CFIUS 2.0: Key CFIUS Leader at Treasury Likely Sworn in by Mid-September, Draft Regulations Still Looming

Before recessing for the month of August, the US Senate formally began consideration of the nomination of Tom Feddo to be the very first Assistant Secretary of the Treasury for Investment Security. Congress formally created this position a year ago, with the goal of increasing the bandwidth of CFIUS, when it enacted the Foreign Investment Risk Review Modernization Act (FIRRMA). This reflected a desire by the CFIUS member agencies (the Treasury Department in particular) to expand the pool of senior personnel who carry out and oversee its functions. Feddo’s nomination will become ripe for a procedural vote in the Senate on Monday, September 9, and his subsequent confirmation will likely occur sometime later that week. Feddo is widely seen as a steady hand on the tiller at CFIUS, where he currently serves as the Deputy Assistant Secretary for Investment Security.

Feddo’s nomination was advanced by the Senate Banking Committee on June 18, 2019, with overwhelming bipartisan support, just two weeks after a very smooth confirmation hearing. Explaining the significance of the new Assistant Secretary position, the Chairman of the Banking Committee called it “an important national security job that protects our most critical technology companies from foreign takeovers and influence.” The Ranking Democrat agreed: “We created this new position because of the critical role CFIUS plays protecting US national security from increasing threats from certain foreign investments. Yesterday we heard about how China has adopted new tactics to acquire American technology in sectors that are vital to our national security. It’s why we passed this bill, and it’s why this job will be so important.” Feddo has been praised by both sides of the aisle for his qualifications, and he is likely to be confirmed with the same level of overwhelming bipartisan support with which FIRRMA was enacted.

During the early development of FIRRMA, both its authors in Congress and the CFIUS member agencies had been justifiably concerned about whether CFIUS would have enough staff and other resources to handle a heavier workload. In fact, the Administration has estimated that FIRRMA, once fully implemented, may result in 1,000 total CFIUS cases per year, which would be about a fourfold spike in volume (see p. 29 of this FY20 budget request from the Commerce Department’s Bureau of Industry and Security). Early on, the Treasury Department had flagged three essential components of any legislative overhaul of CFIUS: adequate resourcing (especially personnel); organizational structure (including what level of official would be required to sign off on CFIUS actions); and flexibility in implementation. Critically, the creation of this new Assistant Secretary position and Feddo’s hiring implicate two out of three of those priorities.

FIRRMA tackled the personnel and resourcing challenges head-on. It authorized an extra $20 million per year in funding for CFIUS agencies, gave CFIUS the authority to charge modest filing fees, and granted the CFIUS member agencies special hiring authority for career positions. And, of course, it created the new position of Assistant Secretary for Investment Security, requiring that its duties “be principally related” to CFIUS. The creation of this CFIUS-dedicated position effectively expands the pool of Treasury officials who are authorized to sign off on CFIUS actions. The Defense Production Act, which provides CFIUS’s statutory authority and guidance, requires Treasury and the co-lead agency of each CFIUS review to send a certification to Congress after the review is completed, stating that there are “no unresolved national security concerns” regarding the transaction. In the past, this signature requirement has sometimes been the cause of bottlenecks in Treasury’s processing of CFIUS cases. 

The initial inclination by CFIUS and the authors of FIRRMA, as reflected in the originally introduced legislation, was to allow delegation of this signature authority to officials at the Deputy Assistant Secretary level. However, influential private sector stakeholders pushed back, leery of seeing “the pen” transferred to officials below the Presidential Appointment with Senate Confirmation (PAS) level. As the argument went, officials who were never subject to the gauntlet of Senate confirmation are less politically accountable. So, in the final enacted version, FIRRMA both prohibited the delegation of CFIUS signature authority below the Assistant Secretary level and also created a new Assistant Secretary of the Treasury position, dedicated to running CFIUS. Thus, once sworn in, Feddo will be primarily responsible for signing off on CFIUS reviews. 

Feddo’s move up to the Assistant Secretary role will mark the third concrete step in the implementation of FIRRMA, the first two being CFIUS’s October 2018 launch of the critical technologies pilot program and its simultaneous publication of tweaks to the legacy CFIUS regulations. The promotion of Feddo will also allow Treasury to hire a new Deputy Assistant Secretary for Investment Security, since Feddo will vacate that important role. 

For investors and companies who are frequent flyers with CFIUS or may need to navigate the process in the near future, Feddo’s move is a positive and timely development. In addition to the increase in workload driven by the pilot program, CFIUS is also in the midst of drafting the implementing regulations for FIRRMA, a substantial undertaking that requires all hands on deck. Drafting the regulations has required CFIUS to wrestle with a slew of difficult issues, including how to define terms such as critical infrastructure and sensitive personal data; whether to redefine terms such as control and foreign person; whether to use “country specification” authority to create a positive list of low-risk investors; and whether and how to impose filing fees. The release of the draft regulations is expected sometime this fall, and Arent Fox will be closely monitoring and analyzing these and any related developments.

NOTE: For a primer on CFIUS, FIRRMA, and their nexus with forthcoming export controls on emerging technologies, a recent one-hour Lexology webinar is available for free download here.