CFIUS Nominee Emphasizes Continued Focus on China, Voluntary Filings

Rosen, speaking during an April 6 nomination hearing held by the Senate Banking Committee, said he will review sensitive China-related transactions “very seriously" as the chair of the Committee on Foreign Investment in the U.S. CFIUS has been heavily focused on China-related investments and has blocked transactions, both voluntarily disclosed and non-notified, that CFIUS said have risked transferring sensitive U.S. technologies to China (see 2104200056, 2101220034 and 2005110008).

“The threat from China, frankly, is significant,” said Rosen, who could become Treasury’s second-ever confirmed assistant secretary for investment security. “It's a threat that I think we need to be very, very focused on.” He said Congress, through the Foreign Investment Risk Review Modernization Act (see 2002270049 and 2001140060), has “provided significant tools to examine and go after that threat, and they are tools that I would intend to use.”

Rosen specifically pointed to CFIUS’s non-notified transactions process, in which the committee may require companies to submit declarations when they aren’t voluntarily disclosed. CFIUS used the process last year to require a filing for a merger between Beijing’s Wise Road Capital and South Korea's Magnachip Semiconductor Corp., which was ultimately terminated after failing to acquire CFIUS approval (see 2112140011).

“The non-notified transaction process -- very important. Monitoring and compliance issues -- very important. The jurisdictional issue of being able to look at transactions intended to evade CFIUS jurisdiction -- very important,” Rosen said. “Because I think we need to be focused on the threat in front of us, but also the threat of tomorrow.”

While the non-notified process can be useful to catch investment deals that perhaps should have been declared, Rosen also said he doesn’t want CFIUS to lean too heavily on that process. He said CFIUS should “encourage companies to come in the front door,” pointing to the short-form declaration process introduced by FIRRMA, a voluntary notice that requires less work by the filer and could lead to faster CFIUS approval. He also said CFIUS should continue to make use of its “informal engagement process” that allows companies to ask questions of the committee before filing.

“I'm going to be focused on this issue,” Rosen said. “I'm going to be looking at resources, because I do want to make sure that benign investment flows efficiently and effectively through the system while staying laser focused on national security.”

Sen. Bill Hagerty, R-Tenn., said he would prefer that CFIUS didn’t rely on the non-notified process for investments that have already closed, citing the difficulty in undoing a completed deal. “Once we determine that some of those transactions might actually impose risks to our national security, they have to be unwound,” Hagerty said. “I think you know how complicated that can be, how disruptive that that can be. It takes a lot of our manpower, and it really leads to many, many challenges.”

Hagerty said CFIUS should better “encourage the parties that file covered transactions to do so properly” to “make certain that we don't have these non-notified transactions.” He suggested better communication with U.S. private equity and venture capital investors “to let them know what the consequences are, what the difficulty would be of having to unwind these transactions.”

Hagerty also said the U.S. is “much better off” coordinating investment screening efforts with allies, adding that “we've seen a lot of positive movement in that direction.” Industry lawyers have seen a sharp rise over the last few years in global foreign direct investment screening regimes, and that trend may continue to accelerate (see 2109070043).

The rise in global FDI regimes is especially important to stop “malign” investors from simply turning to other countries to acquire sensitive technologies, Rosen said. He said he will prioritize multilateral FDI screening.

“As we get stronger through the implementation of FIRRMA and our systems do a better and more thorough job of screening foreign direct investment, we do need to be increasingly cognizant that those malign actors are going to go to our partners and try to get at that critical technology,” Rosen said. “Working with our allies, it will be a priority of mine to help them build up their capabilities like we built ours up in FIRRMA.”

Although CFIUS is meant to safeguard sensitive U.S. technologies by scrutinizing investments, Rosen also said it’s important that CFIUS avoids stopping legitimate FDI. “Moving benign investment through the process is a very important piece of the CFIUS review. Predictability and certainty in the business community is very important,” he said. “A balance needs to be struck.”

No lawmakers at the hearing objected to Rosen’s nomination. The committee recently received two letters asking for swift confirmation for Rosen, one from more than 80 bipartisan national security and law enforcement professionals and another from the Fraternal Order of Police. During his time in government, Rosen "built a reputation as a tireless worker who always made sure justice was done," said the first letter, which included signatures from former Treasury, DOJ and intelligence officials. "Paul is the right person with the right skills to safeguard U.S. national security when it comes to foreign investment in the United States."