of (and concern with) foreign investment in U.S. nuclear innovation is only expected to grow.
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